Friedrich Hayek: An Unrepentant Old Whig
A thesis submitted to the University of Manchester for the degree of
Doctor of Philosophy
in the Faculty of Humanities
2016
Sean Irving
School of Arts, Languages and Cultures
Contents
Abstract
5
Declaration and Copyright Statement
6
Acknowledgements
7
The Author
8
Introduction
i. Research Question and Significance
9
ii. Methodology
26
iii. Parameters and Structure
30
Part One: Diagnosing the Dangers- Government and Democracy
Chapter One: Government and the Threat to Economic Order
1. Introduction-Liberalisms
36
2. Hayek’s Early Work
41
3. The L.S.E., Keynes and the Gold Standard
48
4. The Socialist Calculation Debate
60
5. Knowledge and Freedom
66
Chapter Two: Democracy and the Threat to the Liberal Government
1. Introduction-Slippery Centre Ground
72
2. Nazi Socialism and origins The Road to Serfdom
75
2
3. The Schmittian Dilemma
81
4. The Ordoliberal Solution
91
5. Reception of The Road to Serfdom
100
Part Two: A Concept of Liberty
Chapter Three: Hayek’s Neo-Roman Concept of Liberty
1. Introduction- Time in The Wilderness
106
2. Scientisitic Hubris
110
3. A Campaign of Decontestation
118
4. Defining the Neo-Roman Concept
129
5. Hayek and Republicanism
134
6. Reception of the Campaign
148
Part Three: Offering Answers- Hayek’s Intellectual Emergency Equipment
Chapter Four: Restricting Government through the Denationalisation of Money
1. Introduction-Shifting Problems, Shifting Solutions
153
2. Excuses and Responsibilities: Social Justice, Government and
Inflation
3. Hayek’s Radicalisation
157
164
4. First Piece of Emergency Equipment: The Denationalisation of
Money
5. Reception of the Scheme
177
186
3
Chapter Five: Limiting Democracy in a Model Constitution
1. Introduction-Strong Rulers and Weak States
194
2. ‘New Nations’ and British Problems
197
3. Second Piece of Emergency Equipment: ‘A Model Constitution’
205
4. Dethroning Politics, Enthroning Legalism
212
5. Liberal Authoritarianism
219
Conclusion
235
Bibliography
243
Word count: 78,581
4
Abstract
This thesis examines how Friedrich Hayek’s concern with free market action led
him to adopt a neo-roman concept of liberty and it traces how this development
informed his view of the relationship between government, democracy and the
economy. For Hayek, liberalism that made freedom in economic life its core
concern was the ‘true’ liberalism, and he distinguished this from a ‘false’
liberalism that advocated government action as a means of enabling ‘selfdevelopment’. Influenced by Carl Schmitt, Hayek viewed the democratic
process as encouraging false liberalism. Recognising the contested nature of
liberalism, over the course of the 1940s and ‘50s he set out to decontest it: to win
acceptance of his definition of the tradition. He sought to demonstrate the
legitimacy of his true liberalism with reference to intellectual history and the
work of Whig authors. It was in their work that Hayek came into contact with
the neo-roman concept of liberty. Theirs however was a partial interpretation of
Roman liberty. The generally privileged status of the Whig authors, combined
with a genuine fear of government, resulted in a focus on the danger of public
power, or imperium, to the exclusion of private power, or dominium. This
complemented Hayek’s own opposition to government economic activity. This
thesis contends that arriving at a concept of liberty was the pivotal point in
Hayek’s intellectual career. From then on his work ceased to be defensive.
Instead, despondent at the growing appeal of social justice in the 1960s and
alarmed at union influence and inflation in the ‘70s, he actively promoted an
alternative free market vision. This culminated in his intellectual emergency
equipment: the ‘denationalisation of money’ and ‘a model constitution’.
Informed by his partial version of the neo-roman concept, he advocated a weak
state and a curtailment of democratic power. Despite his strong focus on
imperium there are points in Hayek’s thought at which he recognises that private
power can also pose a threat to free market action. This thesis concludes with
the suggestion that integrating a more comprehensive version of the neo-roman
concept of liberty into Hayek’s thought results in a very different vision of the
appropriate relationship between government, democracy and the economy to the
one he developed.
5
Declaration and Copyright Statement
No portion of the work referred to in the thesis has been submitted in support of
an application for another degree or qualification of this or any other university
or other institute of learning.
i. The author of this thesis (including any appendices and/or schedules to this
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6
Acknowledgements
This thesis would not have been possible without the help of others. First I want
to thank my supervisors Stuart Jones and Bertrand Taithe. Their advice and
guidance has been invaluable and times spent with them have been some of the
most enjoyable and instructive of my life. I would also like to thank John
O’Neill for sharing his expertise in Hayek’s thought at a crucial time in writing
this thesis. I have in addition benefitted from varied and thought-provoking
conversations with fellow members of the history department too numerous to
recount and I am glad of them all.
I am grateful to all those who assisted my research while I was working in the
Hayek Papers at the Hoover Institution Archives, Stanford University. Without a
scholarship from the Arts and Humanities Research Council this thesis would
remain merely an idea. The generous financial support of the Mercatus Center
and the Institute of Humane Studies is also greatly appreciated as are the
enlightening and productive seminars staff and academics organised there.
My deepest thanks go to my family who have supported me and my work
making this, and anything else that may come in future, possible: Mum, Gran,
Grandad, Amy and Con I’m very lucky to have you. And finally Ruth who
always looks forward to tomorrow and thanks to whom I do too.
7
The Author
Sean Irving holds a BA in History from the University of Cambridge and an MA
in Cultural History from the University of Manchester. He conducted a six week
period of archival research at the Hoover Institution Archives and received a predoctoral Fellowship from the Mercatus Center at George Mason University and
another from the Institute of Humane Studies. Prior to his MA he worked for
Manchester City Council as a policy officer helping to improve services for
families with complex and challenging needs.
8
Introduction
i. Research Question and Significance
In 1976 the Daily Mirror asked ‘Who the heck is Hayek?’1 By the mid-70s the
Austrian born political and social theorist Friedrich Hayek had acquired new
influence within the British Conservative Party as well as having his work
recognised with the award of the 1974 Nobel Prize in Economics. Keith Joseph,
head of policy within the Conservatives from 1975 to 1979 and a close adviser to
the Prime Minister Margaret Thatcher thereafter, wrote to Hayek within a month
of her second election win in July 1983. ‘It is you’ he insisted ‘who have done
more than any other to animate and educate the counter-attack on socialism.’2
Such was Hayek’s perceived influence, especially on the left, that in 1978
Michael Foot, the leader of the Labour Party, accused Thatcher of being in thrall
to a ‘mad professor’.3 Two years later Geoffrey Goodman, in The Mirror again,
wrote in tabloid style that:
If it were possible to name one man, one Guru, one outstanding High
Priest of Wisdom to whom Mrs Thatcher is always likely to listen, who
would you choose?...The loftiest voice from the tallest ivory tower… is
that of 81 year old, Austrian born professor, Friedrich August von Hayek.
1
Alan Ebenstein, Friedrich Hayek: A Biography (New York, 2001), 292.
Letter from Keith Joseph to Friedrich Hayek (July 6 th 1983), Hayek Archive Box 29, Folder 43.
3
Ebenstein, Hayek, 293.
2
9
Hayek is the Godfather of Free Enterprise, venerated by Conservative
economists and idolised by union bashers.4
In fact however Hayek’s influence was not as great as portrayed. Even if he had
achieved some acclaim within the Conservative Party by the mid-‘70s, for the
previous thirty years he had been forced to play the part of ‘a prophet in the
wilderness’.5 Hayek always maintained that post-war ascendency of the theories
of John Maynard Keynes, whose work he had been critical of the 1930s, left him
excluded from the economics profession and from policy-making circles.6 Over
that period of time Hayek had shifted his attention away from economics proper
and had made ‘liberty’ the focus of his studies.7 How Hayek’s definition of
liberty developed and how that informed his view of the appropriate relationship
between government, democracy and the economy is the issue this thesis seeks to
address.
Hayek’s concern for liberty emerged directly out of his work in economics
during the ‘30s. In 1936 he gave a lecture entitled ‘Economics and Knowledge’
which argued that the economy should be understood in terms of the division of
knowledge and considered in terms of how to make that division work most
4
Geoffrey Goodman, ‘The Priest and the Premier’, Daily Mirror (20th June, 1980). Hayek
resented the use of the aristocratic ‘von’, which he himself ceased to use after becoming a British
citizen in 1938. See Friedrich Hayek, Hayek on Hayek: An Autobiographical Dialogue (eds.)
Stephen Kresge and Leif Warner (London, 1994), 94.
5
This at least was how Eric Hobsbawm described Hayek’s mid-twentieth century decades. See
Simon Griffiths, Engaging Enemies: Hayek and the Left (London, 2014), 10.
6
For a study of the extent to which Keynesianism achieved such ascendancy see Jim Tomlinson,
‘“A Keynesian Revolution” in Economic Policy Making?’ Economic History Review 37:2 (1984),
258-262. It is also the case that the increasing notoriety of The Road to Serfdom in the years after
its 1944 publication, not least due to its association with Churchill’s 1945 warnings of a British
Gestapo in the event of Labour general election victory, also coincided with a general retreat
from the public scene. See Friedrich Hayek, The Road to Serfdom (London, 2001); Jeremy
Shearmur, ‘Hayek, The Road to Serfdom and the British Conservatives’, Journal of the History
of Economic Thought 28:3 (2006), 309 –314.
7
Hayek, Hayek on Hayek, 112.
10
effectively. He regarded the lecture as the one ‘discovery’ of his career.8 Hayek
insisted on the freedom of market actors and argued against government attempts
to plan or shape the economy. One key distinction this thesis makes is between
free market action and liberty as status.9 Hayek’s fundamental concern was free
market action. He went on to develop a more complex understanding of liberty,
which was based upon the legal and constitutional status of the individual in
relation to the government because he felt that, in the context of economically
active government, popularising and defending such a definition of liberty was
the only way in which free market action might be preserved. When certain
regimes, such as that of General Augusto Pinochet in Argentina, made promoting
free market action their core concern, Hayek was far less insistent on liberty
defined as legal status.
There have been a number of studies of Hayek’s work and his understanding of
liberty published previously.10 None of these, however, have recognised that
Hayek’s concept of liberty is different from that which is usually associated with
the classical liberal tradition he sought to defend. That classic negative concept,
as defined by Isaiah Berlin in his famous 1958 lecture ‘Two Concepts of
Liberty’, holds that one is free in the ‘absence of interference.’11 Hayek however,
defined liberty in pre-liberal neo-roman terms as the ‘the state in which a man is
8
Bruce Caldwell, Hayek's Challenge: An Intellectual Biography of F.A. Hayek (Chicago, 2004),
206.
9
In this it is influenced by Quentin Skinner’s lecture, ‘A Genealogy of Liberty’. He argues that
classical liberalism understands freedom in terms of action whereas the republican tradition
understands it in terms of status. See Quentin Skinner, ‘A Genealogy of Liberty’, lecture given at
Townsend Centre for Humanities, UC Berkeley (15 th September, 2008). Accessed at
https://www.youtube.com/watch?v=ECiVz_zRj7A 03.09.16.
10
The most significant to place strong focus on ‘liberty’ are: John Gray, Hayek on Liberty
(Oxford, 1984); Jim Tomlinson, Hayek and The Market (London, 1990); Chandran Kukathas
Hayek and Modern Liberalism (Oxford, 1990); Andrew Gamble, Hayek: The Iron Cage of
Liberty (Cambridge, 1996) ;Theodore Brurzcack, Socialism after Hayek (Michigan, 2006).
11
Isaiah Berlin, ‘Two Concepts of Liberty’ in Four Essays on Liberty (Oxford, 1969), 118-172.
11
not subject to coercion by the arbitrary will of another or others.’12 By doing so,
he made use of an older understanding of liberty as legally entrenched status in
order to secure the very liberal concern of freedom as action without interference
in the market.
Hayek’s 1960 work, The Constitution of Liberty, should be regarded as the crux
of his career. While previously he had been on the defensive, arguing against
what he perceived as threats to the liberal order, after arriving at a clear
definition of liberty he became more forthright in offering an alternative free
market vision of society. This resulted in his ‘intellectual emergency
equipment.’13 Importantly, this was informed by Hayek’s definition of liberty
and, rather than being dismissed as something of an oddity, this emergency
equipment deserves greater attention, constituting as it does the culmination of
his political and economic theory. It was composed of both a scheme for the
denationalisation of money proposed in 1976, and another for a new model
constitution, which was ultimately laid out in 1979. Hayek had become
convinced that the relationship between government, democracy and the
economy was too close. His emergency equipment was designed to end this.
The neo-roman concept of liberty has, since the 1990s, been the subject of
considerable study in the history of political thought.14 The leading theorist of
12
Friedrich Hayek, The Constitution of Liberty (Chicago, 1960), 11-21. Like Berlin, Hayek uses
the term ‘freedom’ interchangeably with ‘liberty’.
13
Friedrich Hayek, Law, Legislation and Liberty: A New Statement of the Liberal Principles of
Justice and Political Economy [3 Volume edition], Vol. 3 (London, 1982), 152.
14
The literature is massive and certain works will be drawn on later in the thesis. However, for an
overview of the main debates see: Philip Pettit, ‘Freedom as Antipower’, Ethics 106:3 (1996),
576-604; Philip Pettit, Republicanism: A Theory of Freedom and Government (Oxford, 1997);
Philip Pettit ‘Republican Liberty: Three Theorems, Four Axioms’ in Republicanism and Political
Theory (eds.), Cécile Laborde and John Maynor (Oxford, 2008), 102-30; Philip Pettit, On The
12
the concept has been Philip Pettit who has referred to it as the ‘republican
concept’. 15 However Quentin Skinner, the historian chiefly associated with it
has used the term, more appropriate for this thesis, the ‘neo-roman’ concept.
Skinner acknowledges the fact that Pettit’s terminology has prevailed but has
reflected that ‘republican’ is perhaps misleading as, although the concept
originated in republican Rome, it has only occasionally been associated with
anti-monarchical movements.16 Given that Hayek was deeply suspicious of the
popular sovereignty associated with republics, sought to demonstrate the
classical pedigree of his logic and was in no way anti-monarchical, Skinner’s
term will be employed here.
The neo-roman nature of Hayek’s liberty has not gone entirely unnoticed. Ian
Carter has observed that Hayek’s basic conditions for liberty bear a similarity
with those laid down by Pettit and Skinner.17 Ewige Kacenelenbogen has drawn
attention to the fact that both Hayek and Pettit share a mistrust of overly
ambitious and intrusive government. She has also argued that both adopt a
position of ‘epistemological modesty’ which ‘consists both in the timidity of the
People’s Terms (Cambridge, 2012); Philip Pettit ‘Two Republican Traditions’ in Republican
Democracy: Liberty, Law and Politics (eds.), Andreas Niederberger, and Philip Schink
(Edinburgh, 2013), 169-204.
; Quentin Skinner ‘Machiavelli’s Discorsi and the Pre-Humanist Origins of Republican Ideas’ in
Machiavelli and Republicanism (eds.), Gisela Bock, Maurizio Viroli and Quentin Skinner
(Cambridge, 1993); Skinner Liberty Before Liberalism (Cambridge, 1998); Quentin Skinner, ‘A
Third Concept of Liberty’, Proceedings of the British Academy 117 (2002), 237-268; Quentin
Skinner, ‘Freedom as the Absence of Arbitrary Power’ in Republicanism and Political Theory
(eds.), Cécile Laborde and John Maynor (Oxford, 2008), 83-101. While Pettit and Skinner
provide the main focus here other authors also think of liberty in the same terms. See Cécile
Laborde, Critical Republicanism: The Hijab Controversy and Political Philosophy, (Oxford,
2008); Maurizio Viroli, Republicanism, (trans.), Antony Shugaar (New York, 2002); Victoria
Costa, ‘Is Neo-Republicanism Bad for Women?’, Hypatia 28 (2013), 921–936; Frank Lovett, A
Republic of Law (Cambridge, 2016).
15
Philip Pettit, Republicanism: 25.
16
See Quentin Skinner, ‘Freedom as the Absence of Arbitrary Power’, 83-84.
17
Ian Carter, ‘Positive and Negative Liberty’ (2003). Accessed at
http://plato.stanford.edu/entries/liberty-positive-negative/ 18.08.16.
13
theorists about their political prescriptions, and in the theorists’ awareness of the
“natural” limits of individual knowledge when writing about social development
and institutional design.’18 Indeed Pettit himself, in a footnote, observes that for
Hayek, as for republicans and neo-republicans, the law does not necessarily
constitute a ‘fetter’ as it does for those he describes as classical liberals.19
Instead he recognises that,
…the interference of a certain sort of law—a law that has been produced
by a certain process of evolution, or a law that is inherently justifiable in
a certain way—does not remove liberty. For Hayek, then, freedom will
not be the absence of interference as such but rather the absence of
interference by agencies other than those favoured laws.20
For Hayek, as for others who understand liberty in a neo-roman way, good law
does not infringe upon it; though there may of course be disagreements about
what constitutes a good law. Pettit does not however pursue this resemblance
any further. Nor is there any recognition that the history of the contested term
‘liberty’ that Hayek provided closely anticipates Pettit’s own. Indeed, none of
those who have noted a similarity between Hayek’s work and that of other neoroman theorists have developed that recognition as much as they might have.
Pursuing the implications of that similarity allows for a much deeper
understanding of Hayek’s work and calls for a re-examination of one of the
18
Edwige Kacenelenbogen, ‘Epistemological Modesty within Contemporary Political Thought:
A Link between Hayek’s Neoliberalism and Pettit’s Republicanism’, European Journal of
Political Theory 8:4 (2009), 449–471. Hayek had certainly abandoned any timidity in his
political prescriptions by the 1970s regardless of any modesty in his epistemology.
19
Berlin,‘Two Concepts of Liberty’, 123.
20
Pettit, Republicanism, 50.
14
recent prevailing propositions in the history of political thought: that republican
neo-roman liberty was displaced by liberal non-interference.
Hayek’s adoption of the neo-roman concept came about through his engagement
with a number of authors he regarded as ‘old Whigs’.21 By the late ‘30s he had
identified two traditions within liberalism, ‘true’ and ‘false’.22 During and after
the war he set about tracing a line of descent, or a genealogy, of true liberalism.
This excluded supporters of the French revolution as well as the work of Jeremy
Bentham, most of the work of John Stuart Mill and all of those inspired by the
politics, if not always the philosophical idealism, of T.H. Green who came to be
known as the New Liberals. Instead Hayek identified the true tenets of
liberalism as being best expressed by ‘the Scottish philosophers, Burke, and the
English Whigs.’23 It was here, and among the work of earlier republicans like
James Harrington and Algernon Sidney, that Hayek encountered the neo-roman
concept of liberty, which had become a feature of their thought as a result of
translations of classical texts made during the reign of Elizabeth I. However, the
portrayal of the Roman definition of liberty in the work of these authors is
partial. Philip Pettit has argued that the neo-roman concept, when fully
developed is aware of two sources of arbitrary power that can render the
individual subject to the arbitrary will of another: public power, imperium, and
21
Hayek, The Constitution of Liberty, 401-409.
This distinction provides the basis of one of Hayek’s most famous lectures delivered in 1945.
See Friedrich Hayek, ‘Individualism: True and False’ [1945] in Individualism and Economic
Order (Chicago, 1948), 1-33. He had however first begun to identify a confusion in liberalism in
Friedrich Hayek, ‘Freedom and the Economic System [1939] in Socialism and War: The
Collected Works of FA Hayek, Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 213-220.
23
Friedrich Hayek, ‘Individualism: True and False’, 4. This built upon his earlier economic work
in which he had praised the vision of the economy offered by Adam Smith and David Hume. See
Chapter One, sections 2 and 3.
22
15
private power, dominium.24 This was how early modern jurists understood the
Roman concept of liberty and it provided the basis for the subsequent neo-roman
concept.25 In the interpretation of the neo-roman concept developed by Whig
authors however, no doubt due to a combination of their own socially privileged
position and the contemporary political context, dominium is largely if not
entirely missing.26 Only government poses a threat.
This is the understanding Hayek inherited. It is important to stress that he did
not use the language of dominium and imperium or indeed make that distinction.
Nonetheless, given that this was the architecture of the concept he employed, the
distinction is useful in analysing his writing about liberty and to track the ways in
which he interpreted this classical concept for his own contemporary economic
and political ends. The fact he did not recognise the distinction is if anything
further confirmation of just how partial his interpretation was. Having inherited
it from the Whigs, this interpretation complemented Hayek’s own campaign
against the ways in which the democratic system caused government to seek to
shape the economy. Hayek’s greatest economic insight was that market actors
best use knowledge, and he regarded government as posing the greatest threat to
such knowledge use.27 This was the basis of what Andrew Gamble has
characterised as his ‘long ideological struggle against socialism.’28 It was a
struggle that entailed a refusal to recognise that restrictions of free market action
can emanate from private as well as public sources. This is what Gamble has
24
Pettit, Republicanism, 140.
Blandine Kriegel, The State and The Rule of Law (Princeton, 1995).
See Chapter Three, section 4
27
Friedrich Hayek, ‘Economics and Knowledge’ in Individualism and Economic Order
(Chicago, 1948), 33-56.
28
Andrew Gamble, ‘Hayek and Liberty’, Critical Review A Journal of Politics and Society 25:3–
4 (2013), 360.
25
26
16
described this as the major ‘ideological closure’ in Hayek’s work.29 While
Hayek’s single-minded fear of the state may lie at the root of these closures, the
partial nature of his neo-roman concept of liberty does help to explain how he
justified them with reference to intellectual history. 30
At certain points in his work however Hayek did in fact accept that not only
imperium, but also dominium exists in society: that there are private as well as
public dangers to free market action. Primarily this took the form of his stance
against trade unions. For Hayek, a legal framework that protected persons,
property and ensured freedom and fulfilment of contract was enough to prevent
dominium. But the unions, he argued, operated outside the law.31 However,
Hayek also agreed that monopoly could also constitute a source of arbitrary
power. 32 This acceptance is the point at which his ideological closures can be
prised open. In The Constitution of Liberty he wrote that the owner of an
isolated desert oasis can coerce others. The owner would in effect be in a
dominating position.33 This has drawn significant criticism from those on the
libertarian right who have argued this cannot be a case of coercion, as the owner
does not interfere in the actions of others. The admission should be taken as
confirmation of the extent to which Hayek’s neo-roman concept differs from
29
Gamble, Hayek, x.
However, so integral did his version of the liberal tradition become to his thought that it would
be a futile task to try and disentangle whether his economics or his intellectual history motivated
his closures most.
31
Hayek, The Constitution of Liberty, 268.
32
Hayek also accepted that ‘the certainty of a given minimum of sustenance for all’ was ‘a
legitimate object of desire.’ See Hayek, The Road to Serfdom, 124. However, he does so not on
the grounds of liberty but because it is ‘has long been accepted as a duty of the community’ and
is also necessary as ‘protection against acts of desperation on the part of the needy’. See Hayek,
The Constitution of Liberty, 285.
33
Hayek, The Constitution of Liberty, 136. He goes so far as to say that in the 19 th century, in an
area with only one factory, the owner would be able to dominate others in Friedrich Hayek ‘The
Distortion of Relative Prices by Monopoly in the labour Market’ in Hobart Paper 87 (London,
1984), 13-64.
30
17
their strictly negative interpretation. For him, the fact that individuals find
themselves under the arbitrary power of the oasis owner, due to the owner’s
monopoly position, itself renders them unfree. If we accept, as Hayek does, that
dominium can exist within the already legally framed marketplace, then
establishing its existence becomes an empirical task. It is not theoretically
excluded. What constitutes dominium becomes a valid point of political
discussion and thus a whole range of rights and services may legitimately be
called for to counter threats to liberty. That Hayek chose to restrict his potential
sources of dominium to monopolists and trade unions does not mean those who
make use of his economic and philosophical insights must also do so.
The development of Hayek’s definition of liberty and his adoption of the neoroman concept help to explain his views about the relationship between
government democracy and the economy in other ways too. Government posed
a threat to free market action because the electorate frequently demanded it shape
economic outcomes. Initially Hayek felt that a stronger state could impose a
distinction between government and the economy. However, after developing
his Whiggish neo-roman concept he came to reject this and called instead for a
weak state in which the democratic process would be significantly curtailed.
Renato Cristi has drawn attention to the influence of Carl Schmitt on Hayek’s
thought.34 In particular, Hayek adopted the same basic analysis of the
relationship between liberalism and democracy: that they are two separate
traditions, that democracy has eroded the neutrality of the liberal state due to
34
For the relationship between Schmitt and Hayek see F.R. Cristi, ‘Hayek and Schmitt on the
Rule of Law’, Canadian Journal of Political Science / Revue canadienne de science politique
17:3 (1984), 521-535; W.E. Scheuerman, ‘The Unholy Alliance of Carl Schmitt and Friedrich
Hayek’, Constellations 4:2 (1997), 172-188. See also Reinhard Mehring, Carl Schmitt: A
Biography (Cambridge, 2014) especially part two.
18
demands made by the electorate that government play productive and distributive
economic roles, and that ultimately democracy leads to liberalism’s ruin. Hayek
did not, at least as a long-term arrangement, endorse Schmitt’s support for the
decisionist, dictatorial leader.35 The Road to Serfdom was intended as a defence
of the rule of law in retort to this. Yet Cristi is correct to observe that, ‘his
arguments in this respect can be seen as representing the exact counterpart of the
latter's legal and political theory’ and that ‘some of Schmitt's basic assumptions
have penetrated his philosophy of liberty, effectively determining the content of
his argumentation.’36 A liberal who shares Schmitt’s analysis faces a dilemma,
referred to in this thesis as the ‘Schmittian dilemma’, the crux of which is
whether liberalism and democracy can function together at all and, if so, how. 37
Hayek’s initial response to the Schmittian dilemma was that the demarcation
between state and economy could be re-imposed by means of active government.
He recognised repeatedly that laissez faire belonged to the 19th century and
hoped that a clear framework of law could be worked upon to create the
conditions for effective competition.38 This was the solution also proposed by a
group of German speaking economists led by Walter Eucken who would later
become known as the Ordoliberal School.39 It is largely on this basis that
35
Chapter Five explores Hayek’s support for temporary forms of dictatorship.
Cristi, ‘Hayek and Schmitt on the Rule of Law’, 523.
37
One might reflect that Hayek’s distinction between liberalism and democracy also owes
something to his being born in the generally liberal, but not democratic, Austro-Hungarian
Empire. See Caldwell, Bruce Caldwell Hayek’s Challenge (Chicago, 2009), 133-149. Also Erwin
Dekker, The Viennese Students of Civilization (Cambridge, 2016).
38
Friedrich Hayek, The Road to Serfdom (London, 2001), 12.
39
Given that the Ordoliberals were in many ways responding to Schmitt’s challenge, his analysis
is also a feature of their work. See Ralph Ptak, ‘Neoliberalism in Germany: Revisiting the
Ordoliberal Foundations of the Social Market Economy’ in The Road From Mont Pelerin: The
Making of The Neoliberal Thought Collective (eds.), Philip Mirowski and Dieter Plehwe
(Cambridge MA, 2009), 98-138. It might reasonably be supposed that Schmitt entered Hayek’s
own thinking through his relationship with them. However, Schmitt would have been well
36
19
Vicktor Vanberg has suggested that the work of Hayek and the Ordoliberals
might form a common research programme.40 Their influence is clear in The
Road to Serfdom and persisted throughout the 1940s and into the ‘50s. This is
the vision of ‘the free economy and the strong state’ that was a feature of early
neoliberal thought just as much as it was of the new right some decades later.41
However, despite occasional rhetorical resemblance, by the time Hayek was
proposing his emergency equipment this had faded. He still recognised the need
for a strong and evolving legal framework, and thus still rejected laissez faire.
The actual business of framing however was conceived of more in juridical
terms, with the role of the judge and the expert legislator taking prominence.
Law was to be made for general purposes and to be considered at a remove from
contemporary events. Government, as distinct from law making, was to have no
part to play in the process. The power of government was considered suspect
rather than as a means of re-establishing boundaries between state and economy.
Hayek’s changed answer to the Schmittian dilemma, his shift from proposing the
strong to the weak state, was both a political response and a result of his newly
developed neo-roman concept of liberty. Over the 50s and 60s Hayek grew
despondent at the rise of the concept of ‘social justice’. For him ‘social’ was a
weasel word that could mean anything and the concept of social justice
essentially a means of achieving socialism by other means, now that the appeal
known to Hayek regardless and he explicitly cites his influence in The Constitution of Liberty,
485.
40
Viktor Vanberg, ‘Hayek in Freiburg’ in Robert Leeson (ed.), Hayek: A Collaborative
Biography, Part 1 Influences from Mises to Bartley (London, 2013), 93-122.
41
Andrew Gamble used the same phrase to refer to the programme of the new right in the 1970s
and ‘80s. See Andrew Gamble, The Free Economy and the Strong State (London, 1994). Ben
Jackson has used it with reference to earlier groups. See Ben Jackson, ‘At The Origins of
Neoliberalism: The Free Economy and The Strong State, 1930-1947’ The Historical Journal,
53:1 (2010), 129–151.
20
of planning had faded. Active government seemed less and less likely to be a
means of re-establishing the necessary boundaries between state and economy.42
However, another impetus for Hayek’s move away from the Ordoliberals was his
adoption of the Whiggish form of the neo-roman concept and the persistent stress
on the dangers of government contained within that tradition.
Such was his fear of democratically elected governments seeking to reorder the
economy and redistribute wealth under pressure from trade unions that Hayek
ultimately proposed his two pieces of ‘intellectual emergency equipment’.43 He
regarded these as the ‘two inventions’ of his career and they were intended to
safeguard his ‘one discovery’, the vision of how the economy should function set
out in ‘Economics and Knowledge’.44 Hayek’s emergency equipment should be
understood as an attempt to ‘undo the demos’, to prevent government and
politics from impinging upon the economy.45 Indeed, Hayek’s stated goal was
‘the dethronement of politics’.46
42
Hayek was also annoyed that the Ordoliberals, so influential in shaping the post war German
economy, had begun to refer to their free market programme as the ‘social-market model’. See
Friedrich Hayek, ‘What is Social?-What Does it Mean?’ in Studies In Philosophy, Politics and
Economics, (London, 1967), 240. The move away from the ordoliberal approach occurred despite
Hayek’s move to Freiberg, the spiritual home of ordoliberalism in 1962. The death of Eucken in
1950, was also significant as many of the remaining ordoliberals such of Wilhelm Röpke and
Alexander Rüstow had a far more active view of the state that did not fit with Hayek’s increasing
focus on evolved social structures.
43
Friedrich Hayek, Law, Legislation and Liberty, Vol.3: The Political Order of a Free People
(London, 1982), 152.
44
Caldwell, Hayek’s Challenge, 206. See also Friedrich Hayek, ‘Nobel Prize Winning
Economist’ interview with Armen Alchian (11th November, 1978). Accessed at
http://www.hayek.ufm.edu/index.php?title=Category:Armen_Alchian 17.12.15.
45
Wendy Brown, Undoing the Demos (Cambridge MA, 2015). Brown’s book views the entire
neoliberal project as one that seeks to expand the role of homo economicus at the expense of
homo politicus. However, how we conceive of economic man has, she argues, developed over
time, from a being of production to exchange to entrepreneurship. The usefulness or otherwise of
the term ‘neoliberal’ is highly contested. It is however, as Brown argues, usefully applied to
those who seek to extend market logic to all areas of social life. Hayek is in certain respects an
uncomfortable fit here. He rejected the concept of homo economicus and placed increasing
emphasis on culture and tradition. See Hayek, The Constitution of Liberty, 61. Nonetheless his
defence of the market influenced many of those in government and academia who would create
the conditions for this sort of market imperialism. See William Davies ‘The Difficulties of
21
For Hayek, national monies were akin to the nationalised industries that played
such a large role in western economies in the decades after the Second World
War. As inflation rose steeply in the 1970s to him it was obvious that the
problem was that government had been kept in thrall to the unions and their
wage demands by means of the ballot box. What he proposed instead of national
money was capitalist money for a capitalist system.47 By removing government
control of the money supply and allowing banks to issue their own currency,
Hayek’s money scheme would have transferred enormous economic power away
from politicians and placed it in the hands of a financial elite. Crucially though it
would have eliminated government’s most fundamental arbitrary power. As a
result democratic majorities would be unable to threaten free market action.
Likewise, Hayek’s model constitution, which sought to restrict both the franchise
and the opportunities for government action were designed to stop democratic
politics playing so large a role in society and the economy. Richard Bellamy has
written that this second piece of emergency equipment amounts to advocating ‘a
return to an idealized version of the notable politics of the late eighteenth and
early nineteenth centuries’ prior to the growth of democracy. 48 Again an
awareness of Hayek’s Whiggish neo-roman concept helps to explain why he
thought this desirable and how he could justify it intellectually.49
Neoliberalism’ Accessed at https://www.opendemocracy.net/will-davies/difficulty-ofneoliberalism 21.06.16. In this thesis the term will be used sparingly and only then to refer to
such groups described above.
46
Hayek, Law, Legislation and Liberty, Vol. 3, 149-152.
47
Friedrich Hayek, ‘The Future Unit of Value’ in Good Money Part Two, The Collected Works of
FA Hayek, Vol. 6 (ed.), Stephen Kresge (London, 1999), 237.
48
Richard Bellamy, ‘Dethroning Politics’: Liberalism, Constitutionalism and Democracy in the
Thought of F. A. Hayek’, Journal of Political Science 24:4 (1994), 423.
49
This is at odds with the positions held by those influenced by Pettit’s political philosophy
referred to as neo-republicans. They recognise that the absence of democracy creates a situation
that leaves the power of the state unchecked, thus imperium enters into a position of domination
22
The process by which the denationalisation of money and the enacting of his
model constitution were to be brought about is significantly lacking from his
major published works. It emerges, however, in his letters and interviews.
Hayek supported forms of liberal authoritarianism that he hoped would prove
transitional and would facilitate his elitist, only vaguely democratic, longer term
settlement.50 His support for dictatorship is further evidence of Schmitt’s
enduring influence. The office of dictator was, moreover, a product of the
Roman republic and Hayek could also point to Cromwell, perhaps the most
notable republican dictator, who had also been inspired by neo-roman ideas. 51
For Hayek, as for earlier generations who understood liberty in neo-roman terms,
dictatorship remained a valid means by which it might be defended in times of
crisis.
This thesis is significant beyond Hayek scholarship for its contribution to one of
the most significant on-going debates within the history of political thought: the
relationship between liberalism and republicanism. Skinner and Pettit have both
argued that the neo-roman concept of liberty, or the republican concept as Pettit
calls it, was associated with those who emphasised a high degree of civic
over the individual. See Pettit, Republicanism, 230-240. That Hayek seeks to curtail democracy
and bring about the ‘dethronement of politics does not however place him outside the republican
tradition. Moreover,
John McCormick has argued that the emphasis on non-domination, with its legalistic concern for
checks and balances, results in a senatorial and elitist republicanism in the neo-roman tradition
more generally. See John McCormick, ‘Machiavelli against Republicanism: On the Cambridge
School's "Guicciardinian Moments"’ Political Theory 31: 5 (2003), 616-7. Also Chapter Three
section 5.
50
Andrew Farrant and Richard McPhail, ‘Can a Dictator Turn a Constitution into a Can-opener?
F.A. Hayek and the Alchemy of Transitional Dictatorship in Chile’, Review of Political Economy
26:3 (2014), 331-348.
51
Hayek, The Constitution of Liberty, 530.
23
participation as a means of checking the power of kings and governments. 52 It
belongs, they argue, to an essentially pre-commercial age in which viewed
seeking private material gain negatively. The great high-points of republicanism
are, they tell us, the Italian city-states of the renaissance, parliament’s struggle
against the king in the English civil war, and the American war of independence.
They go on to insist that this tradition and its associated concept of neo-roman
liberty was displaced over the late 18th and 19th centuries by liberalism and its
associated concept of non-interference. So successful and complete was this
displacement, writes Pettit, that ‘not only did the conception of freedom as noninterference displace the republican idea in the new liberal tradition. It apparently
succeeded in staging this coup d'état without anyone's noticing the usurpation
that had taken place.’53 Their work claims to recover this older concept and,
particularly in Pettit’s case, to interpret it for application to problems of
contemporary political philosophy.
This thesis complicates that narrative. It shows how, over 30 years before the
first studies associated with the recovery of the neo-roman concept, Hayek was
employing the same understanding in his own work. This chimes with the recent
work of Alex Gourevitch who has shown how the neo-roman concept endured in
19th century America, beyond its supposed displacement.54 Hayek moreover,
was deploying the concept not in defence of a pre commercial social ideal, but to
assert a free market vision.55 He was doing so not in the name of republicanism,
52
Skinner, Liberty before Liberalism, 33.
Pettit, Republicanism, 50.
54
Alex Gourevitch, From Slavery to the Cooperative Commonwealth: Labor and Republican
Liberty in the Nineteenth Century (Cambridge, 2015).
55
Although Hayek was writing in a different century to authors addressed by Andreas Kalyvas
and Andreas Katznelson, their argument that republican language was used to encourage and
53
24
but of the liberalism that was supposedly the vehicle for its displacement. For
Hayek, adherence to the neo-roman concept, albeit deployed partially within his
arguments, constitutes the basic condition of liberty and provides for the most
fundamental freedom, free market action. In addition to this, Hayek advocates
an economic order that entrenches the power of commercial elites, not least by
calling for the removal of government control of the money supply, and a
constitutional model overseen by a governing elite. His is emphatically not a
vision of civic participation, as underscored by his call for the ‘dethronement of
politics’. While at odds with the neo-republican agenda advocated by Pettit and
others, Hayek’s particular interpretation of the concept does not disqualify him
from its use nor does it place him outside the historical tradition of those who
have used it. In fact, his interpretation, with its elitist and even anti-democratic,
tendencies may be more typical of how it has been understood and deployed
historically.56 While this thesis undoubtedly complicates the historical narrative,
none of the arguments made here are intended to undermine the viability of the
neo-roman concept as deployed by the neo-republicans. Whilst theirs has been a
movement of the left, considered by some a potential intellectual successor to the
statism of social democracy, what this thesis does is signal a warning that the
neo-roman concept can also be used by those who would restrict democracy and
minimise the role of government while expanding that of the market.
justify the growth of liberal business practices is supported by Hayek’s own attempts to do the
same. See Andreas Kalyvas and Andreas Katznelson, Liberal Beginnings: Making a Republic
for the Moderns (Cambridge, 2008).
56
Many of the early modern defenders of the neo-roman concept did not think democracy was
necessary for liberty either. See Werner Maihofer, ‘The Ethos of the Republic and the Reality of
Politics’ in Machiavelli and Republicanism (eds.), Gisela Bock, Maurizio Viroli and Quentin
Skinner (Cambridge, 1993), 283-92; Daniel Lee, ‘Popular Liberty, Princely Government, and the
Roman Law in Huge Grotius’s De Jure Belli Ac Pacis’, Journal of The History of Ideas 72:3
(2011), 371-92.
25
Finally, the thesis contains a suggestion. The reintroduction dominium into
Hayek’s work does not, as might be expected, simply bring it into line with that
of other mainstream neo-republicans who also pay attention to both imperium
and dominium. Unlike them Hayek is not only concerned with how a regime of
liberty might be instituted in society as a whole, by constitutional and legal
means. The epistemological ‘discovery’ to which he referred involved an
insistence that freedom was required within economic processes and knowledge
best used by the woman or ‘man on the spot.’57 In other language, Hayek was
concerned that people should be free in their work. Opening up his ideological
closures, redressing the imbalance in his concept of liberty leads us not, therefore,
to the largely juridical and constitutional neo-republicanism of Pettit, but to the
more radical iteration of the neo-roman concept and to ‘labour republicanism’.58
ii. Methodology
This thesis is informed by a number of methodological insights appropriate to the
research project. Most broadly it is informed by the basic tenet of Cambridge
School methodology that texts should not be studied as though part of some
transhistorical canon or as merely fresh expressions of perennial truths.59
Instead, Hayek’s work is regarded as a product of its time, designed to address
contemporary issues. The thesis does not however take the hard, and probably
now out-dated, Cambridge position that Hayek’s texts must be understood
57
Friedrich Hayek, ‘,‘The Use of Knowledge in Society’ [1945] in Individualism and Economic
Order, (Chicago, 1948), 83.
58
See Alex Gourevitch, From Slavery to the Cooperative Commonwealth: labor and republican
Liberty in the Nineteenth Century (Cambridge, 2015).
59
Quentin Skinner, ‘Meaning and Understanding in the History of Ideas’, History and Theory 8:1
(1969), 3-53.
26
strictly in a linguistic context only. For Skinner in his massively influential
essay ‘Meaning and Understanding’ texts were to be thought of in the manner of
speech acts, responding to other speech acts. The influence here was analytical
philosophy, particularly the work of J.L. Austin and Ludwig Wittgenstein.60
Skinner has argued that it is by studying texts in their linguistic universe that we
can gain insight into authorial intention. For Skinner all we can know is what an
author was doing, in speech act terms, rather than what they believed.61 Mark
Bevir has criticised this approach and argued instead that understanding requires
some attempt to discern what an author believed. Briefly, we can do this by
establishing where their thought sits within broader webs of belief. These webs
are constructed on the basis of many factors, ideas both past and present,
personal experience and from socio- economic developments and so on. Bevir
does not think there can be any necessary or sufficient condition for
understanding and there is no reason to ‘uniquely privilege the linguistic
contexts’. 62 This thesis is largely in agreement with Bevir and pays attention to
Hayek’s biography and to social, economic and political events during the time
in which he wrote.
Another source of methodological influence is Michael Freeden’s work on
ideology.63 For him, this is how liberalism should be understood. Freeden has
shown how ideologies can be interpreted as being composed of concepts, a
60
Wittgenstein was, incidentally, Hayek’s cousin. See ‘Remembering my Cousin Ludwig
Wittgenstein’ in The Fortunes of Liberalism: The Collected works of F.A. Hayek, Vol.4 (ed.),
Peter Klein (Chicago, 1992), 176-181.
61
Quentin Skinner, ‘Hermeneutics and the Role of History’ New Literary History, 7:1 (1975),
209-232.
62
Mark Bevir, The Logic of The History of Ideas (Cambridge, 2002); Mark Bevir interview with
Admir Skodo (4th September 2009). Accessed at http://figureground.org/interview-with-markbevir/ 03.03.2014.
63
Freeden, Ideologies and Political Theory: A Conceptual Approach (Oxford, 1998), 77-87.
27
central core concept with other auxiliary concepts arranged around the core. The
overall composition of the concepts will affect what a particular interpretation of
the ideology looks like. For example, liberalism will have liberty at its core, but
various types of liberalism will emerge depending on the auxiliary concepts: a
composition that stresses self-development, community and equality will look
very different from one that stresses free market action, individualism and
enterprise. It should also be understood, argues Freeden, that ideologies are
contested. He regards works of history or political theory that claim to define an
ideology as being engaged in campaigns of ‘decontestation’, or attempts to
establish the terms on which an ideology will be widely understood. 64 This
method also works well with Skinner’s insight that political argument takes place
within certain language conventions and those who can most successfully
conscript those conventions to their argument are likely to be successful. In the
process the conventions develop and they may alter their conceptual content.
This thesis understands Hayek’s work in these terms: as constituting, at least
during a certain period of his career, a campaign of decontestation; as an attempt
to claim the language of liberalism for his own interpretation of liberty.
This
reached its height during the period in which he was most closely engaged in
intellectual history, from 1942 to 1960. When it seemed he had failed to
successfully conscript existing language he set about trying to invent a new
language for his liberalism with the assistance of Michael Oakeshott.65
More specifically the central attempt made here is to understand why and how
Hayek drew upon historical and intellectual resources to make his case for an
64
65
Michael Freeden, Ideologies and Political Theory, 76.
See Chapter Four section 1.
28
ideal of liberty that placed free market action at its core. It is concerned to show
how Hayek made use of the classical and early modern past to assert
contemporary political and economic positions. In this, the approach can be
described as genealogical. It is genealogical in both a soft and a hard sense. In
the soft sense it seeks to trace the line of descent of the concept of liberty Hayek
employs and how that descent shaped its partial nature. Friedrich Nietzsche,
with whom genealogy as a method is most strongly associated, used the approach
to undermine the claim of naturalness of a belief and in so doing undermine
acceptance of the belief itself.66 The attempt at hard genealogy in the thesis,
while less radical and ambitious in its approach, takes some inspiration from this.
It aims to show that perhaps the most prominent and influential discourse on
liberty within neoliberal circles, or at least the one widely perceived as the most
eminent, draws its basic theoretical support, its concept of liberty, not from
classical liberalism as has been claimed, but from an earlier neo-roman tradition.
Moreover if this concept were developed fully, some very different political and
policy positions would be arrived at. While this is unlikely to debunk neoliberal
ideas about liberty in a Nietzschean sense, it should at least shake them. In a
certain respect this involves a return to Skinner. Latterly his work has taken a
‘genealogical turn’ as he has sought to show how meanings are not only
historically contingent but can be recovered to inform contemporary political
discourse.67 Moreover, this later turn has involved a move away from his earlier
insistence that the role of the historian of political thought and that of political
66
Melissa Lane, ‘Doing Our Own Thinking for Ourselves: On Quentin Skinner's Genealogical
Turn’, Journal of the History of Ideas 73:1 (2012), 71-82.
67
Skinner notes the influence of Foucault in this respect in Skinner, Liberty before Liberalism.
112. See also Quentin Skinner ‘A Genealogy of the Modern State’, Proceedings of The British
Academy, 162 (2009) 325-370.
29
philosopher should be kept separate.68 In a thesis that stands at the interface of
history and political philosophy, that is most welcome.
iii. Parameters and Structure
Hayek moved to Britain in 1931 and from that time forward, despite moving
onto Chicago in 1950 and then to Freiberg in 1962, Britain remained the focus of
his writing. It is not possible to say with certainty why this was the case. He had
been a British citizen since 1938 and spent what were probably the most exciting
years of his professional life in London. It may be that his personal experience of
England made such a deep impression that it seemed natural for him to frame his
thought in relation to British issues. As he reflected:
Culturally, I feel my nationality now is British and not Austrian. It may
be due to the fact that I have spent the decisive, most active parts of my
life between the early 1930s and the early 1950s in Britain. But it was
really from the first moment arriving there that I found myself for the first
time in a moral atmosphere which was completely congenial to me and
which I could absorb overnight.69
During his later years Hayek would make regular trips from his home in Freiberg
to England to visit his children and grandchildren where they would often
holiday in Devon.70 He would even remark that for many years the Reform Club
68
Skinner, Meaning and Understanding, 58.
Hayek, Hayek on Hayek, 87.
70
Ebenstein, Hayek, 298.
69
30
in London was the only real home he knew.71 It was also in Britain that he was,
eventually, received with the greatest respect and admiration by those in circles
of power, being made a companion of honour in 1984 after which time he
preferred the anglicised ‘Frederick’.72 Perhaps most intellectually pertinent
however is that 19th century Britain functioned in his thought as the high point of
liberal political economy, even as the tenets of liberalism were themselves being
undermined. Whatever the case, despite leaving the country physically, it
remained his intellectual home. The attempted Britishness of Hayek’s thought,
and its interplay with the German speaking theory he remained engaged with, is
one of the themes of this thesis. But it frames its analysis, much as Hayek did,
predominantly with reference to Britain.
The period covered by the thesis comes to a close in the early 1980s despite
Hayek living until 1992 and the last work ascribed to him, The Fatal Conceit,
being published in 1988. There are two reasons for this. First, there has been
some dispute about the extent to which it can properly be claimed that Hayek
was the sole author of that final work. His biographer Alan Ebenstein has
claimed that ‘Hayek’s last words were written by someone else’.73 Less
forthrightly but with marked circumscription, Bruce Caldwell, an editor of
Hayek’s collected works has written that ‘because it was his last book, some
might be tempted to view it as containing the final distillation of Hayek’s mature
71
Griffiths, Engaging Enemies, 5.
Griffiths, Engaging Enemies, 6.
73
Alan Ebenstein, ‘The Fatal Deceit’ Liberty 19:3 (2005) Accessed at
http://web.archive.org/web/20080622201757/http://libertyunbound.com/archive/2005_03/ebenste
in-deceit.html#3 01.07.16. See also Alan Ebenstein, Hayek’s Journey- The Mind of Friedrich
Hayek (New York, 2003), 214, 219; Viktor Vanberg ‘Hayek’s Legacy and the Future of Liberal
Thought: Rational Liberalism vs. Evolutionary Agnosticism’, Journal des Économistes et des
Études Humaines
5 (1994), 451-481.
72
31
thought. The temptation should be avoided.’74 This is due to the fact William
Warren Bartley III, who helped to edit it during Hayek’s final years, seems to
have at least co-authored it.75 It is unlikely that Hayek would have begun
engaging with the work of scholars such as Foucault and Marcuse at such an
advanced age having not done so previously. Given that the thesis is a study of
Hayek’s thought, it is not therefore included here. Second, while they have
received only limited attention this thesis contends that Hayek’s intellectual
emergency equipment constitutes the culmination of his previous theory. They
are the means by which, informed by his neo-roman concept of liberty he
envisaged free market action might be preserved. It is true that in his final
decade he retreated somewhat from advocating them. They were utopian and
unlikely to be adopted by those in power. Moreover, they had been written at
what he regarded as a moment of historical crisis, when the dual danger of trade
union militancy and inflation seemed to pose a threat to western civilisation.
Only his emergency equipment might prevent its undoing. ‘I am in complete
agreement with Professor Friedman’, Hayek wrote,
…on the inevitability of inflation under the existing political and
financial institutions. But I believe that it will lead to the destruction of
our civilisation unless we change the political framework. In this sense I
will admit that my radical proposal concerning money will probably be
practicable only as part of a much more far-reaching change in our
political institutions, but an essential part of such a reform which will be
74
Caldwell, Hayek’s Challenge, 316.
Unexpectedly these were also Bartley’s final years. He died before Hayek in 1990 at the age
of 64. See Werner Erhard, ‘Bill Bartley: Biographer Extraordinary’ in Hayek: A Collaborative
Biography, Part 1 Influences from to Bartley (ed.), Robert Leeson, (London, 2013), 234-6.
75
32
recognised as necessary before long. The two distinct reforms which I am
proposing in the economic and the political order are indeed
complementary: the sort of monetary system I propose may be possible
only under a limited government such as we do not have, and a limitation
of government may require that it be deprived of the monopoly of issuing
money. Indeed the latter should necessarily follow from the former.76
Over the 1980s the urgency of his prescriptions faded while his political allies
exercised power in both Britain and the US.77 The effect of the changed political
environment however, helps us to view Hayek’s emergency equipment as the
culmination of his campaign against economic action by the state. It was the
point at which he pushed the logic of his political philosophy furthest, perhaps
even past breaking point. The emergency equipment accordingly deserves more
attention than it has hitherto received, in a manner that integrates into the rest of
his intellectual career. These considerations, combined with doubts around the
authorship of The Fatal Conceit, make the reception of his proposals a good
point at which to bring the thesis to a close.
A further point that requires explicit articulation is that this thesis is about
Hayek’s concept of liberty. It does not engage in detailed consideration of his
broader, evolutionary social theory.78 While the two are intimately connected,
76
Friedrich Hayek, ‘The Denationalisation of Money’ in Good Money Part Two: The Collected
Works of FA Hayek, Vol. 6 (London, 1999), 84.
77
Hayek met with Reagan at the White House in 1983. In 1991 Hayek was awarded the
Presidential Medal of Freedom by Reagan’s successor George H.W. Bush.
78
Much attention has already been paid to Hayek’s evolutionary thought. Despite the title of his
work John Gray concludes that Hayek’s social theory is his greatest intellectual contribution.
John Gray Hayek on Liberty (Oxford, 1984), 134-140. Somewhat similarly Chandran Kukathas
has argued that Hayek’s view of the liberal polity as a developing modus vivendi is illuminating
despite the overall instability between the Humean and Kantian elements of his philosophy. See
33
and the concept of spontaneous order in particular has to be explained, an
extended treatment would alter the trajectory of the argument: that Hayek’s
underlying concern was the relationship between government, democracy and
the economy; that a focus on liberty arose from his economic emphasis on free
market action; that this led him to decontest liberalism and define liberty in a
neo-roman way; and that this definition informed his intellectual emergency
equipment intended as a means of breaking up the relationship between
government, democracy and the economy.
Hayek’s professional life can be divided into four periods: his early life in
Vienna; his time in London at the L.S.E.; his time at the University of Chicago
on the Committee for Social Thought; and his retirement during which he came
once again to prominence in the 1970s and 80s.79 Periodisation alone however
can tell us only so much about Hayek’s intellectual life. An understanding of
how his definition of liberty developed helps to structure the trajectory of
Hayek’s work. The first section will examine the negative, defensive, period of
his career when he sought to diagnose the dangers facing his vision of market
order. Chapter one will explore the way in which he argued government could
pose a danger to his idealised view of the economy as self-correcting and how,
out of this, emerged a concern for free market action. Chapter two will look at
how Hayek developed his analysis. Government authority would always
Chandran Kukathas Hayek and Modern Liberalism (Oxford, 1990), 225-218. Others have been
less kind: Jim Tomlinson has argued that Hayek’s ‘account of the mechanisms of evolution is
vague in the extreme, and the history used to support the case is cursory and tendentious.’ In Jim
Tomlinson, Hayek and The Market (London, 1990), 52. Gamble observes that ‘the problem for
Hayek’s evolutionary account is the one that recurs throughout his writings. Civilisation and The
Great Society were the result of unplanned development, not design. Yet paradoxically it seems
that in this modern era we can no longer rely on cultural selection alone to do the job for us’ in
Gamble, Hayek, 30.
79
Andrew Gamble, Hayek, 20.
34
constitute a threat to free market action in any society but over the 1930s,
informed by the work of Carl Schmitt, he began to consider what animated the
threat in the first half of the 20th century. Following Schmitt he came to regard
democratic politics as posing a danger to the liberal order which had protected
such conduct previously. It will then show how, in answer to this Schmittian
dilemma, Hayek was informed by the work of the Ordoliberals before
considering how his British readers received this European form of analysis.
Section two is the pivotal section and is composed of the thesis’s central chapter.
It will show how Hayek embarked upon a campaign to establish his view of
liberalism as recognisably the ‘true liberalism’. ‘If old truths are to retain their
hold on men's minds’, he wrote ‘they must be restated in the language and
concepts of successive generations.’80 This was precisely what he set out to do.
The campaign involved an engagement with the Whigs, whose pre-democratic
writing seemed best to embody the version of liberalism in which he believed.
This in turn led him to define liberty in the same neo-roman way they did.
Section three will turn to the positive, prescriptive period of Hayek’s career. It
will look in detail at the intellectual emergency equipment he proposed and how
it was informed by his partial, whiggish interpretation of the neo-roman concept
of liberty. Chapter four will examine how he advocated the denationalisation of
money as a means of hollowing out the power of government and thus reestablish the separation of state and economy. Chapter five will turn to his
model constitution, how it envisaged a future in which the scope of democratic
decisions would be narrowed and the power of government limited, but how this
would also first require a period of authoritarian liberalism.
80
Hayek, The Constitution of Liberty, 1.
35
Part One: Diagnosing the Dangers- Government and Democracy
Chapter One: Government and the Threat to Economic Order
1. Introduction-Liberalisms
Hayek’s understanding of freedom emerged out of his economic theory. For the first
twenty years of his career he worked as an economist, concerned with technical issues
relating to the role of money in the business cycle.1 Hayek conceived of the economy
in abstract terms and considered it to be self-correcting and tending towards
equilibrium: that in the absence of exogenous shocks, supply and demand would
move towards a balanced state.2 The importance of individual agency within the
economy was crucial. It is in this context he started to write seriously about freedom
from the second half of the 1930s onwards: freedom inhered not in political but in
economic life. Hayek would subsequently consider it important to provide and
popularise a neo-roman definition of liberty as a way of protecting the fundamental
freedom, free market action.3
1
Friedrich Hayek, Prices and Production (London, 1935); Friedrich Hayek, The Pure Theory of
Capital (London, 1941).
2
It is not the case that he regarded the economy as stable or as always yielding beneficial outcomes.
The business cycle was an unfortunate but inevitable aspect of a money economy in which credit
played a role. Equilibrium would return only over a period of time. Hayek’s interpretation of
equilibrium would develop from a static into a dynamic model, where equilibrium tended to come
about over time, with his article ‘Economics and Knowledge’ in Individualism and Economic Order
(Chicago, 1948), 33-56. Hayek’s relationship to models of equilibrium is one of the major, recurring
considerations of Bruce Caldwell’s Hayek’s Challenge: An Intellectual Biography of FA Hayek
(Chicago, 2004), 155-156; 205-214. See also Bruce Caldwell, ‘Hayek’s Transformation’, History of
Political Economy 20:4 (1988), 513-548.
3
Wendy Brown writes that it is a fundamental tenet of neoliberalism to consider freedom in terms of
‘market conduct’. See Wendy Brown, Undoing the Demos (Cambridge MA, 2015), 39.
36
Asserting that freedom in ‘economic life’ is the most important freedom was at odds
with the prevailing interpretations of liberalism in the years between the first and
second world wars.4 Prior to the First World War a reconfiguration of the liberal
tradition had taken place both within liberal political theory and in the Liberal Party
itself.5 This had produced what is known as ‘New Liberalism’. The intellectual
inspiration for this turn was the work of T.H. Green who had developed J.S. Mill’s
concerns for self-development. For Green the goal of liberal policy should be to
enable all individuals to realise their own inner potential and ambition. The corollary
of this was that obstacles to such realisation should be minimised if not removed and
that it was the role of government to do this. A range of thinkers took Green’s
thought further, chief among them J.A. Hobson and L.T. Hobhouse. Hobson, on the
left of this new movement, argued that,
Liberalism is now formally committed to a task which certainly involves a
new conception of the State in its relation to the individual life and to private
enterprise...From the standpoint which best presents its continuity with earlier
Liberalism, it appears as a fuller appreciation and realisation of individual
liberty contained in the provision of equal opportunities for self-development.
But to this individual standpoint must be joined a just apprehension of the
social, viz., the insistence that these claims or rights of self-development be
adjusted to the sovereignty of social welfare.6
4
Friedrich Hayek ‘Freedom and the Economic System’ [1939] in Socialism and War: The Collected
Works of FA Hayek, Vol. 10 (Chicago, 1997), 189-191.
5
Michael Freeden, Liberalism Divided: A Study in British Political Thought 1914-1939 (Oxford, 1986).
6
J.A. Hobson, The Crisis of Liberalism: New Issues of Democracy (London, 1909), xii; See also
Michael Freeden, JA Hobson: A Reader (London, 1988). Hobson was however keen to note that many
of the moves in this direction taken by the Liberal Party, such as the introduction of old age pensions
and the proposed introduction of national insurance, were as much born of political expediency as
intellectual reflection.
37
Similarly Hobhouse argued in a more philosophical vein that liberalism had
developed beyond its negative stage, during which time its primary focus had been
combatting corruption and privilege, and must move into a positive phase of creating
the conditions for self-development and even ‘self-realisation’. The common good,
liberalism’s key concern according to Hobhouse’s organic conception of society, ‘is
founded on personality, and postulates free scope for the development of personality
in each member of the community. This is the foundation not only of equal rights
before the law, but also of what is called equality of opportunity.’7 As W.H.
Greenleaf has written, no longer was the state a ‘necessary evil’; instead it had
become a ‘vital instrument of freedom.’8 During the 1920s, despite the continuing
dominance of classical economics, the prevailing sense was that the liberal movement
had moved on from the 19th century and its supposedly narrow focus on the economic
agency of the individual. John Maynard Keynes would, for example, announce in
1926 ‘the end of laissez faire’, the economic doctrine that had come to be closely
associated with 19th century liberalism.9 For Hayek all of this was a dangerous
misrepresentation of what liberalism really stood for. While he too rejected the
7
L.T. Hobhouse, Liberalism (London, 1911), 56.
W.H. Greenleaf, The British Political Tradition, Vol. 2: The Ideological Heritage The Rise of
Collectivism (London, 1983), 27.
9
J.M. Keynes, The End of Laissez Faire (London, 1926). Rejection of laissez faire was common across
the political spectrum. Even Hayek rejected the term. See Friedrich Hayek, The Road to Serfdom
(London, 2001), 12. In fact the mid 19 th century attitude of government to the economy was not as
laissez faire as the generation of liberals writing in the ‘20s and ‘30s assumed. John Bartlet Brebner,
argued that laissez faire had been a myth. See, John Bartlet Brebner, ‘Laissez Faire and State
Intervention in Nineteenth Century Britain’ The Journal of Economic History 8:1 (1948), 59-73. He
was supported in this conclusion, albeit with some variations, regarding the role of Benthamite
Utilitarians, by a number of other historians. See Oliver MacDonagh in ‘The Nineteenth-Century
Revolution in Government: A Reappraisal’ The Historical Journal 1 (1958), 52-67; and Henry Parris,
‘The Nineteenth-Century Revolution in Government: A Reappraisal Reappraised’ Historical
Journal 11 (1960), 17-37. Jennifer Hart took issue with MacDonagh’s portrayal of Benthamism as
largely irrelevant to the rise of interventionism. See Jennifer Hart, ‘Nineteenth-Century Social Reform:
A Tory Interpretation of History’, Past and Present, 31(1965) 39-61. For more detail on those
variations and an overview of the debate between MacDonagh and Hart, see Ellen Frankel Paul,
‘Laissez Faire in Nineteenth-Century Britain: Fact or Myth?’, Literature of Liberty 3:4 (1980), 5-38.
8
38
concept of laissez faire, for him any move that might undermine economic freedom
was likely to undo any hope of intellectual freedom and thus self-development in
turn.10
This chapter will first explore Hayek’s early work on monetary theory, which was
developed both in Vienna and on a trip to the USA in the late 1920s. Section two will
relate how this early work resulted in Hayek moving to the London School of
Economics. It will also analyse how, following his arrival, Hayek sought to engage
with the work of his chief intellectual adversary of the period, John Maynard Keynes
while drawing out the stark difference in their thought regarding the appropriate role
of government in relation to the economy. Section three will examine how, from
1935 onwards Hayek turned his attention to combatting those who advocated much
more direct forms of government control of the economy.11 In a volume entitled
Collectivist Economic Planning, Hayek introduced the dispute that had occurred in
the early 1920s between his Viennese mentor Ludwig von Mises and the prominent
Viennese political economist and one time director of the Austrian Department of
War economy Otto Neurath to an English audience.12 By updating the debate through
an engagement with more recent theories of market socialism, Hayek was inevitably,
10
Hayek, ‘Freedom and the Economic System’, 189-191. That Hayek was making his argument in this
way is however indicative of the extent to which his the language of his intellectual adversaries set the
terms of the debate.
11
Hayek did however maintain his opposition to Keynes’s theory throughout his career and during this
time was working on The Pure Theory of Capital (Chicago, 2007), which was intended as a response to
Keynes’s criticisms and to his General Theory.
12
For more on Neurath see John O’Neill, ‘In Partial Praise of a Positivist: The work of Otto
Neurath’, Radical Philosophy, 74 (1995), 29–58. Neurath was one of the leading intellectuals in
Vienna to which he returned following the fall of the Bavarian Republic. He became Director of the
Social and Economic Museum and participated in the Vienna Circle where he advocated physicalism,
one of the leading branches of positivism at the time. Hayek would recall that it was Neurath’s views
of economics that dissuaded him from the positivism then so much in evidence in Vienna. See
Friedrich Hayek, Hayek on Hayek: An Autobiographical Dialogue (eds.), Stephen Kresge and Leif
Wenar (London, 1994), 42.
39
and quite readily, drawn into discussing the proper relationship between the state and
the economy.13
Section four will demonstrate that it was Hayek’s participation in these ‘socialist
calculation debates’ that caused him to rework his understanding of equilibrium in his
1936 article ‘Economics and Knowledge’. Bruce Caldwell has argued that Hayek
underwent a ‘transformation’ occasioned by the work as he moved away from a static
to a dynamic model of equilibrium.14 This chapter will also argue for a
transformation, but one that is both more far-reaching and deeper than a shift in
equilibrium analysis alone. Of greater relevance to understanding Hayek’s career as a
whole is that the piece expanded the scope of Hayek’s vision. He began to consider
what social prerequisites were required for coordination over time to occur given
accurate foresight is impossible. As he later reflected it was ‘Economics and
Knowledge’ which led him to ‘a re-examination of the age-old concept of freedom
under the law, the basic conception of traditional liberalism.’15 From hereon the rule
of law and liberty became Hayek’s fundamental concern. The chapter will conclude
by examining how by the end of the 1930s Hayek had arrived at an understanding of
freedom, which, in an inversion of most late 19th and early 20th century British liberal
thought, did not regard it in an ethical sense, but in terms of market action. 16 It was
this position that would inform how he defined liberty after the war.e
13
Friedrich Hayek, Hayek on Hayek, 69.
Caldwell is one of the foremost Hayek scholars and is surely aware that the work, along with
Collectivist Economic Planning, led Hayek to his broader concerns of political economy. Indeed the
quote from Hayek with which he starts his article clearly states as much. However, Caldwell chooses
to focus not on this but on how ‘Economics and Knowledge’ occasioned a shift in Hayek’s
understanding of t economic equilibrium from a static to a dynamic model. See Caldwell ‘Hayek’s
Transformation ’History of Political Economy 20:4 (1988), 513-541.
15
Friedrich Hayek, ‘Kinds of Rationalism’ [1964] in Studies in Philosophy, Politics and Economics
(London, 1967), 82-95.
16
Keith Tribe makes a similar point about British neoliberalism more generally. See Keith Tribe
‘Liberalism and Neoliberalism in Britain, 1930–1980’ in The Road From Mont Pelerin: The Making of
14
40
2. Hayek’s Early Work
Having returned from the Italian front in 1918, Hayek enrolled at the University of
Vienna. 17 While his degree was in jurisprudence, with some courses on Roman law
under Moriz Wlassak leaving a lasting impression, ‘the decisive point was simply that
you were not expected to confine yourself to your own subject. I must have spent as
much time in lectures on other fields’ and a willingness and ability to write on a range
of subjects would remain with Hayek throughout his career.18 However, Hayek’s
primary interests were in psychology and economics. Indeed he had only turned to
the law in order to proceed to one of these subjects, but the war had left no teaching
psychology professors at the University.19 Recognising also that ‘economics at least
had a formal legitimation by a degree, while in psychology you had nothing’ when he
completed his jurisprudence degree in 1921, Hayek began a second in the study of
economics under Professor Friedrich von Wieser, which he completed in 1923.20
Despite Wieser’s deep personal impression on Hayek as a teacher, he was later to
recall,
…I now realize—I wouldn’t have known it at the time—that the decisive
influence was just reading Menger’s Grundsätze. I probably derived more
The Neoliberal Thought Collective (eds.), Philip Mirowski and Dieter Plehwe (Cambridge MA, 2009),
For a very different account of liberalism in the 20 th century, on that focuses on liberalism as an ethical
movement concerned with welfare see Michael Freeden’s Liberal Languages (Princeton, 2009). For
Hayek, the liberal tradition Freeden relates was liberalism corrupted.
17
For an account of Hayek’s early life see Alan Ebenstein, Friedrich Hayek: A Biography (New York,
2001), 7-13 and Bruce Caldwell Hayek’s Challenge: An Intellectual Biography of F.A. Hayek
(Chicago, 2009), 113-149.
18
Hayek, Hayek on Hayek, 43-54.
19
Hayek, Hayek on Hayek, 43.
20
Hayek, Hayek on Hayek, 46-48.
41
from not only the Grundsätze but also the Methodenbuch, not for what it says
on methodology but for what it says on general sociology.21
While Carl Menger, who developed the Austrian School variant of marginal utility,
was bound to have been an influence, it was at some remove. Instead it was the much
younger Ludwig von Mises who played the major role in Hayek’s early personal and
professional development. In subsequent discussions Hayek remembered how his
first economic ideas, along with many others of his generation, were of a socialist or
semi-socialist nature and how he even found himself in trouble at the Gymnasium for
reading a socialist pamphlet during his divinity lesson.22 After the war socialism
seemed to be in the ascendant. In Hungary, separated from Austria following
revolution brought on by the pressures of war, Béla Kun established a short-lived
soviet republic.23 Hayek’s home city would become known as ‘Red Vienna’ over the
course of the 1920s due to the dominance of socialists in local government.24 In the
University itself Hayek recalled, most of the students were at least initially, strongly
inclined towards socialism. Hayek’s own professor, Friedrich von Wieser was
broadly Fabian in outlook and had some influence on the young Hayek.25Hayek’s
conversion was due to Mises.26 He subsequently recognised that it was Mises’s 1922
work, Socialism: An Economic and Sociological Analysis that ‘gradually but
21
Hayek, Hayek on Hayek, 49.
Hayek, Hayek on Hayek, 40.
23
György Borsányi, The Life of a Communist Revolutionary, Béla Kun (trans.), Mario Fenyo, (New
York, 1993).
24
Judith Beniston,’Culture and Politics in Red Vienna’, Austrian Studies Vol. 14 (2006), 1-19.
25
Simon Griffiths, Engaging Enemies: Hayek and the Left (London, 2014), 5.
26
Hayek had in fact neglected to attend Mises’s lectures at the University. See Hayek, Hayek on Hayek,
58. According to Eamonn Butler this was due to Mises’s vehement opposition to socialism at a time
when Hayek was still under the influence of his Fabian tutor, Friedrich Wieser. See E Butler, Hayek:
His contribution to the Economic Thought of Our Time (Worcester, 1983), 5.
22
42
fundamentally altered the outlook of many of the young idealists returning to their
University studies after World War One. I know, for I was one of them.’27
Hayek’s early work had been in monetary theory. Being from an upper middle class
Viennese family he would have been well aware of the impact that fluctuations in the
value of money can have on society. The inflationary policies pursued by Austria
during the First World War, combined with the financial chaos of an effective move
from a gold standard to a dollar standard, had rendered the government bonds bought
by those of a similar status to the Hayek family worthless.28 One of the great
advantages Hayek enjoyed in his first job after graduating from Vienna, in the
temporary government agency The Office of Accounts under Mises, was that his
salary was indexed to inflation. ‘The Austrian inflation began almost immediately
after the war,’ recalled Hayek,
At my first job, under Mises, in October 1921, I got a monthly salary of 5,000
old kronen a month. In the next month, I had to be paid three times that in
order to be able to live on it. And by next July, it reached one million a month.
So my first ten months of professional life were in what then was still
regarded as an enormous inflation, but the Germans’ two or three years later
actually got much higher.29
Despite the difficult economic circumstances, and thanks no doubt to his fortunate
27
Friedrich Hayek ‘Ludwig von Mises’ in The Fortunes of Liberalism: The Collected works of F.A.
Hayek, Vol.4 (ed.), Peter Klein (Chicago, 1992), 126-159. Also Ludwig von Mises, Socialism: An
Economic and Sociological Analysis (Indianapolis, 1981).
28
Stephen Kresge, ‘Introduction’ in Good Money Part One: The Collected Works of FA Hayek, Vol.1
(ed.), Stephen Kresge (Chicago, 1999), 1-2.
29
Hayek, Hayek on Hayek, 60.
43
salary arrangements, Hayek had been able to save enough money by the beginning of
1923 to travel to the US in order to work as a research assistant to Jeremiah Jenks at
NYU, whom he had met in Vienna in 1922. When he arrived he found ‘that Professor
Jenks had left for a vacation and given instructions that he was not to be disturbed’.
Hayek was forced to look for work. ‘I was finally accepted as a dishwasher in a Sixth
Avenue restaurant—but I never actually started on it’ he recalled, ‘since an hour
before I was to report to work a telephone call came through saying that Professor
Jenks had returned and was prepared to employ me’.30 With the money and
studentship he was able to register for a PhD at the university entitled ‘Is the Function
of Money Consistent with an Artificial Stabilization of Purchasing Power?’31 Hayek
brought academic habits from the University of Vienna, with its loosely structured
timetables and study patterns, with him to America. Rather than work on his thesis he
instead attended lectures at Columbia given by Wesley Clair Mitchell whose 1913
work Business Cycles had influenced much of the profession and who had founded
the National Bureau of Economic Research in New York.32 He also used the time to
work on his first article.33 The doctorate was never completed but the question of
whether prices should be stabilised through government and central bank measures to
alter domestic monetary arrangements was one that occupied Hayek for the remainder
of the 1920s and 30s. ‘What I found most interesting and instructive’ he later
reflected ‘was the work done on monetary policy and the control of industrial
fluctuations connected on the one hand with the Harvard Economic Service and on
the other with the new experiments in central banking policy of the Federal Reserve
30
Hayek, Hayek on Hayek, 56, 6.
Stephen Kresge, ‘Introduction’, Good Money Part One, 5.
32
Wesley Clair Mitchell, Business Cycles (Berkeley, 1913).
33
‘Friedrich Hayek, A Survey of Recent American Writing: Stabilisation Problems in Gold Exchange
Standard Countries’ [1924] in Good Money Part One: The Collected Works of FA Hayek, Vol.5 (ed.),
Stephen Kresge (Chicago, 1999), 39-66.
31
44
System.’34
Hayek’s second article ‘Monetary Policy in the United States after the Recovery from
the Crisis of 1920’ introduced German readers to new American approaches to the
question. The US Federal Reserve had been established in 1913 and already Hayek
was raising the question, ‘did the central banking system really offer the best possible
remedy for the known weaknesses of the credit organization in the United States?’35
Based upon aggregated data of the sort utilized by the institutionalists, it was widely
argued that the Fed should embark upon discretionary monetary policy. As Bruce
Caldwell has explained, ‘If the price level (as measured by some statistically
constructed index number) rose beyond a certain point, the Fed banks would follow
restrictive policy in order to slow economic activity. If it fell they would do the
reverse.’36 In 1928 in his article ‘Intertemporal Price Equilibrium and Movements in
the Value of Money’ Hayek built upon his earlier objections to such ambitions and
sought to ‘provide a theoretical argument against a monetary policy of stabilisation.’37
This article also led him to consider the now largely forgotten work of William
Truffant Foster and Wadill Catchings who advocated the concept of
underconsumption. Hayek critiqued their thesis in ‘The Paradox of Saving’ in a
manner that anticipated his later criticisms of Keynes. 38 He emphasised the way in
which the general price level lags behind the overall cycle, rendering it an unhelpful,
34
Friedrich Hayek, ‘Introduction’ in Money, Capital and Fluctuations: Early Essays (ed.), Roy
McCloughrey (London, 1984).
35
Friedrich Hayek, ‘Monetary Policy in The United States after the Recovery from the Crisis of 1920’
[1925] in Good Money Part One: The Collected Works of FA Hayek, Vol.5 (ed.), Stephen Kresge
(Chicago, 1999), 145-146.
36
Caldwell, Hayek’s Challenge, 152.
37
Kresge ‘Introduction’, Good Money 30.
38
Friedrich Hayek, ‘The Paradox of Saving’ [1929] in Contra Keynes and Cambridge: The Collected
Works of F.A. Hayek, Vol. 6 (ed.) Bruce Caldwell (Chicago, 1995), 74-120.
45
potentially destabilising, guide to monetary policy.’39 By the end of the 1920s
therefore Hayek had developed the fundamentals of an economic theory that stressed
it was the self-correcting tendencies of the market that must be relied upon and
warned against government intervention.
One of Hayek’s reasons for wanting to spend time in America was the advanced state
of its mathematical economic models, based upon the belief, expounded by Mitchell
and before him Thorstein Veblen, that the acquisition of facts could explain economic
phenomena.40 Such ‘institutionalism’ was in many regards the American inheritance
of the Methodenstreit. This had been the 19th century confrontation between the
younger German Historical School, led by Gustav Schmoller and those they
dismissively referred to as the Austrian School, led by Menger. Fundamentally the
dispute was about the nature of economics: was it a science based on atemporal
precepts, as maintained by the Austrians, or was it rather a form of historical enquiry,
as maintained by the Historical School. The implications of either position were far
reaching. If it was a science then governments must recognise definite limits on the
extent to which it was possible or desirable to shape the economy. If economic order
was always historically contingent, then the economy could be shaped to achieve the
attainment of particular ends decided by the community or the state.41
39
Caldwell, Hayek’s Challenge, 152. Irving Fisher, whose work on the quantity theory of money
Hayek considered important also made use of aggregated data. Hayek’s relationship to quantity theory
is complex. He commented in Prices and Production that though he felt aggregates were inherently
misleading, it would be a disaster for economics if people forgot about the quantity theory. Hayek was
later to disagree with the subsequent generation of monetarists, influenced by Fisher, and led by Milton
Friedman. For an exploration of that relationship see Richard Arena, Monetary Policy and Business
Cycles: Hayek as an opponent of the Quantity Theory Tradition’ in F.A. Hayek as a Political
Economist (eds.), Thierry Aimar, Jack Birner and Pierre Garrouste (London, 2002), 81-96. See also
Chapter 4, sections 4 and 5.
40
Thorsten Veblen, Theory of The Leisure Class (New York, 1899); Imperial Germany and The
Industrial Revolution (New York, 1915).
41
A particular influence on the Younger Historical School was the work of G.W.F. Hegel. For Hegel
the state, particularly the Prussian state, was the highest manifestation of the World Spirit. Accordingly,
46
The Austrian position was heavily informed by the work of the classical British
economists Adam Smith and David Ricardo, and to this Hayek would subsequently
also add the work of David Hume.42 In fact, the School’s founder Carl Menger’s
greatest legacy is his critique of Smith’s labour theory of value and the marginal
revolution that critique initiated. He arrived at the idea of marginal utility as a
determinant of value at the beginning of the 1870s, at approximately the same time as
William Stanley Jevons in Britain and Leon Walras in Switzerland. All seem to have
arrived at the position independently.43 Nonetheless, Menger’s work conforms to the
basic Smithian logic of conceiving of the economy abstractly and viewing economic
development as the product of interaction between economic actors according to the
division of labour, rather than being centrally directed. This is Smith’s famous
concept of ‘the invisible hand’, a force that seemed to guide the market towards
beneficial outcomes.44 It was also one to which Menger subscribed. 45 Hayek certainly
economics must be put at the service of the state. In his Inaugural Lecture at the L.S.E. Hayek
described the American Institutionalists as the ‘spiritual successors’ of the younger German Historical
School. See Hayek, ‘History and Politics’ in The Trend of Economic Thinking: The Collected Works of
FA Hayek (eds.),W.W. Bartley III and Stephen Kresge (London, 1991), 64. It was however Joseph
Schumpeter who first observed the similarities in 1926: ‘Change the relative emphasis put upon
statistical and historical materials in this picture and we have the, even to details, the position that
Schmoller held throughout his life.’ Quoted in W.C. Mitchell, The Backward Art of Spending Money
(New York, 1937), 37-38.
42
To this Hayek would add the work of David Hume. See Friedrich Hayek ‘The Legal and Moral
Thought of David Hume’ in Studies, 106-121. For a brief biography see John Robertson, ‘Hume,
David’, Oxford Dictionary of National Biography, (Oxford online, 2009) Accessed at
http://www.oxforddnb.com/view/article/14141, 24.05.16. The volumes of Hume’s work that exercised
greatest influence on Hayek’s economics are David Hume, Essays Moral Political and Literary 2 vols.
(eds.) T.H. Green and T.H. Grose. (London,1875).
43
See George J. Stigler, ‘The Development of Utility Theory 1’, Journal of Political Economy 58:4
(1950), 307-327; ‘The Development of Utility Theory 2’, Journal of Political Economy 58:5 (1950),
373-396.
44
The concept constitutes perhaps Smith’s most famous phrase although he uses it only three times:
Adam Smith, ‘The History of Astronomy’ in Essays on Philosophical Subjects (Oxford, 1980), 49;
Adam Smith, The Theory of Moral Sentiments (Oxford, 1976), 184; Adam Smith, An Inquiry into the
Nature and Causes of the Wealth of Nations (Oxford, 1976), 453-71. For further discussion see Emma
Rothschild, ‘Adam Smith and The Invisible Hand’, The American Economic Review 84:2 (1994), 319322. For a brief biography of Smith see Donald Winch ‘Smith, Adam’ Oxford Dictionary of National
Biography (Oxford, online, 2007) Accessed at http://www.oxforddnb.com/view/article/25767, 24.05.16
Smith’s most significant work within economics is An Enquiry into the Wealth of Nations, 2 vols.,
(London, 1904) and was regarded by Hayek as originating the discipline of economics.
45
Unlike Smith, however, Menger held that self-interest alone would result in invisible hand type
outcomes. Smith, contrary to the interpretations of much 19 th century German scholarship, had
47
regarded Menger as an inheritor of Smith’s logic and it is a comparison he draws
repeatedly.46 If the influence of these writers had been latent and largely
unacknowledged within the Austrian School prior to Hayek, in his work their names
recur with regularity and are accorded the highest status. They were among the first
to understand the economy, and thus society more broadly, as the product of an
evolutionary development brought about by interacting individuals. 47 Hayek took
from them an idealised conception of the economy as tending towards equilibrium
and from the 1930s onwards Hayek would invoke their names to illustrate his
objections to government attempts to shape the economic order.48
3. The L.S.E., Keynes and the Gold Standard
In 1931 Hayek was invited by Lionel Robbins to the London School of Economics to
deliver a series of lectures.49 His work on ‘The Paradox of Saving’ had caught
Robbins’s eye and ‘and Robbins could read German.’ Hayek remembered, ‘That’s an
maintained the importance of sympathy as set out in his The Theory of Moral Sentiments (Oxford,
1976). See Markus Haller ‘Carl Menger’s theory of Invisible Hand Explanations’, Social Science
Information 39:4 (2000), 529-565. Also, Keith Tribe ‘”Das Adam Smith Problem” and the origins of
modern Smith scholarship’ History of European Ideas 34:4 (2008), 514-525.
46
For example, see Friedrich Hayek ‘Kinds of Rationalism’, 94; Friedrich Hayek, Law, Legislation and
Liberty, Vol.1: Rules and Order (London,1982), 22. Friedrich Hayek, ‘Adam Smith’s Message in
today’s Language’ in New Studies in Philosophy, Politics and the History of Ideas (London, 1978),
267-269; Smith’s particular influence on Menger is evident in the latter’s lessons to the Austrian
Crown Prince Rupert. See Sandye Gloria-Palermo, Evolution of Austrian Economics: From Menger to
Lachmann (London,1999), 10-14; Erich W Streissler, ‘Carl Menger on Economic Policy: The Lectures
to Crown prince Rudolf’ in Carl Menger and His Legacy in Economics (ed.), Bruce Caldwell (Durham
NC, 1990), 113. For a very different perspective on Smith which laments his influence on the practice
of economics, primarily for his labour theory of value, but one which also condemns his ‘plagiarism’ of
Hutcheson see Murray Rothbard, Economic Thought Before Adam Smith: An Austrian Perspective on
Economic Thought, Volume 1 (Cheltenham, 2006), 433-474.
47
Hayek also noted the contribution of Bernard Mandeville, as a forerunner of Hume, and of Adam
Ferguson in this regard. See Friedrich Hayek‘Dr Bernard Mandeville’ [1967] in New Studies in
Philosophy, Politics and the History of Ideas (London, 1978), 249-266.
48
Christina Petsoulas has argued that Hayek underestimated the emphasis on conscious human agency
in shaping the economy that is contained in the work of Smith and Hume. See Christina Petsoulas,
Hayek’s Liberalism and its Origins: The Idea of Spontaneous Order and The Scottish Enlightenment
(London, 2001).
49
Susan Howson, Lionel Robbins (Cambridge, 2012).
48
almost unique factor, an English professor who could read German literature—that’s
good luck, that he pounced on my subject.’50 Why Robbins pounced may not have
been quite so simple however. Caldwell argues that Robbins wanted allies in
confirming the position of the L.S.E. as a bastion of classical free market thought, in
opposition to the new economics emanating out of Cambridge under the direction of
John Maynard Keynes. Certainly, Robbins and Keynes had disagreed, somewhat
acrimoniously, over the appropriate government response to the deepening economic
crisis as members of the Economic Advisory Committee, established in 1930 by the
Labour government.51 Hayek’s recollections of Robbins’s motives are clear: ‘this is
the thing we need at the moment, to fight Keynes. So I was called in for this
purpose.’52 While this was likely to have been a factor, it was also the case that the
newly appointed Robbins sought to establish the L.S.E. as an international,
cosmopolitan institution in contrast to the established English centres of economics at
Manchester and in Cambridge.53 In this respect Hayek was a good fit and his lectures
were well received, introducing to his English audience an Austrian theoretical
structure much as Robbins must have intended.54 Susan Howson has also suggested
that rather than Robbins seeking continental reinforcements for a campaign against
Keynes, it was the young Austrian who was most eager to enter the fray. She notes
that according to the date on which Hayek’s lectures were announced, Robbins must
50
Hayek, Hayek on Hayek, .67.
Caldwell, Hayek’s Challenge, 170-171.
52
Hayek, Hayek on Hayek, 67. The relationship between Hayek and Keynes is touched on in most
works relating to Hayek. For an overview see Jeremy Shearmur, ‘Hayek, Keynes and the State’,
History of Economics Review, 26 (1997), 68-82. However, a number of scholars have noted the
similarities in Keynes and Hayek’s general outlook. For example, both were liberals who disliked
government planning and intervention for. See Selwyn Cornish, ‘The Hayek Literature’ in Hayek: A
Collaborative Biography, Part 1 Influences from to Bartley (ed.), Leeson, Robert (London, 2013), 7489. For a work charting the ebb of flow of their respective influence see Nicholas Wapshott, Keynes
Hayek: The Clash that Defined Modern Economics (New York, 2011).
53
Susan Howson Lionel Robbins (Cambridge, 2011).
54
For discussion of Robbins’s rise to prominence in the L.S.E. see Angus Burgin, The Great
Persuasion: Reinventing Free Markets Since the Depression (London, 2012), 12-32. Also, Howson,
Lionel Robbins, chapters 7,8,9.
51
49
have invited him prior to his disagreement with Keynes.55 By the time of Hayek’s
lectures, Keynes’s Treatise on Money had been published and Hayek had heard
Keynes’s radio broadcast, ‘Saving and Spending ‘shortly before travelling to England.
Also, ‘he preceded his visit to London with one to Cambridge, where he stayed with
Denis Robertson at Trinity, gave a lecture to the Marshall Society and also attended
Keynes’s Monday Club the night before he went to London. Richard Khan, who was
present at the Marshall Society meeting, attributes the “breach” between L.S.E. and
Cambridge economists to Hayek, not to Robbins.56 It may be that Hayek felt he had
the tools in his hands, shaped by his experience in the United States, to take on one of
Britain’s leading public intellectuals and argue against a role for governments and
experts in shaping the economy or attempting to intervene to alter the business cycle.
Most likely the various intentions of both Hayek and Robbins coincided initiating a
close personal and professional relationship between the two.
In A Treatise on Money, published in 1930, Keynes had begun to argue that there was
no automatic correction mechanism within the economy that would balance saving
and investments.57 When savings became too high, economic downturns would occur,
and it was this that had produced the persistent mass unemployment Britain had
experienced in the 1920s.58 What government must do is adopt counter cyclical
55
Susan Howson, ‘Why Didn’t Hayek review Keynes’s General Theory? A Partial Answer’, History of
Political Economy 33:2 (2001), 370.
56
Susan Howson, ‘Keynes and the L.S.E. Economists’, Journal of the History of Economic Thought
31:3 (2009), 10.
57
J.M. Keynes A Treatise on Money: The Collected Writings of John Maynard Keynes vol.6, (eds.),
Elizabeth Johnson and Donald Moggridge (London, 1978); Andrew Gamble, Hayek: The Iron Cage of
Liberty (Cambridge 1996), 152.
58
It was also the logic that underpinned his later explanation of the Great Depression of the 1930s in
The General Theory of Employment Interest and Money, though as Robert Skidelsky has explained it
was the onset of the world slump that prompted ``Keynes to think there might be something
intrinsically deficient in the capitalist system, rather than downturns being the result of exogenous
shocks. See Robert Skidelsky interview, ‘Genius, Businessman, Bohemian: The Many Masks of
50
measures such as higher public spending which might reduce unemployment and kick
start the economy. In the 1929 general election, Lloyd George made a ‘pledge’ to do
just this, borrowing £250 million for a two-year programme. Keynes and Hubert
Henderson, his fellow economist and liberal party member, wrote an enthusiastic
pamphlet, Can Lloyd George Do It?- The Pledge Examined, supporting the policy.59
Keynes would have been aware that such a huge amount of borrowing by government
would increase bank assets and thus encourage them to make loans available to
businesses and the public. 60 Indeed, an economist at the Treasury referred to the
public works aspect as merely ‘a piece of ritual.’61 Although the war had resulted in
its suspension, it was the existing orthodoxy, and a shared agreement among both
Conservatives and Labour, that adherence to a gold standard was necessary. They
held that all money in circulation should, at least theoretically, be redeemable in
gold.62 This consensus did much to discredit Lloyd George’s proposal. The need to
stick to the standard meant that in order to fund public works, government must
borrow and Winston Churchill as Chancellor argued that this borrowing would only
serve to crowd out loans that banks might otherwise make to businesses. Keynes had
been opposed to the government’s re-commitment to the gold standard, valuing the
pound at pre war levels, in 1925.63 For him, the gold standard was a ‘barbarous relic’
of the 19th century that would increase unemployment as it caused the cost of British
Keynes’ Accessed at
http://www.pbs.org/wgbh/commandingheights/shared/minitext/int_robertskidelsky.html 31.05.16.
59
JM Keynes Can Lloyd George Do It?- The Pledge Examined: The Collected Writings of JM Keynes,
Vol., 9 (eds.), Elizabeth Johnson and Donald Moggridge (London, 1978).
60
Robert Skidelsky, ‘How Keynes Came to Britain’ Review of Keynesian Economics Review of
Keynesian Economics. (Cheltenham, 2016)Accessed at
http://www.elgaronline.com/view/journals/roke/4-1/roke.2016.01.02.xml 31.05.16
61
Skidelsky, ‘How Keynes Came to Britain’.
62
For an overview of interwar attitudes to the gold standard see Barry Eichengreen, Gold Fetters: The
Gold standard and the Great Depression, 1919-1939 (Oxford, 1996).
63
J.M. Keynes ‘The Economic Consequences of Mr. Churchill’ in The Collected Writings of John
Maynard Keynes vol. 19, (eds.), Elizabeth Johnson and Donald Moggridge, (Cambridge, 1978), 207230. The gold standard had been effectively suspended during the First World War and, legally
immediately after it, in order to pay for the war.
51
exports to rise.64 Moreover, it would restrict the capacity of government to affect
credit and therefore counter downturns. Keynes did not give up on urging central
banks to do more however, even while under the restrictions the gold standard
imposed. The critical means by which governments could make more money
available in the general economy was not via the ‘ritual’ of public works’, but by
lowering the bank interest rate, the rate at which banks borrowed overnight from the
central bank, consequently encouraging them to lend more to businesses. 65 It was this
he advocated in the Treatise:
A central bank, which is free to govern the volume of cash and reserve money
in its monetary system by the joint use of bank rate policy and open-market
operations, is … in a position to control not merely the volume of credit but
the rate of investment, the level of prices and in the long run the level of
incomes, provided that the objectives it sets before it are compatible with …
maintenance of gold convertibility.66
It was precisely the sort of central bank policy, however, that Hayek had argued
against while in the US.
64
J.M. Keynes, ‘Tract on Monetary Reform’ in The Collected Writings of John Maynard Keynes, vol. 4
(eds.), Elizabeth Johnson and Donald Moggridge (Cambridge 1978).
65
Peter Sloman identifies three phases of Keynesianism: proto Keynesianism, based on borrowing and
public works, formed before the General Theory; liberal Keyneisanism which sought to manage
demand through fiscal and monetary policy; and interventionist Keynesianism, which also included
controls over capital, investment and wages. Sloman argues that the distinction between the latter two
can be drawn by comparing the 1944 White Paper on employment policy with William Beveridge Full
Employment in A free Society (London, 1944). See Peter Sloman, The Liberal Party and The Economy
1929-1964 (Oxford, 2015), 16. For Hayek it was the last of these that posed the greatest danger to the
economy. He associated this primarily with those who developed Keynes’s theory after his death.
Hayek also questioned the real nature of Beveridge’s influence ‘because Lord Beveridge never
understood any economics.’ For Hayek the Keynesian revolution, at least in Britain, was in large part
due to the work of Nicholas Kaldor and to a lesser extent John Hicks. Friedrich Hayek, Hayek on
Hayek (London, 1994), 76.
66
J.M. Keynes, 'Credit Control', in The Collected Writings of John Maynard Keynes, vol. 11 (eds.),
Elizabeth Johnson and Donald Moggridge (Cambridge 1983), 420-427.
52
Hayek published his lectures at the L.S.E. together as Prices and Production.67 In the
lectures he argued, contrary to Keynes, that, attempts to counter the trade cycle would
only lead to a further disruption of the overall economic order. ‘And so, we arrive’
wrote Hayek at the end of his third lecture, ‘at results which only confirm the old truth
that we may perhaps prevent a crisis by checking expansion in time, but that we can
do nothing to get out of it before its natural end, once it has come.’68 While Keynes
encouraged government action through credit expansion, Hayek warned that we ‘must
leave it to time to effect a permanent cure by the slow process of adapting the
structure of production to the means available for capital purposes.’69
Hayek’s lectures were elegant and seemed to impress his audience, despite the fact
they found it difficult to understand his thick Austrian accent.70 So much was this the
case that he received an almost immediate invitation from Lionel Robbins to teach at
the L.S.E., albeit initially as a visiting professor. Despite their elegance, the idealised
market possessed of self-correcting tendencies that the lectures had implied did not
reflect global economic realities. The UK had already undergone four consecutive
quarters of negative growth by the time the lectures were published in September
67
Friedrich Hayek, Prices and Production (London, 1935).
Hayek, Prices and Production, 99.
69
Hayek, Prices and Production, 99. The disagreement between Hayek and Keynes was based on a
fundamental methodological difference. Keynes believed that government could impact the economy at
a macro level. For Hayek this was doubly wrong. Keynes put too much faith in the aggregate data
increasingly employed by economists and was too optimistic about their ability, by employing
government power, to put things right. General measures, such as the general price level, could not be
expected to take account of the many differences that occurred at the micro level: interventions on this
basis would therefore only cause further distortions. Hayek’s attachment to a conception of the market
as self-correcting, taken from Menger, Smith and Hume led him to warn against any action on the part
of government to shape the overall economic order. See Andrew Gamble, Hayek, 153.
70
He would later recall however that this elegance was in many ways a result of not having worked
through all the complications of his theory. See Hayek, Hayek on Hayek, 67.
68
53
1931, and the number of unemployed was approaching three million.71 September
was also the first month of the new coalition National Government, formed in the face
of a mounting international financial crisis. One of the government’s first actions was
to bring Britain off the gold standard, as Bank of England reserves appeared ready to
run out.72 For Hayek, this marked the beginning of the ‘inglorious years’ during
which Britain ‘transformed its economic system beyond recognition.’73 In October
the National Government was granted an electoral mandate with Conservative MPs
dominating the coalition. The main economic concern of the government was
maintaining a balanced budget through cutting spending and increasing trade. The
Conservatives were in favour of protection and an ‘emergency tariff’ was introduced
in November in order to deter anticipatory importing ahead of expected longer term
measures. These were subsequently introduced in February 1932 under the Import
Duties Act.74 In the wake of the Ottawa conference of July and August 1932, a
system of ‘Imperial Preference’ was established to encourage trade across the Empire
by increasing the cost of imports from outside it.75
While supportive of balanced budgets, this ‘empire preference’ involved a further
measure that undermined Hayek’s vision of a healthy economic system: the
introduction of tariffs following the 1932 Ottawa conference. Thus the two pillars of
71
Bank of England Publications ‘Three Centuries of Data’ accessed at
www.bankofengland.co.uk/publications/.../threecenturiesofdata.xls on 05.08.15; J Mitchell, SN
Solomou, and M Weale (2009), ‘Monthly and quarterly GDP estimates for interwar Britain’, National
Institute of Economic and Social Research Discussion Paper 348 (2009).
72
Barry Eichengreen and Peter Temin, ‘The Gold Standard and the Great Depression’, Contemporary
European History 9:2 (2000), 183-207. Hayek remained persuaded of the benefits of the gold
standard.
73
Friedrich Hayek, The Road to Serfdom (London, 2001), 12.
74
Forrest Capie, Depression and Protectionism: Britain between the Wars (Oxford, 2003).
75
Alan Booth and Melvyn Pack, Employment, Capital and Economic Policy: Great Britain 1918-1939
(New York, 1985), 58.
54
classical liberal political economy, free trade and the gold standard, were both
conclusively rejected within a year of each other.
Hayek, unlike Keynes, was a firm supporter of the gold standard.76 For him it had
served as the fundamental means by which government control of money had been
limited. The requirement of specie payment in gold had prevented governments from
simply issuing money in whatever amounts it wished.77 The abandonment of gold by
countries across most of Europe in 1932, its effective suspension in the U.S. in 1933,
and France’s eventual desertion in 1936, removed this restriction and it also
undermined the rationale on which international trade was conducted. Hume, in
presenting his specie-flow mechanism, had argued that as trade increased, in a
country under the gold standard gold would flow into the country to the amount that
the value of exports exceeded imports. Consequently, without any need for central
bank action the amount of money would increase and decrease as required, resulting
in commensurate rises and falls in the value of gold. Higher prices would make
exports more expensive and so the international system would tend again towards
equilibrium, all without the need of government.
Instead of an internationally networked world of trade, the decline of the system had
instead resulted in ‘monetary nationalism’, undermining any last remnants of the 19th
century liberal order. ‘But let me say at once’ he wrote, ‘…that when I describe the
76
Nonetheless, he was aware of the deficiencies of the standard, not least the fact that increases in the
amount mined, rather than the demands of business, altered the amount of money in circulation.
77
Friedrich Hayek, ‘The Fate of the Gold Standard’ [1932] in Good Money Part One: The Collected
Works of FA Hayek, Vol. 5 (ed.) Stephen Kresge (Chicago, 1999), 153-168. Despite a keen awareness
of the history of British economic thought, Hayek makes no reference to an on-going issue of 19th
century economics: the viability of a bimetallic standard. The matter was not of direct theoretical
relevance to his basic concern to limit government control of money. He would later write that ‘The
possibilities of bimetallism are irrelevant for our present problems.’ See Friedrich Hayek, ‘The
Denationalisation of Money’ in Good Money Part 2, The Collected Works of FA Hayek, Vol. 6 (ed.),
Stephen Kresge (London, 1999), 140.
55
doctrines I am going to criticize as Monetary Nationalism I do not mean to suggest
that those who hold them are actuated by any sort of narrow nationalism. The very
name of their leading exponent, J.M. Keynes testifies that this is not the case.’78 For
Hayek the real drawback of the gold standard as it had operated previously was that it
had not been truly international enough, ‘instead, there had been a ‘mixed
system…better called a gold nucleus standard’ where gold had underpinned national
currencies. 79 Under such a system international redistributions of money occurred
partly by a transfer of money from country to country, but largely by a contraction of
the credit superstructure in one country and an expansion of the credit superstructure
in the other. The ideal for Hayek would have been a ‘homogeneous international
monetary system…only an international gold standard with exclusive gold circulation
in all countries would conform to this picture.’ But, he added, ‘this has never
existed.’80 Nevertheless, the gold standard had ultimately reflected real movements in
trade because ‘the final result, the change in the relative value of the total quantities of
money in the different countries, is brought about by a corresponding change in the
quantity of money, the number of money units, in each country.’81 Thus the global
system tracked Hume’s specie –flow theory even if it did not tightly conform to it.
Remarkably, given the decentralised nature of his later thought, in 1937 Hayek was of
the opinion that ‘a really rational monetary policy could be carried out only by an
international monetary authority’, but he concluded that, at least the standard as it had
operated was ‘far preferable to numerous independent and independently regulated
national currencies.’82 Over the ‘30s Hayek shifted ground somewhat from qualified
78
Friedrich Hayek, ‘Monetary Nationalism and International Stability’ [1937] in Good Money Part
Two, The Collected Works of FA Hayek, Vol. 6 (ed.), Stephen Kresge (London, 1999), 40.
79
Hayek, ‘Monetary Nationalism and International Stability’, 50.
80
Hayek, ‘Monetary Nationalism and International Stability’, 44.
81
Hayek, ‘Monetary Nationalism and International Stability’, 50.
82
Hayek, ‘Monetary Nationalism and International Stability’, 99.
56
support for the gold standard to endorsing a ‘commodity reserve currency’.83 Rather
than have the value of money tied to gold, he advocated that the standard could
instead be set by a basket of production goods, ‘the basic idea is that currency should
be issued solely in exchange against a fixed combination of warehouse warrants for a
number of storable commodities and be redeemable in the same “commodity unit”’.84
This unit could then function in an international, effectively self- correcting system of
international trade where transfers of money across borders would have an equivalent
effect on the value of currencies, in the manner first described by Hume. He again
made the point that his fundamental concern was that government should not be able
to alter the value of money as it chose and the ‘great need’ was ‘for a system under
which these controls are taken from the separate bodies which can but act in what is
essentially an arbitrary and unpredictable manner and to make the controls instead
subject to a mechanical and predictable rule.’85
Within six months of Hayek’s initial lectures a the L.S.E. he had sought to engage
Keynes with the first part of a review the Treatise published in the August 1931 issue
of Economica.86 Hayek severely criticised Keynes for ignoring the early work of
Knut Wicksell, upon whose theory of the natural rate of interest Keynes had, like
Hayek, based much of his argument. Keynes’ reaction was robust. In the November
issue, whilst largely granting Hayek’s criticism, he went on to archly dismiss Prices
and Production, just out in print, as ‘one of the most frightful muddles I have ever
83
It was a scheme already proposed independently by Benjamin Graham of New York and Frank
Graham of Princeton. See Friedrich Hayek, ‘A Commodity Reserve Currency’ [1943] in Good Money
Part Two: The Collected Works of FA Hayek, vol. 6 (ed.) Stephen Kresge (Chicago, 1999), 106-114.
84
Hayek, ‘A Commodity Reserve Currency’, 109.
85
Hayek, ‘A Commodity Reserve Currency’, 114.
86
Friedrich Hayek, ‘Reflections on the Pure Theory of Money of Mr JM Keynes’ in Contra Keynes
and Cambridge: The Collected Works of FA Hayek, Vol. 9 (ed.), Bruce Caldwell (Chicago, 1995), 121146.
57
read, with scarcely a sound proposition in it beginning with page 45, and yet it
remains a book of some interest, which is likely to leave its mark on the reader. It is
an extraordinary example of how, starting with a mistake, a remorseless logician can
end up in Bedlam.’87 In the months following November, the pair exchanged
correspondence but Keynes never responded to the second half of the review, out in
February 1932, preferring instead to improve his own theory.88 The final result would
be the most significant work on economics since Smith’s The Wealth of Nations, his
General Theory of Employment, Interest and Money published in 1936.89 That Hayek
never chose to review this work has been the subject of some conjecture.90 Hayek
offered a variety of reasons for the apparent oversight, chief among them that Keynes
was so apt to change his mind on theory that it hardly seemed worth the effort.91
Certainly, Keynes was a mercurial mind but the actual reason may be that Hayek was
far from clear about his own theory and so unable to offer the comprehensive
criticism of The General Theory that it undoubtedly warranted. As Hayek later
recognised the invitation to the lectures had arrived ‘when I had for the first time a
clear picture of this theory but had not yet gone into all the complicated details. If I
had progressed in working out an elaborate treatise, I would have encountered any
number of complications and would have produced a very difficult treatise.’92 He
would struggle on with the complications and ‘under the pretext that otherwise the
war might make completion of the work impossible’ sought the publication of The
Pure Theory of Capital in 1941. It went largely unnoticed and remains little read. In
87
J.M. Keynes, ‘The Pure Theory of Money: A Reply to Dr. Hayek’, Economica (1931), 387-397.
Keynes’s colleague Piero Sraffa did however keep up the criticism of Hayek issuing from Cambridge.
See Piero Sraffa, ‘Dr Hayek on Money and Capital’, Contra Keynes and Cambridge: The Collected
Works of FA Hayek, Vol. 9 (ed.), Bruce Caldwell (Chicago, 19995), 198-209.
89
J.M. Keynes, The General Theory of Employment, Interest and Money (London, 1936).
90
Susan Howson, ‘Why Didn’t Hayek review Keynes’s General Theory?’, 369-74.
91
Hayek, Hayek on Hayek, 79.
92
Hayek, Hayek on Hayek, 67.
88
58
contrast The General Theory, would inform government policy before the war while
in the decades after its arguments provided the basics of respectable economic
theory.93
Fundamental to the disagreement between Hayek and Keynes and his followers was
their conception of the economy. For Hayek, although the business cycle was an
unfortunate reality, it was best left to take its own course. For Keynes, it was entirely
possible that the economy could enter a state in which unemployment would remain
high and output low in the absence of government action. As he wrote in The General
Theory ‘The right remedy for the trade cycle is not to be found in abolishing booms
and thus keeping us permanently in a quasi-slump, but in abolishing slumps and thus
keeping us in a quasi-boom.’94 For Hayek the economy tended towards equilibrium
over the long run, for Keynes there was no reason to assume it would. The debate
between the two was undoubtedly one of the defining moments in Hayek’s career. It
was also the inflationary effects of the long-term, Keynesian inspired, post war
‘quasi-boom’ that would occasion Hayek’s return to the attention of the economics
profession in the 1970s.95
93
There has been significant debate about the extent to which the government came to adopt what
might loosely be called Keynesian, rather than planning, responses to the depression. The most fruitful
period of this lengthy debate was from the mid-70s to early 90s, following the collapse of the
‘Keynesian consensus’. For an early in depth work from this period see Susan Howson, Domestic
Monetary management in Britain, 1919-38 (Cambridge, 1975).
94
J.M. Keynes, The General Theory, 322.
95
David Laidler, ‘The 1974 Hayek-Myrdal Nobel Prize’ in Hayek: A Collaborative Biography, Part
1 Influences from to Bartley (ed.), Leeson, Robert (London, 2013), 71-73.
59
4. The Socialist Calculation Debate
A further reason for what would turn out to be Hayek’s fateful decision not to deal
squarely with The General Theory is that he was engaged upon a second front in his
campaign against the power of government. Both Hayek and Keynes shared a
fundamentally liberal outlook. For Hayek Keynes’s economic theory was misguided,
nonetheless as Hayek had been keen to point out, Keynes was no nationalist, and he
was no socialist either. He may have misunderstood the market, but he never sought
to destroy or replace it, indeed his intention was to save it.96 In the 1930s that
Keynesian project was still in its nascent stage. Much more of a threat, both in terms
of the breadth of its appeal and the radical nature of the challenge it posed to the free
market system, was the variegated and often loosely defined concept of ‘economic
planning’. That opposition caused Hayek to think more in terms of individual
freedom than monetary theory.
To understand Hayek’s response to the planners it is necessary to return to his first
years at the L.S.E.. In 1932, its director William Beveridge, asked Lionel Robbins if
he cared to invite Hayek to take up the long vacant Tooke Chair of Economic
Science. He accepted later observing, ‘I mean if you are thirty-two a professor at the
London School of Economics, you don’t have further ambitions.’97 Hayek delivered
96
Nonetheless Keynes was an ethical liberal and not wholeheartedly an economic one like Hayek. He
never abandoned the position he set out in 1926 that ‘capitalism, wisely managed, can probably be
made more efficient for attaining economic ends than any alternative system yet in sight, but that in
itself it is in many ways extremely objectionable.’ See J.M. Keynes, John, Maynard, The End of
Laissez Faire (London, 1926), chapter 5.
97
Angus Burgin, The Great Persuasion: Reinventing Free Markets Since the Depression (Cambridge
MA, 2012). 24.
60
his inaugural address, ‘The Trend of Economic Thinking’, in the spring of 1933.98 It
set out how he conceived of the discipline and in doing so touched on many of the
methodological issues that would exercise him for the rest of his career even as his
focus expanded beyond purely economic matters. The recent dispute with Keynes
was passed over. Instead the theme was a firm rejection of those doctrines, which
Hayek traced back to the younger German Historical School, that sought to rationally
plan the economy.
In his address Hayek observed that ‘it is probably no exaggeration to say that
economics developed mainly as the outcome of the investigation and refutation of
successive Utopian proposals’ and,
From the time of Hume and Adam Smith, the effect of every attempt to
understand economic phenomena—that is to say, of every theoretical
analysis—has been to show that, in large part, the coordination of individual
efforts in society is not the product of deliberate planning, but has been
brought about, and in many cases could only have been brought about, by
means which nobody wanted or understood, and which in isolation might be
regarded as some of the most objectionable features of the system… The
recognition of the existence of this organism is the recognition that there is a
subject-matter for economics.99
98
Friedrich Hayek, ‘The Trend of Economic Thinking’ [1933] in The Trend of Economic Thinking:
The Collected Works of FA Hayek, Vol. 3 (eds.), W.W. Bartley III and Stephen Kresge (London, 1991),
13-30.
99
Hayek, ‘The Trend of Economic Thinking’, 15.
61
Hayek himself was engaged in such a campaign of investigation and refutation as he
delivered these words. If Keynes had been his initial adversary on arriving in London
he had forgotten none of the older continental debates he had experienced in Vienna.
He was to introduce these to an English speaking audience in 1935 with his edited
volume Collectivist Economic Planning.100 Hayek’s volume was aimed not just
against old style direct planning, but also against more recent proposals for forms of
market socialism. These he dismissed as poor imitations of the free market. The
volume presents and develops the free market side of the ‘socialist calculation
debates’, which had been initiated by a 1920 essay, ‘Economic Calculation in the
Socialist Commonwealth’, by Hayek’s earlier aid and influence Ludwig von Mises.101
In the introduction Hayek outlined the history of the debate he went through the
various forms in which socialism has been proposed. In addition to Mises, he noted
that both Max Weber and the Russian economist Boris Brutzkus, arrived at similar
conclusions about ‘the impossibility of rational calculation in a centrally directed
economy’ at around the same time as Mises made the most significant critique. 102
After the Bolshevik revolution of 1917, and a number of failed communist revolutions
throughout Europe following the defeat of Germany and Austria Hungary, the
question of whether a socialist economy was possible ceased to be a matter of
technical debate and became instead one of immediate political importance. The
central concern then was rationality: whether it is more rational to plan an economy,
or whether the allocation of resources should be left to competition. Mises had
argued against the position advanced by Otto Neurath, who had served as the
100
Friedrich Hayek, Collectivist Economic Planning (London, 1935).
Ludwig von Mises, ‘Economic Calculation in the Socialist Commonwealth’, Collectivist Economic
Planning (ed.), Friedrich Hayek (London, 1935), 87-130.
102
Friedrich Hayek, ‘The Nature and History of the Problem’ [1935] in Collectivist Economic Planning
(ed.), Friedrich Hayek (London, 1935), 35.
101
62
President of the Central Planning Office in the Bavarian Soviet Republic, that the
methods of planning and war economy developed during the First World War could
be fruitfully pursued during peacetime.103 There are three key elements to Mises’s
critique of socialism. First, that it is not possible to calculate what a worker should be
paid in labour time alone as ‘labour is not a uniform and homogeneous quantity’ and
as such ‘the remuneration of labour cannot but proceed on an arbitrary basis.’104
Remuneration must therefore become a political decision to be taken by government.
Second, moving on to the more important issue of exchange, Mises noted that even
under socialism where for example ‘each comrade receives a bundle of coupons,
redeemable within a certain period against a definite quantity of certain specified
goods’, it would not be necessary ‘that every man should consume the whole of his
portion’. Exchanges of consumer goods could still be allowed to take place according
to people’s preferences, even perhaps retaining money as the medium of exchange.
And yet while some veneer of rationality may still pertain at the level of lower order
consumption goods, this merely conceals the irrationality brought about by the fact
that ‘under socialism all the means of production are the property of the
community’.105 The result is that there can be no market for higher order production
goods such as iron or coal, instead they must allocated in natura, in kind.
Accordingly,
All transactions which serve the purpose of meeting requirements will be
subject to the control of a supreme authority. Yet in place of the economy of
103
Friedrich Hayek, ’Ludwig von Mises’, 139. For the work that ‘provoked’ Mises to action see Otto
Neurath, Durch die Kriegwirtschaft zur Naturalwirtschaft [By the War Economy for Natural Economy]
(Munich, 1919), in which a number of Neurath’s articles are collected. The title can be translated as
‘Through War Economy to Natural Economy’.
104
Mises, ‘Economic Calculation in the Socialist Commonwealth’, 94.
105
Mises, ‘Economic Calculation in the Socialist Commonwealth’, 90-91.
63
the “anarchic” method of production, recourse will be had to the senseless
output of an absurd apparatus. The wheels will turn, but will run to no
effect.106
The best a socialist economy can hope for is to proceed upon the basis of ‘vague
estimates’ as change can neither be appraised in advance nor retrospectively
determined. ‘There is only groping in the dark’ Mises argued and ‘socialism is the
abolition of rational economy’.107 A third criticism Mises makes of socialism is that
without the profit motive there is no pressure for the ‘reform and improvement of
production’ and that as conditions change existing procedures become ‘a dead limb in
the economic organism. All attempts to breathe life into them have so far been in
vain.’108 The lack of rational calculation in production goods also resulted in Mises
dismissing Lenin’s recent pronouncements that Russian communism’s most pressing
task is ‘the organisation of bookkeeping and control of those concerns, in which the
capitalists have already been expropriated, and of all other economic concerns.’109 In
the absence of money prices for production goods the numbers on the page bear no
relationship to reality.110
106
Mises, ‘Economic Calculation in the Socialist Commonwealth’, 106.
Mises, ‘Economic Calculation in the Socialist Commonwealth’, 110.
108
Mises bases this on the supposed fact that ‘we are in the position to survey decades of state and
socialist endevour’. However, He does not specify what his data is in this respect. See
Mises,‘Economic Calculation in the Socialist Commonwealth’, 118.
109
V. I. Lenin Die nächsten Aufgaben der Sowjetmacht [The Immesiate Tasks of Soviet Power ](Berlin,
1918) in Mises, ‘Economic Calculation in the Socialist Commonwealth’, 125.
110
Curiously, Mises notes how Lenin’s vision of proper accounting reveals him to be a socialist not a
syndicalist. This is ‘not extraordinary of Lenin the theorist’ but it is for Lenin the statesman who Mises
describes as having led an essentially syndicalist rather than a socialist revolution since 1917. Lenin of
course never claimed to be syndicalist and would likely have been surprised to hear the revolution
described in such terms. This perhaps should serve as a reminder of how recent the revolution was,
and how incomplete popular and expert understanding of it also was.
107
64
Many socialists and planners, argued Hayek, had ignored Mises’ criticisms and
continued to think, if they thought at all beyond the generality that to plan must be
better than not to plan, in the terms offered by Neurath some sixteen years
previously.111 Hayek offered the economic difficulties that had been faced in Russia
as evidence that an embrace of crude planning confirmed the arguments Mises made
in 1920. Yet there were other socialists who had seen the validity of Mises criticisms
and had sought to engage with them by discussing how a socialist market economy,
one that still sought to make use of money and the price mechanism, might function.
It was these various solutions to the problem posed by Mises that Hayek took to task
in his conclusion to the volume.112 Regarding schemes to introduce a competitive
element into socialism Hayek concluded that,
it will at best be a system of quasi competition where the person really
responsible will not be the entrepreneur but the official who approves his
decisions and where in consequence all the difficulties will arise in connection
with freedom of initiative and the assessment of responsibility that are usually
associated with bureaucracy.113
Indeed, Hayek comments that such attempts at ‘pseudo competition’ would in some
respects simply combine the most problematic aspects of full central planning and a
system of free competition. In ‘The Trend of Economic Thinking’, Hayek had
commented that ‘so effective is the system of free competition, based upon the myriad
actions of individuals within the system, that even if it were possible for a dictator to
111
Friedrich Hayek ‘The Nature and History of the Problem’, 1-3; Friedrich Hayek ‘The Present State
of the Debate’, 201.
112
Hayek, ‘The Present State of the Debate’, 201-243.
113
Hayek, ‘The Present State of the Debate’, 237.
65
control the entire economy, ‘the best the dictator could do in such a case would be to
imitate as closely as possible what would happen under free competition.’114
5. Knowledge and Freedom
Hayek had felt that much of what he sought to criticise in 1935 had to be gathered
‘from oral discussion among socialist economists, since no systematic exposition of
the theoretical bases of competitive socialism was then available.’115 What was
however clear was that market socialist systems depended upon the replacement of
prices with other means of communicating knowledge about needs and preferences.
It was the possibility of this Hayek sought to refute when he rose to deliver his
presidential address to the London Economic Club on November 10th 1936.
The title of the paper was ‘Economics and Knowledge’. 116 Over forty years later
Hayek would recall that it ‘was with a feeling of sudden illumination, sudden
enlightenment that I…I wrote that lecture in a certain excitement’. The paper had
deep significance both for the practice of economics and for political economy more
generally. It sought to reframe economic problems as problems involving the
utilisation of knowledge, ‘I was aware’ wrote Hayek, ‘that I was putting down things
which were fairly well known in a new form. And perhaps it was the most exciting
moment in my career when I saw it in print.’ The idea that knowledge is dispersed,
and that it is best used by free agents in competition and collaboration with one
114
Hayek, ‘The Trend of Economic Thinking’, 30.
Friedrich Hayek, ‘Socialist Calculation: The Competitive “Solution”’ [1940] in Socialism and War:
The Collected Works of FA Hayek Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 120.
116
‘Economics and Knowledge’ [1936] in Individualism and Economic Order (Chicago, 1948), 33-56.
115
66
another, Hayek would call the ‘one discovery’ of his career, and it was a major factor
in his being awarded the Nobel Prize for Economics in 1974.117
As Bruce Caldwell has shown, the paper involves a shift from a static to a dynamic
model of equilibrium. Fundamental to Hayek’s argument against planning was that it
was impossible for individuals in an economic system to have ‘foresight’ of the
actions of others.118 Don Lavoie however later criticised Collectivist Economic
Planning for not bringing this out forcefully enough. Hayek gave the impression, he
argued, that if only all the countless individual calculations that affect a single price at
a given moment could be computed centrally, then planning might still be possible.119
Rather, Hayek should have made the case more firmly that the fatal deficiency of
planning is that it requires the impossible foresight of future wants and needs. This
was to become more clearly apparent in ‘Economics and Knowledge’. In the paper
Hayek argued that the static, or pure, model of equilibrium that had hitherto
influenced his arguments against Keynes and others, does not accurately reflect the
real world.120 ‘I have long felt that the concept of equilibrium itself and the methods
which we employ in pure analysis have a clear meaning only when confined to the
analysis of the action of a single person’ Hayek stated, ‘and that we are really passing
into a different sphere and silently introducing a new element of altogether different
character when we apply it to the explanation of the interactions of a number of
117
Caldwell, Hayek’s Challenge, 206. See also Friedrich Hayek interview with Armen Alchian, ‘Nobel
Prize Winning Economist’ (11th November, 1978). Accessed at
http://www.hayek.ufm.edu/index.php?title=Category:Armen_Alchian 08.08.16.
118
For example, Friedrich Hayek, ‘Competition as a Discovery Procedure’ [1968] in New Studies in
Philosophy, Politics, Economics and the History of Ideas (London, 1978), 179-190.
119
Don Lavoie, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered
(Cambridge, 1985). Some have advanced the predictive as well as the computational power of
computing in answer to Hayek’s critique of planning. For an account of the history of the Socialist
Calculation Debate and its subsequent interpretation see Allin Cottrell and Paul Cockshott,
‘Calculation, Complexity and Planning’, Review of Political Economy 5:1 (1993), 73-112.
120
It should be mentioned that prior to ‘Economics and Knowledge’ Hayek seemed to stray between
slightly different interpretations of static equilibrium. See Caldwell, Hayek’s Challenge, 159.
67
different individuals.’121 For him, economists had made the mistake of assuming that
the economic data they use in their modelling had also been given to all the economic
agents within the model, but this was not at all the case. In a real economy, people
change their plans either due to their own subjective revisions, or due to an objective
change in circumstances. Nevertheless, so long as each remains fully aware of the
others’ plans, ‘equilibrium will continue, once it exists, so long as the external data
correspond to the common expectations of all the members of society. The
continuance of a state of equilibrium in this sense is then not dependent on the
objective data being constant in an absolute sense and is not necessarily confined to a
stationary process’. Of course, plans will often be changed and ‘equilibrium
connections will be severed’.122 Overall however the tendency towards equilibrium
over time will prevail. Thus Hayek’s model of equilibrium shifts from static to
dynamic.123 However, having recently read Karl Popper’s The Logic of Scientific
Discovery, Hayek conceded that verification of this is highly problematic.124 ‘I am
afraid’ he admitted, ‘that I am now getting to a stage where it becomes exceedingly
difficult to say what exactly are the assumptions on the basis of which we assert that
there will be a tendency toward equilibrium and to claim that our analysis has an
application to the real world. I cannot pretend that I have as yet got much further on
this point.’125 He never really got much further on it, yet he maintained that the
tendency existed and thus remained faithful to his conception of the economy as selfcorrecting in the long term.
For Hayek, ‘the division of knowledge… is quite analogous to, and at least as
121
Hayek, ‘Economics and Knowledge’, 35.
Hayek, ‘Economics and Knowledge’, 52.
123
For a much fuller expert treatment of this complex issue see Caldwell, Hayek’s Challenge, 205-231.
124
Karl Popper, The Logic of Scientific Discovery (London, 2002).
125
Hayek, ‘Economics and Knowledge’, 48.
122
68
important as, the problem of the division of labour’ and,
The problem which we pretend to solve is how the spontaneous interaction of
a number of people, each possessing only bits of knowledge, brings about a
state of affairs in which prices correspond to costs, etc., and which could be
brought about by deliberate direction only by somebody who possessed the
combined knowledge of all those individuals. Experience shows us that
something of this sort does happen, since the empirical observation that prices
do tend to correspond to costs was the beginning of our science. But in our
analysis, instead of showing what bits of information the different persons
must possess in order to bring about that result, we fall in effect back on the
assumption that everybody knows everything and so evade any real solution of
the problem.126
Those old assumptions no longer satisfied Hayek. In the absence of complete
knowledge, the crucial empirical task must be concerned with ‘propositions about the
acquisition of knowledge.’127 The central question became ‘how can the combination
of fragments of knowledge existing in different minds bring about results which, if
they were to be brought about deliberately, would require a knowledge on the part of
the directing mind which no single person can possess?’128
It was this question that first moved Hayek to consider ‘the abstract rules which the
individual follows in his actions, and the abstract overall order which is formed as the
result of his responding, within the limits imposed upon him by those abstract rules,
126
Hayek, ‘Economics and Knowledge’, 51.
Hayek, ‘Economics and Knowledge’, 46.
128
Hayek, ‘Economics and Knowledge’, 54.
127
69
to the concrete particular circumstances which he encounters.’129 This is the crucial
significance of the paper. Not simply that it involved a shift from static to dynamic
equilibrium, but that the shift led Hayek to consider the social conditions necessary
for coordination to be achieved. He had been committed to free market action for
some time. This paper would, as he later reflected, cause him to embark upon ‘a reexamination of the age old concept of freedom under the law, the basic conception of
traditional liberalism.’ 130 It was becoming apparent to him that only a regime of
legally guaranteed liberty would allow for the market freedoms Hayek wished to
preserve. From this, the idea of liberty itself would become his central focus and
would inform his later positions regarding the relationship between government,
democracy and the economy.
A closer engagement with freedom was signalled by Hayek’s 1939 pamphlet
‘Freedom and the Economic System’.131 In addition to signalling Hayek’s first
sustained writing on the issue of freedom, the work is interesting for the way in which
Hayek approaches the issue. The argument is framed in such a way that the
intellectual and cultural benefits of freedom are portrayed as paramount. This
resembles the New Liberal concern for self-development. Later in his career Hayek
would stress the importance of market freedom on other grounds, such as the size of
the population it can support.132 However, here Hayek goes on to assert that the
benefits of free intellectual life can only be enjoyed if first there is control over one’s
129
Hayek, ‘Kinds of Rationalism’, 92.
Hayek, ‘Kinds of Rationalism’, 92.
131
Friedrich Hayek, ‘Freedom and the Economic System’[1939],189-212. A shorter version had
appeared the year previously in the Contemporary Review: Friedrich Hayek, ‘Freedom and the
Economic System’[1938] in Socialism and War, 181-188.
132
Friedrich Hayek, ‘The Atavism of Social Justice’ in New Studies, 65. For an exploration of Hayek’s
thought about population and its relationship to Michel Foucault’s concept of biopolitics, see Jörg
Spieker, ‘Defending the Open Society: Foucault, Hayek, and the Problem of Biopolitical Order’,
Economy and Society 42:2 (2013), 304-321.
130
70
‘economic life’. Only when freedom is conceived of as market conduct, and
government kept as far out of economic life as possible, will all the other freedoms of
cultural, intellectual and artistic freedom become possible. ‘State control over
economic life, which is so generally wanted’, argued Hayek, must ‘necessarily lead to
the suppression of intellectual and cultural freedom’ as only ideas that promoted the
plan would be tolerated.133 While still engaging with the issue on the same intellectual
terrain as the New Liberals, his political recommendations are the reverse.
Government could not extend freedom, rather it should be considered primarily as a
source of threat. Another key feature of the pamphlet is the assertion that ‘the price
we have to pay for a democratic system is the restriction of state action to those fields
where agreement can be obtained’ and he argued that ‘the increasing discredit into
which democratic government has fallen is due to democracy having been burdened
with tasks for which it is not suited.’134 How democratic politics had themselves
brought this situation about must now be explored.
133
Hayek, ‘Freedom and the Economic System’, 191.
What exactly constitutes agreement, given that most decisions in a democracy are taken on a
majority basis, is not explained. A majority makes decisions on taxation and spending, as it does
regarding what might constitute a new illegal act. Presumably Hayek would consider these decisions
are made ‘by agreement’ otherwise all government must be considered illegitimate. If a majority were
to agree on planning however that would still not make it legitimate in Hayek’s eyes.
134
71
Chapter Two: Democracy and the Threat to the Liberal Order
1. Introduction-Slippery Centre Ground
Government was a threat to free market action because the economy had become the
object of politics. If Hayek thought in dualities then the separation of the economic
and the civic sphere was his fundamental binary.1 The distinction between the
economic and the civic had in part been eroded by the offers of experts to provide a
way out of the dire economic situation of the 1930s. However, there was something
more fundamental at work: the way in which a mass electorate had come to believe it
was the role of government to ensure welfare and economic prosperity. Unlike
Russia, or parts of central Europe after the First World War, where revolution had
been the catalyst to governmental assaults on economic freedom, in 1930s Britain
Hayek argued, it was the nature of parliamentary democracy and its demands for
improved economic outcomes that posed the danger. Hayek’s insistence that freedom
equated to free market action led him to consider government economic action a
threat. But the contemporary threat posed by government took the shape it did
because it had become the prisoner of democratic demands.
1
However ahistorical this may have been, for Hayek it was indispensible to the liberal order. Victorian
Britain functions as the period when this distinction reached a high point in Hayek’s thought. Hayek’s
defence of the industrial revolution can be found in his introduction to Capitalism and the Historians.
See Friedrich Hayek, Friedrich Hayek, ‘History and Politics’ [1954] in Capitalism and the Historians
(ed.), Friedrich Hayek (London, 1954). 3-32 Hayek never provides a detailed defence of his position
that the 19th century was both liberalism’s high point and the period in which the separation between
the economic and the civic was most closely realised. It is rather assumed. Here the influence of Carl
Schmitt may be significant. See section two. For a very different contemporary description of the
relationship between the government and the economy, which viewed government as the midwife of
‘market society’ see Karl Polanyi, The Great Transformation: The Political and Economic Origins of
Our Time (New York, 1944). For an argument that Hayek thought in binary terms see Andrew
Gamble, Hayek: The Iron Cage of Liberty (Cambridge, 1996), 31.
72
The debates in which Hayek had engaged in Collectivist Economic Planning were at
once old and overly au courant. The debate between Mises and Neurath had taken
place fifteen years earlier in a very different post war world; the arguments for market
socialism were so new they had gained little purchase outside an expert field.
Nevertheless, Keynes’s observation that ‘practical men, who believe themselves to be
quite exempt from any intellectual influence, are usually the slaves of some defunct
economist’ and likewise ‘madmen in authority, who hear voices in the air, are
distilling their frenzy from some academic scribbler of a few years back’ was apt.2
Planning remained in vogue and where it did it was frequently discussed in the sort of
generalities one might expect had the socialist calculation debates never taken place at
all.
Supporters of planning were to be found across all parties.3 In the Labour Party,
where socialism was an avowed aim and where, under Fabian influence this socialism
was always likely to take statist forms, the majority were unsurprisingly in favour of
‘socialist planning’ and the nationalisation of all major industries.4 Among
conservatives also, there were growing calls for greater state economic involvement.
In 1938 MacMillan reflected on the effect of the economic crisis, in a book
revealingly entitled The Middle Way, writing that ‘throughout the whole of the postwar period there had been growing an uneasy consciousness of something radically
2
J.M Keynes, The General Theory of Employment, Interest and Money, The Collected Writings of
John Maynard Keynes, vol. 7 (eds.), Elizabeth Johnson and Donald Moggridge (Cambridge, 1978),
283-384.
3
Arthur Marwick has argued that the formation of the National Government in 1931 encouraged talk
of planning by blurring party lines and facilitating cross party discussion of such ideas. See Arthur
Marwick, 'Middle Opinion in the Thirties', English Historical Review 79:311 (1964), 293. It is worth
noting that the Conservatives dominated the coalition. See Nick Smart, The National Government,
1931-40 (London, 1999).
4
Daniel Ritschel, The Politics of Planning: The Debate on Economic Planning in Britain in the
1930s (Oxford, 1997), 97-143. See also Andrew Thorpe, A History of The British Labour Party
(London, 2008), 86-101.
73
wrong with the economic system’ and that ‘one of the consequences of the crisis was
to confirm these suspicions and to liberate men's minds from a continued
subservience to the economic orthodoxy of the pre-war world.’5 Even in liberal
circles, around Lloyd George and his ‘The Next Five Years Group’, there was an
expectation that government must do more. Other organisations also promoted the
idea, such as the ‘Council of Action for Peace and Reconstruction’ and the leftist
‘Popular Front’. All proposed some form of planning as a means of preventing future
economic crises; all drew cross party support and portrayed their message as being on
the ‘centre ground’ of British politics.6 In these circles, ‘planning’ was increasingly
perceived as a way out of the economic crisis, as a middle way between laissez faire
capitalism and soviet style communism.7 For Hayek this was all dangerous nonsense
that resulted in ‘interventionist chaos’.8 According to the duality of his thought, there
could be no middle way and the tragedy of 1930s British politics was that no
significant group was arguing the liberal case any longer. 9 Moreover, if some
advocates of planning took encouragement from Russia or Italy or Germany then they
must also accept the concomitant consequences for individual freedom.10
5
Harold Macmillan, The Middle Way (London, 1938), 7-8. MacMillan’s ideas, however, were by no
means mainstream within the party at this time. See D.R. Thorpe, Supermac: The Life of Harold
MacMillan (London, 2010), 89-146.
6
Daniel Ritschel, The Politics of Planning, 20-59; Martin Pugh, ‘The Liberal Party and the Popular
Front’, English Historical Review 121:4 (2006), 1327-1350; Peter Barberis, John McHugh, Mike
Tyldesley (eds.), Encyclopaedia of British and Irish political organizations parties, groups and
movements of the 20th century (London, 2005), 353.
7
Marwick, 'Middle Opinion in the Thirties', 285-298. Under Stalin’s Five Year Plans soviet economic
performance success seemed to stand in stark contrast to western failings.
8
Hayek, Collectivist Economic Planning (London, 1936), 22-24.
9
Neither could Hayek, Robbins and others necessarily find allies in business for their vision of the
market. Since the end of the First World War many of the measures put in place to protect British
businesses during the conflict had not been removed. Some were even extended, for example the 1920
Dyestuffs Act, preventing the import of substances applicable to the textile trade. See Derek Aldcroft,
The European Economy 1914-2000 (London, 2001), 4-61; L.P. Carpenter, ‘Corporatism in Britain’,
Journal of Contemporary History 11:1 (Jan, 1976), 3-25; Alan Booth and Melvyn Pack, Employment,
Capital and Economic Policy: Great Britain, 1918-1939 (Oxford, 1985), 58.
10
These were not few in number and included Oswald Mosley, at the time a radical Labour Party
member would go on to form the British Union of Fascists, see Robert Skidelsky, Oswald Mosley
(London, 1981). Also Sidney and Beatrice Webb, Fabians, founders of the L.S.E. and still influential in
Labour Party circles praised Stalin’s Russsia in Sidney and Beatrice Webb, Communism: A New
74
This Chapter will explore how Hayek’s most famous work, The Road to Serfdom
developed out of a response to his colleagues at the L.S.E. who regarded Nazism as
developing out of capitalism. It will proceed to explore how Hayek’s analysis of
developments in Germany were informed by the work of Carl Schmitt as a direct
consequence of the work being written to counter the decisionist theory he
expounded. Schmitt’s analysis, that democracy resulted in the decline of the liberal
state is of particular importance and is referred to as the Schmittian dilemma. The
chapter will go on to examine how Hayek responded to this dilemma by drawing on
the work of another group of German theorists, the Ordoliberals, before concluding
with an exploration of how Hayek’s book, intended to address the British situation but
employing very German forms of analysis and political thought, was received by its
British readership.
2. Nazi Socialism and origins The Road to Serfdom
Economic planning and the threat to free market action need not only be argued
against theoretically. Its effects could be witnessed, argued Hayek, by observing
developments in Nazi Germany, which was for him a planned economy in much the
same way soviet Russia was.11 What surprised Hayek was that many of his
Civilisation? (London, 1936). Even Lloyd George was to visit Hitler and approve of his oversight of
the German economy in 1936 see http://lloydgeorgesociety.org.uk/en/article/2008/0130361/lloydgeorge-and-hitler 15.06.16.
11
Hayek did nothing to draw out the different ways in which the two economies operated. For him,
both were examples of his monolithically conceived ‘planning’. The literature on the German Economy
under Nazism is vast. For an introductory overview see Adam Tooze, ‘The Economic History of the
Nazi Regime’ in Short Oxford History of Nazi Germany (ed.), Jane Caplan (Oxford, 2008), 168-194.
75
colleagues at the L.S.E. regarded Nazism, perhaps influenced by Trotsky’s analysis,
as a development of capitalist economics.12 As he later recalled,
A very special situation arose in England, already in 1939, that people were
seriously believing that National Socialism was a capitalist reaction against
socialism. It’s difficult to believe it now, but the main exponent whom I came
across was Lord Beveridge. He was actually convinced that these National
Socialists and capitalists were reacting. So I wrote a memorandum for
Beveridge on this subject.13
Hayek’s memory fails him slightly here. In fact, he had become alarmed at his
colleagues interpretation of Nazism not only in 1939, but much earlier. The memo to
which he refers was written in the spring of 1933, shortly after Hitler’s January
appointment to the German Chancellorship, and was entitled ‘Nazi Socialism’.14
Hayek’s use of Nazi Germany as an actually existing counterpoint to a liberal order
over the next decade might suggest there was a possibility of conducting an empirical
study of the effects of planning. If so, that was not an opportunity Hayek availed
himself of. Indeed, the early date of the memo shows how his opposition to Nazism
was formed at an early stage. Hayek’s opposition to Nazi planning was the same as
his opposition to any other sort of planning, and indeed to the post-war welfare state:
12
Leon Trotsky, ‘What is National Socialism?’, The Modern Thinker (October, 1933) Accessed at
https://www.marxists.org/archive/trotsky/germany/1933/330610.htm 13.07.16; Leon Trotsky, ‘Hitler’s
Programme’, Official Organ Of The Communist League Of Struggle 4: 4-5, (April-May 1934)
Accessed at https://www.marxists.org/archive/trotsky/1934/xx/hitler.htm 13.07.16.
13
Friedrich Hayek, Hayek on Hayek: An Autobiographical Dialogue (eds.), Stephen Kresge and Leif
Warner (London, 1994), 90. It is interesting that some decades later Hayek should regard the attitude
of his colleagues to Nazism as a sort of institutional curiosity when even, at that later date, it remained
probably the prevailing interpretation.
14
Friedrich Hayek, ‘Nazi Socialism’ (1933). Hayek Archive Box 105, Folder 102.
76
it was theoretical; it was moral and intellectual rather than empirical.15 Any apparent
difference between Nazism and Socialism, argued Hayek, were merely superficial:
The persecution of the Marxists, and of democrats in general, tends to obscure
the fundamental fact that National "Socialism" is a genuine socialist
movement, whose leading ideas are the final fruit of the anti-liberal tendencies
which have been steadily gaining ground in Germany since the later part of the
Bismarckian era, and which led the majority of the German intelligentsia first
to "socialism of the chair" and later to Marxism in its social-democratic or
communist form.16
One of the reasons Nazism had proved so successful was that ‘many capitalists are
themselves strongly influenced by socialistic ideas, and have not sufficient belief in
capitalism to defend it with a clear conscience’. Nonetheless, Hayek warned that ‘the
German entrepreneur class have manifested almost incredible short-sightedness in
allying themselves with a movement of whose strong anti-capitalistic tendencies there
should never have been any doubt.’17 Hayek recognizes however that this is not the
socialism of the proletariat but,
…but middle class socialism, and that it is, in consequence, inclined to favour
the small artisan and shop keeper and to set the limit up to which it recognizes
15
In its theoretical emphasis it is in keeping with the Austrian tradition more generally. Hayek does at
least make reference to ‘the famous 25 points drawn up by Herr Feder, one of Hitler's early allies,
repeatedly endorsed by Hitler’ in his memo. Gottfried Feder, an economist and early Nazi, had drafted
the 25 points along with Hitler and Anton Drexler in 1920 and was the most avowedly anti-capitalist of
the three. Yet on coming to power Hitler distanced himself from Feder and offered him the relatively
lowly position of under-secretary at the Ministry of Economics. See Oron James Hale,
‘Gottfried Feder Calls Hitler to Order: An Unpublished Letter on Nazi Party Affairs’, The Journal of
Modern History, 30:4 (1958) 358 -362.
16
Hayek, ‘Nazi Socialism’ HA 105:10.
17
Hayek, ‘Nazi Socialism’ HA 105:10.
77
private property somewhat higher than does communism. In the first instance,
it will probably nominally recognise private property in general. But private
initiative will probably be hedged about with restrictions on competition so
that little freedom will remain.18
Crucially, it was democratic politics that had brought about Nazi rule. Government
intervention as it had been conducted had been unable to deal with the crisis. The
Nazis promised even more radical types of planning in order to do so and thus were
elected to government on that basis. It was the particular nature of modern
democracy that had allowed ‘collectivists’ to assume the powers of government.19
Although it was the fear of Communism that drove many in the middle class to vote
for the Nazis, ‘it’s more than probable’ he wrote ‘that the real meaning of the German
revolution is that the dreaded expansion of communism into the heart of Europe has
taken place but is not recognised.’20
At the outbreak of the Second World War, the Ministry for Economic Warfare moved
into the L.S.E.’s Houghton Street campus and the School itself was relocated to
18
Hayek, ‘Nazi-Socialism’, HA 105:10.
Corey Robin has drawn on the work of Thomas Piketty in showing that German capital share of the
economy rose consistently following Hitler’s coming to power and was far in excess of that in the US
under Franklin Delano Roosevelt’s New Deal. See Corey Robbin ‘Capitalism and Nazism’. Accessed
at https://www.jacobinmag.com/2014/04/capitalism-and-nazism/ 29.09.15, Also Thomas Piketty,
Capital in the Twenty-First Century (London, 2014). Hayek held that the term ‘welfare state’ was
German in origin: Wohlfahrtstaat. Seee Friedrich Hayek, The Constitution of Liberty (Chicago, 1960),
447. However, the same may be said for the term ‘privatisation’ or Reprivatisierung. This was the
policy by which, as described by Germà Bel, ‘the Nazi regime transferred public ownership to the
private sector. In doing so, they went against the mainstream trends in western capitalistic countries,
none of which systematically reprivatized firms during the 1930s…privatization was used as a political
tool to enhance support for the government and for the Nazi Party.’ 19 See Germà Bel ‘Against the
Mainstream: Nazi privatization in 1930s Germany’, Economic History Review, 63:1 (2010), 34–55;
Germà Bel, ‘The Coining of “Privatization” and Germany’s National Socialist Party’, Journal of
Economic Perspectives 20: 3 (2006), 187–194. Whether Hayek’s concept of ‘middle class socialism’
answers this apparent contradiction of his analysis is a matter of debate.
20
Hayek, ‘Nazi-Socialism’, HA 105:10.
19
78
Cambridge where it occupied Peterhouse College.21 It was Keynes who helped
Hayek to find rooms at Kings and Hayek’s son Laurence recalled the two patrolling
the college roofs at night to check the blackout was being enforced.22 After some
months Hayek found a property with more space on Malting Lane to which he moved
his family.23 By the middle of 1940, the majority of Hayek’s colleagues in the
economics profession had been called upon by the government to participate in the
war effort. Being of Austrian birth and only having become a British citizen in 1938,
Hayek was prevented from doing so. Nonetheless he did try to offer his service to the
war effort. He wrote ‘Some Notes on Propaganda in Germany’ advising the BBC
regarding how best to appeal to a German audience.24 He also wrote offering his
services to the Ministry of Information suggesting he was especially qualified to help
organise and advise the propaganda effort, though he apparently received no reply.25
Hayek’s lack of official war work would only distance him further from many others
in the profession who were impressed by what planning could achieve when a clear
goal was set, whether it was aircraft production or the allocation of scarce resources
under rationing.26 His relative isolation and reduced teaching hours due to the
enlistment of potential students left him with time to fill. During this period he set
about what he envisaged would become a single multi volume work on ‘the abuse and
21
Ralf Dahrendorf, L.S.E.: A History of the London School of Economics and Political Science, 18951995 (Oxford, 1995).
22
Ebenstein, Hayek: A Biography (Basingstoke, 2001), 106.
23
Hayek, Hayek on Hayek (London, 1994), 46.
24
Friedrich Hayek ‘Some Notes on Propaganda in Germany’ (1939). Hayek Archive Box 61, Folder 3.
25
Friedrich Hayek letter to F.W. Ogilvie, Director General of the Ministry of Information (9th
September 1939). Hayek Archive Box 61, Folder 5. There is no reply in the Hayek archive.
26
Lionel Robbins provides perhaps the best example of just such a convert to the potential power of
government to achieve socially desirable ends. During the war he served at the head of the economists
advising the coalition government and subsequently accepted the basics of the new creed of Keynesian
demand management that came to the fore following victory. Susan Howson, Lionel Robbins
(Cambridge, 2011), 387-641.
79
decline of reason’ designed to answer the question that had begun to pose itself in
‘Freedom and the Economic System’: how had liberalism lost its way so badly? 27
These pieces were Hayek’s war effort. Eventually however this project, which was
published in parts as ‘Scientism and the Study of Society’ and ‘The Counter
Revolution of Science’, examined the way in which the methods of the natural
science were being applied to society in an attempt to plan it, and traced the
genealogy of this ambition. They appeared in the pages of Economica, from 1941 to
1943. The way in which the war had occasioned the organisation and planning of
almost the entire economy meant that Hayek felt compelled to bring a part of his
project out as a discrete book before the rest. ‘Scientism and the Study of Society’
saw Hayek making some important and original arguments for the first time, while
‘The Counter-Revolution of Science’ has more in common with his post war work in
intellectual history. The Road to Serfdom, published in 1944, has elements of the
latter but is fundamentally an argument against economic planning.28 In it he warned
that, while Germany may be defeated on the battlefield, it would be a hollow victory
if the German approaches to the economy were retained at home. While planning,
and thus a reduction in freedom over ‘economic life’ may be necessary during
wartime, when a single universally acknowledged goal pertained, it must not be
extended into peacetime. The effects of doing so would be disastrous for both
economic rationality and for freedom. Given the broad appeal of planning, Hayek
27
Some four decades later, Hayek intended his last work The Fatal Conceit as a final completion of the
project. See Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography of F.A. Hayek (Chicago,
2004), 219.
28
Friedrich Hayek, The Road to Serfdom (London, 2001). Melissa Lane and Bruce Caldwell have
noted that in many ways The Road to Serfdom can be thought of as an inter-war work, informed both
by his memo ‘Nazi Socialism’ which in turn influenced ‘Freedom and the Economic System’ as well as
his work in the socialist calculation debates. See Melissa Lane, ‘The Genesis and Reception of The
Road to Serfdom’ in Hayek: A Collaborative Biography, Part 1 Influences from to Bartley (ed.),
Robert Leeson, (London, 2013), 43-60; Bruce Caldwell ‘Introduction’ in The Road to Serfdom: The
Collected Works of FA Hayek, Vol.2 (ed.), Bruce Caldwell (London, 2008), 1-33.
80
dedicated the work to ‘the socialists of all parties’.29 Germany and German thinkers
are discussed almost exclusively in a negative fashion: the German experience stands
as a warning and German ideas a more enduring and dangerous threat than German
weapons.30 While it does not necessarily detract from Hayek’s argument, what is
remarkable, given this, is the extent to which the text is itself the product of German
political and economic theory.
3. The Schmittian Dilemma
The idea that government intervention in the economy posed a threat to freedom was
by no means a new one in a British context. In 1905 A.V. Dicey had written of the
dangers to individual liberty associated with socialism.31 Hillaire Belloc had also
written of how the reforms associated with the New Liberal government would lead in
due course to The Servile State in a manner that George Orwell regarded as
prescient.32 In the 1920s Lord Hewart, the Lord Chief Justice of England had decried
the rise of The New Despotism associated with the expansion of state bureaucracy.33
Hayek was well aware of all this and referred favourably to each in The Road to
Serfdom. He however wanted to go further than this and explain how it was that the
machinery of government, so inherently dangerous to freedom of economic life, could
29
Friedrich Hayek, The Road to Serfdom, 37.
The brief exception is passing reference to Goethe and von Humboldt, also a quote from Hölderlin.
Even Emmanuel Kant, whose concept of the Rechtsstaat Hayek held in the highest esteem is
mentioned only once, Hayek, The Road to Serfdom, 7, 24, 85.
31
Albert Venn Dicey, Lectures on the Relation between Law and Public Opinion in England during
the Nineteenth Century (London, 1905) Accessed at http://oll.libertyfund.org/pages/dicey-on-law-andpublic-opinion-in-the-19th-century 09.06.16. See especially lecture VII, ‘The growth of Collectivism’.
32
Hilaire Belloc, The Servile State (London, 1912); George Orwell, ‘Second Thoughts on James
Burnham’ in Complete Works, Volume 18 (ed.), Peter Davison (London, 2001), 268-84.
33
Lord Hewert, The New Despotism (London, 1929).
30
81
fall into the hands of collectivists and in order to do so he drew upon the work of
leading German jurist, Carl Schmitt.34
Hayek mentions Carl Schmitt on four, consistently negative, occasions in The Road to
Serfdom. This is hardly surprising given the text is an anti-Nazi work. 35 Hayek
regarded Schmitt as ‘the leading Nazi theoretician of totalitarianism’ who had cleared
the way of many of the theoretical and legal obstacles to the Nazi’s assumption of
power.36 Hayek refers to Schmitt’s developmental schema in a footnote, according to
which ‘the evolution of government proceeds “in three dialectic stages: from the
absolute state of the seventeenth and eighteenth centuries through the neutral state of
the liberal nineteenth century to the totalitarian state in which state and society are
identical.”’37 Moreover he criticises those in Britain, chief among them the historian
E.H. Carr, for performing a similar intellectual role to that played by Schmitt in 1930s
Germany, asking rhetorically,
Does Professor Carr, for example, realise, when he asserts that "we can no
longer find much meaning in the distinction familiar to nineteenth-century
thought between 'society' and 'state''', that this is precisely the doctrine of
Professor Carl Schmitt, the leading Nazi theoretician of totalitarianism, and, in
fact, the essence of the definition of totalitarianism which that author has
given to that term which he himself had introduced?38
34
See Reinhard Mehring, Carl Schmitt: A Biography (Cambridge, 2014). For the relationship between
Schmitt and Hayek see F.R. Cristi ‘Hayek and Schitt on the Rule of Law’ Canadian Journal of
Political Science / Revue canadienne de science politique 17:3 (1984), 521-535; W.E. Scheuerman
‘The Unholy Alliance of Carl Schmitt and Friedrich Hayek’ Constellations 4:2 (1997), 172-188.
35
Hayek notes the work of Schmitt as providing the best guide to the decline of democracy in Weimer
Germany 26 years later in Friedrich Hayek, The Constitution of Liberty (Chicago, 1960), 485.
36
Hayek, The Road to Serfdom, 192.
37
Hayek, The Road to Serfdom, 182.
38
Hayek, The Road to Serfdom, 192-193.
82
Hayek denounces the authoritarian end point of Schmitt’s logic. However in setting
out to dispute Schmitt’s eventual position, he adopts Schmitt’s own developmental
analysis. He only departs from it in the final instance by offering a defence of a
liberal order rather than the ‘decisionism’ of Schmitt’s dictator.39
For Schmitt mass democracy was antithetical to liberalism as ‘democracy demands an
identity between civil society and the state, and its pressures from below have the
effect of weakening the state as an autonomous political entity’ thus undermining its
neutrality and its ability to stand aside from the market.40 Liberal government had
been unable to preserve the fundamental tenet of its doctrine, free market action,
because the expectations of a mass electorate had resulted in government acquiring
new responsibilities in two key areas that, during the liberal period, it had not been
burdened with: social welfare and economic prosperity.41 Schmitt of course was no
liberal and he did not recommend an effort to recapture the neutral state of the 19th
century. The Rubicon had been crossed and it was not possible to turn back. What
was required a ‘decisionist’ leader could impose harmony by creating a clear locus of
power. In the 1920s Schmitt envisioned this role being played by the
Reichspräesident. This somewhat ambiguous office remained in the Weimer
Constitution largely as the residue of the influence of Max Weber and the emphasis
he placed upon the importance of charismatic leadership as a means of offsetting the
modern and socially enervating effects of bureaucratisation.42 The ability of the
Reichspräesident to declare emergency powers and put measures to the people via
39
Cristi, ‘Hayek and Schmitt on the Rule of Law’, 523.
Cristi, ‘Hayek and Schmitt on The Rule of Law’, 526.
41
Carl Schmitt, The Concept of the Political (trans), George Schwab (New Brunswick, 1976), 22.
42
Max Weber, ‘The President of the Reich’ in Political Writings (eds.), Peter Lassman and Ronald
Spiers (Cambridge, 1994), 304-309.
40
83
plebiscites were the mechanisms that Schmitt felt would allow them to fulfil the role
of providing a clear locus of sovereign power. Plebiscites were important for
maintaining legitimacy and permitting the electorate a measure of consultation.
However, such was the inability of the electorate to engage in disinterested debate,
most decisions would have to be taken by a decisionist leader dispensing with
constitutional restraints through the enactment of emergency powers. This was the
only way in which society and the economy might be rescued from the antagonistic
forces tearing it apart. Following Hitler’s appointment as Chancellor in January 1933
however, Schmitt apparently came to believe that it was the leader of the Nazi party
who could best fulfil that role rather than the aged Reichspräesident Hindenberg. In
May Schmitt joined the party.
The issues of social welfare and economic intervention are viewed as two aspects of
the same process, the undermining of the neutral liberal state by the active social
democratic state. Since Bismark’s institution of social welfare between 1883 and
1889, a result of his desire to counter the enduring electoral popularity of socialist
candidates despite continuing anti socialist laws, there had been a blurring of the
distinction between state and society. The result, for Schmitt, was that ‘society
becomes an economic state, a cultural state, a welfare state, a social security state, a
provider state.’43 The issue of a redistributive state did not however feature
prominently in Hayek’s thought during the 1930 and the years of the Second World
43
Carl Schmitt ‘The Way to the Total State’ in Four Essays, 1931–1938, (ed. and trans.), Simona
Draghici (Washington, D.C, 1999); Michael Stolleis, Origins of the German Welfare State: Social
Policy in Germany to 1945 (Springer Online, 2013). Article 7 of the Weimar Constitution outlines that
the new republic is entitled to pass legislation pertaining to the welfare of its citizens and article 51
states that ‘the economy must be organised based on the principles of justice with the goal of achieving
life in dignity for everyone’. What exactly this meant was open to interpretation, but that government
had responsibilities across these areas was explicit. See The Reich Constitution of August 11th 1919.
Accessed at
http://www.zum.de/psm/weimar/weimar_vve.php#Fifth Chapter : The Economy 30.06.16.
84
War.44 What worried him was economic planning. Here however Schmitt also had
plenty to say. In a 1932 address to a meeting of German business leaders entitled ‘A
Strong State and a Healthy Economy’ he condemned the economic interventionism of
the ‘social democratic’ Weimar republic.45 What this amounted to was a ‘quantitative
total state’ wherein Schmitt’s famous ‘friend-enemy’ distinction, for him the basis of
politics, was shifted from the boundaries between states to between interest groups.
The clear locus of power that had existed in the neutral liberal state, concerned as it
was only with issues of legality, had been lost. Instead, government’s economic role
had resulted in its power being spread across the totality of civil society, to be fought
over by its competing elements.46 Politics was reduced first to horse-trading and then
to riot due to the impossibility of meeting all expectations. For Schmitt what was
required was a shift to a ‘qualitative total state’, within which the decisionist leader
could set down the fundamentals of the economic order, without question, and
without the confusion associated with the democratic competition for government
power.
One of the chief doctrines by which the democratic welfare state had justified its
growing hold over the economy was legal positivism. Schmitt draws a sharp
44
Redistribution would however become his central concern in the years after 1950 when the threat of
‘hot socialism’ had receded and his critique of social justice would again closely track Schmitt’s own.
See Friedrich Hayek, ‘The Road to Serfdom after Twelve Years’ [preface to American paperback
edition, 1956] in Studies In Philosophy, Politics and Economics, (London, 1967), 216-228;
Chapter Four section 2.
45
Carl Schmitt, ‘Starker Staat und gesunde Wirtschaft. Ein Vortrag vor Wirtschaftsführern’ [A Strong
State and a Healthy Economy: A Lecture for Business Leaders] in Volk und Reich Politische
Monatshefte (Düsseldorf, 1933). The experience of the First World War, where the war ministry had
established the raw materials department under Walter Rathenau of the electrical engineering company
AEG, had accelerated the move towards planning and seemed to confirm its potential to improve
economic performance.
46
This view is echoed in the work of economic historian Knut Borschardt for whom the increasingly
active role taken by Weimar governments in wage bargaining between employers and unions resulted
in the alienation of capital and a willingness to accept the radical alternative of the Nazi Party. See
Knut Borchardt, Perspectives on Modern German Economic History and Policy (trans.), Peter
Lambert, (Cambridge, 1991).
85
distinction between laws devised on a general and abstract basis and those arrived at
due to democratic pressures.47 In particular he takes aim at its leading exponent Hans
Kelsen, for the perspective that law can be improved upon on the basis of empirical
experience to improve outcomes for the population.48 This understanding provided
encouragement to the competing claims being made throughout civil society. As
William Scheuerman has written, for Schmitt, ‘any form of particular or specialized
legislation potentially constitutes a tyrannical act of revolutionary violence’ and as
such ‘the democratic welfare state will have to be depicted in nightmarish terms.’49
Hayek shared this analysis and the distinction ‘between formal law or justice
and substantive rules’, or what he would later term ‘rules and commands’, is a
fundamental plank of The Road to Serfdom and he would develop a critique of legal
positivism and of Kelsen that bore a definite resemblance to Schmitt’s as his career
progressed.50
In ‘Freedom and The Economic System’, Hayek’s analysis had already echoed
Schmitt’s when he argued that ‘the increasing discredit into which democratic
government has fallen is because it has been burdened with tasks for which it is not
suited is a fact of the greatest importance.’51 Moreover, he made the same distinction
as Schmitt between a liberal economic order and democracy. ‘We have no intention’
he wrote,
47
Carl Schmitt, Constitutional Theory (Durham, NC, 2008), 255-301.
Carl Schmitt, ‘The Guardian of The Constitution’ in The Guardian of the Constitution: Hans Kelsen
and Carl Schmitt (ed., trans.), Lars Vinx (Cambridge, 2015), 79-173. See also Hans Kelsen, The Pure
Theory of Law (Berkeley, 1967); Peter Caldwell Popular Sovereignty and the Crisis of German
Constitutional law (Durham, NC, 1997).
49
Scheuerman, ‘The Unholy Alliance of Carl Schmitt and Friedrich A. Hayek’, 174.
50
Hayek, The Road to Serfdom, 75-78. For his later critique see Friedrich Hayek, Law, Legislation and
Liberty, Vol. 2: The Mirage of Social Justice 2 (London, 1982), 45-56; Friedrich Hayek, ‘How Legal
Positivism Destroyed Classical Liberalism’ (unpublished, 1976) Hayek Archive Box 92, Folder 3.
51
Friedrich Hayek, ‘Freedom and the Economic System [1939] in Socialism and War: The Collected
Works of FA Hayek, Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 205.
48
86
of making a fetish of democracy. It may well be true that our generation talks
and thinks too much of democracy and too little of the values which it serves.
It cannot be said of democracy, as Lord Acton truly said of liberty, that it "is
not a means to a higher political end. It is itself the highest political end. It is
not for the sake of a good public administration that it is required, but for the
security in the pursuit of the highest objects of civil society, and of private
life.52
For Hayek, as for Schmitt, democracy was not in any way bound up with liberalism.53
It was instead a useful procedure for maintaining the liberal order, which was always
of primary importance: ‘Democracy is essentially a means, a utilitarian device for
safeguarding internal peace and individual freedom. As such it is by no means
infallible or certain’ he wrote. Moreover, Hayek was willing to assert that free market
action, rather than the political freedom associated with democracy is what is
fundamentally important. In The Road to Serfdom he argued that ‘we forget that there
has often been much more cultural and spiritual freedom under an autocratic rule than
under some democracies-and it is at least conceivable’ he went on ‘that under the
government of a very homogeneous and doctrinaire majority democratic government
might be as oppressive as the worst dictatorship.’54 To take an argument resembling
the New Liberal concern for self development and intellectual freedom and to suggest
that those ends might better be served in a political dictatorship than in a planned
economy is a remarkable statement to make in a book that is ostensibly a defence of
52
Hayek, ‘Freedom and the Economic System’, 73.
Friedrich Hayek, ‘Individualism: True and False’ [1945] in Individualism and Economic Order
(Chicago, 1948), 29-30.
54
Hayek, The Road to Serfdom, 74.
53
87
democracy. It bears greater similarity to Schmitt’s avowedly illiberal theory than to
anything that would have recognisably been associated with contemporary British
liberalism.
Hayek’s description of the process by which the liberal order is undermined is also
strikingly similar to that provided by Schmitt. The expansion of government power to
areas of the economy where it is unable to exercise decisive influence, and becomes
instead the object of interest group competition, mirrors the idea of the ‘quantitative
total state’. ‘It may have been the unanimously expressed will of the people that
parliament should prepare a comprehensive economic plan’ Hayek wrote,
yet neither the people nor its representatives need therefore be able to agree
on any particular plan. The inability of democratic assemblies to carry out
what seems to be a clear mandate of the people will inevitably cause
dissatisfaction with democratic institutions. Parliaments come to be regarded
as ineffective "talking shops", unable or incompetent to carry out the tasks for
which they have been chosen. 55
Hayek goes on to say that ‘the conviction grows that if efficient planning is to be
done, the direction must be "taken out of politics"’. Here Schmitt would agree, but
rather than endorse decisionism Hayek instead bemoans the fact that this has resulted
in increasing power being ‘placed in the hands of experts, permanent officials or
independent autonomous bodies.’56 Concerns about bureaucracy and managerialism
were nothing new and feature strongly in the work of Max Weber and Joseph
55
56
Hayek, The Road to Serfdom, 65.
Hayek, The Road to Serfdom, 65.
88
Schmumpeter, both of whose work Hayek knew well. They however, perhaps due to
their German speaking origins, receive no mention in The Road to Serfdom. Rather, a
recent ‘significant book’ by the American James Burnham seems to have informed, at
least in part, Hayek’s disquiet. In his bestselling The Managerial Revolution: What is
Happening in the World? Burnham argued that fascism, communism and Roosevelt’s
New Deal were merely various manifestations of the same rule by ‘experts’.57 Hayek
blended this analysis with Schmitt’s narrative of democracy undermining liberalism:
The delegation of particular technical tasks to separate bodies, while a regular
feature, is yet only the first step in the process whereby a democracy which
embarks on planning progressively relinquishes its powers. The expedient of
delegation cannot really remove the causes which make all the advocates of
comprehensive planning so impatient with the impotence of democracy. The
delegation of particular powers to separate agencies creates a new obstacle to
the achievement of a single coordinated plan. Even if, by this expedient, a
democracy should succeed in planning every sector of economic activity, it
would still have to face the problem of integrating these separate plans into a
unitary whole. Many separate plans do not make a planned whole-in fact, as
the planners ought to be the first to admit they may be worse than no plan. But
the democratic legislature will long hesitate to relinquish the decisions on
really vital issues, and so long as it does so it makes it impossible for anyone
else to provide the comprehensive plan… The belief is becoming more and
57
James Burnham, The Managerial Revolution: What is Happening in the World? (New York, 1941).
89
more widespread that, if things are to get done, the responsible authorities
must be freed from the fetters of democratic procedure.58
Hayek reckoned that by 1928 more than half the German economy was controlled by
either local of national government.59 In a narrative that draws upon Schmitt’s theory
Hayek recounts what had happened in Germany where,
…even before Hitler came into power, the movement had already progressed
much further. It is important to remember that for some time before 1933
Germany had reached a stage in which it had, in effect, had to be governed
dictatorially. Hitler did not have to destroy democracy; he merely took
advantage of the decay of democracy and at the critical moment obtained the
support of many to whom, though they detested Hitler, he yet seemed the only
man strong enough to get things done.60
It was a grave mistake he continued to ascribe the rise of Nazism to something
specific to German identity or to German political history. Disregarding all the
historical particularities of the German experience, Hayek instead ascribed it simply
to the undermining of freedom in ‘economic life’ noting that ‘the cry for an economic
dictator is a characteristic stage in the movement towards planning, not unfamiliar in
this country.’ 61
58
Hayek, The Road to Serfdom, 70 -71.
Hayek, The Road to Serfdom, 64.
60
Hayek, The Road to Serfdom, 71.
61
Hayek, The Road to Serfdom, 71.
59
90
Yet while Burnham had imagined expert rule was competent, and Schmitt had argued
that decisionism would end the proliferation of the friend enemy distinction
throughout society, Hayek’s economics told him otherwise. Whether the rule was
expert or dictatorial or as was likely both, the economic system would remain
irrational for all the reasons Hayek had outlined in the 1930s. It would still be the
case, as Hayek had written over ten years earlier, that ‘the best the dictator could
do…would be to imitate as closely as possible what would happen under free
competition.’62 And it would be a poor imitation. While Schmitt may have regarded
his dictatorial version of the strong state as essential for the healthy economy, Hayek
argued that any attempt to shape the overall economic order or establish national
priorities was bound to lead to greater government action and a reduction in free
market action: indeed the road to serfdom of the title was built on such attempts.
Schmitt’s decisionist solution was then unacceptable to Hayek on economic rather
than moral grounds. For an answer to the Schmittian dilemma Hayek turned again to
the German-speaking world.
4. The Ordoliberal Solution
The Road to Serfdom attempted to sketch a way in which some form of democracy
might be reconciled with liberal government and a free economy.63 In doing so it
drew upon the work of a group of economists subsequently referred to as the Freiberg
or Ordoliberal School. Freiberg was the University at which Walter Eucken, the father
62
Friedrich Hayek, ‘The Trend of Economic Thinking’ [1933] in The Trend of Economic Thinking:
The Collected Works of FA Hayek, Vol. 3 (eds.), W.W. Bartley III and Stephen Kresge (London, 1991),
26.
63
It is not correct to argue, as Keith Tribe has, that Hayek’s response to Schmitt was simply rhetorical.
See Keith Tribe, ‘Liberalism and Neoliberalism in Britain, 1930–1980’ in The Road from Monet
Pelerin: The Making of the Neoliberal thought Collective (eds.), Philip Mirowski and Dieter Plehwe
(Cambridge, MA), 72.
91
of the movement, and Franz Böhm would establish the journal Ordo in 1948, but the
tenets of Ordoliberalism were well established by then, having been developed over
the previous two decades by theorists such as Wilhelm Röpke, Alexander Rüstow,
Leonard Miksch, Alfred Müller Armack and of course Böhm and Eucken.64 The
Ordoliberals agreed with Schmitt that the liberal state of the 19th century was a thing
of the past and that laissez faire was as undesirable as it was unrecoverable.
However, rather than being forced to accept dictatorship as the solution, they argued
that an active government determined to establish the conditions for competition but
renouncing direct economic intervention, could reinstate the demarcation between
politics and economics.
By the time of the publication of The Road to Serfdom, Hayek had moved in similar
circles to the Ordoliberals for some time. He recalled that ‘at a very early
date…perhaps at the meeting of the Association for Social Policy (Verein für
Sozialpolitik) which was held in Vienna in 1926, I became acquainted with Wilhelm
Röpke. For some years I was on very close terms with him…It was through Röpke
that I came into contact with Walter Eucken at Freiberg.’ Hayek frequently stopped in
Berlin to visit Eucken on his journeys between London and Vienna until war made it
impossible and their communication was interrupted. Nonetheless, Röpke had left
Germany in 1933 in opposition to the Nazis, ‘one of the first who assumed the burden
of exile out of conviction’, and it was through him that Hayek was able to receive
Eucken’s Foundations of Economics, published in 1940.65 He was later to write to
Röpke ‘It’s a very excellent piece of work which has further raised my sincere
64
Ralph Ptak, ‘Neoliberalism in Germany’ in The Road From Mont Pelerin: The Making of The
Neoliberal Thought Collective (eds.), Philip Mirowski and Dieter Plehwe, (Cambridge MA, 2009), 98138.
65
Hayek, ‘The Rediscovery of Freedom: Personal Recollections’ in The Fortunes of Liberalism: The
Collected Works of FA Hayek, Vol. 4 (ed.), Peter Klein (Chicago, 1992), 196.
92
admiration for our friend. To have retained this independence of thought in this
environment!’66
The Road to Serfdom begins with a clear rejection of laissez faire in a manner
consistent with the writing of the Ordoliberals. ‘Probably nothing has done so much
harm to the liberal cause’ wrote Hayek ‘as the wooden insistence of some liberals on
certain rough rules of thumb, above all the principle of laissez-faire’.67 In this he was
reiterating a position he had arrived at in the 1930s when he had argued that ‘to say
that partial planning of the kind we are alluding to is irrational is, however, not
equivalent to saying that the only form of capitalism which can be rationally
advocated is that of complete laissez faire in the old sense.’68 For Hayek one of the
central challenges posed by the book was the one he had identified over ten years
earlier when he had written that ‘there can be no doubt that after Bentham’s early
distinction between the agenda and the non-agenda of government, the classical
writers very much neglected the positive part of the task …To remedy this deficiency
must be one of the main tasks of the future.’69
Ordoliberalism was by no means the only source of Hayek’s rejection of laissez faire.
It was rather common currency even in free market circles. As Macmillan had
written, the effect of the economic crisis had left few ready to defend a version of
capitalism where markets were unrestrained or unframed by law. Walter Lippmann,
the famous and widely respected American political commentator, was a leading
66
Victor Vanberg, ‘Hayek in Freiberg’, in Robert Leeson (ed.) Hayek: A Collaborative Biography,
Part One (London, 2013), 94.
67
Friedrich Hayek, The Road to Serfdom, 18.
68
Hayek, ‘The Nature and History of the Problem’ [1935] in Collectivist Economic Planning (ed.),
Friedrich Hayek (London, 1935), 21-22.
69
Hayek ‘The Trend of Economic Thinking’, 27.
93
opponent of the New Deal yet he could nonetheless write in The Good Society that
laissez faire was ‘based on so obvious an error that it seems grotesque’.70 Others
sought to reclaim the language of 19th laissez faire by stressing it had not in fact been
as neglectful of the need for government action as was widely regarded. Henry
Simons, a committed classical liberal at the University of Chicago, had written his
Positive Programme for laissez-faire in 1934. This argued that the 19th creed had
allowed for greater government scope in shaping the economy than was generally
recognised and advocated, amongst other things, the nationalisation of industries
where competition had failed.71 Lionel Robbins while rejecting the unfashionable
phrase, expressed the same sentiment when he wrote to Lippmann stating ‘I am
entirely at one with you in rejecting laissez faire but noted that many 19th century
liberals, such as Jevons, Sidgewick and Cannan would have rejected it too.’ The
challenge faced by free market liberals, in the years both before and after the war was
how to describe satisfactorily what a non-laissez faire free market system might look
like.72
It was in responding to this challenge in The Road to Serfdom that Hayek’s thought
takes on an Ordoliberal hue. The Ordoliberals agreed with Schmitt that liberalism
had been undermined by the economic interventionism of the social democratic state.
Having witnessed the breakdown of the Weimar state, their chief concern was
ordnungspolitik or a ‘politics of order’ that would entrench the rule of law.73 As Ralph
72
, Walter Lippmann, The Good Society (Boston,1937).
Henry Simons, Positive Programme for Laissez-Faire (Chicago, 1949).
72
Those of this opinion met in 1938 at the Colloque Walter Lippmann, convened in honour of the
eponymous journalist’s The Good Society to discuss how to recast and defend liberalism from the
widespread appeal of the planned economy. Hayek, Röpke and Rüstow were all present. See Angus
Burgin, The Great Persuasion (Cambridge MA, 2012), 67-78. The meeting was in some respects a
crucial forerunner to Hayek’s own post war Mont Pèlerin Society.
73
Werner Bonefeld, ‘Freedom and The Strong State: Democracy and Dictatorship’, Critique, 34:3,
(2006), 237–52;
71
94
Ptak has written ‘members of this School conceived of the need to theorize the
frameworks that effectively structure the relationship between the state, the economy,
and society in general…their central goal in this task was to secure a socially
embedded and well-functioning competitive order.’74 In the main however, unlike
Schmitt, they also regarded dictatorship, with its inherent tendency towards arbitrary
rule, as inimical to such an order. There were of course a range of positions held
within the School and Ptak has argued that certain members, notably Miksch and
Müller Armack, hoped their work would be instructive to the Nazi state whereas
others, namely Wilhelm Röpke and Rüstow were unable to continue their work under
such a regime. Moreover, there were various ideas about what exactly a ‘framework’
was: differences regarding the areas in which government action was desirable and
the extent to which it might be permitted. At one end of the spectrum was Eucken
who held an economistic outlook and was relatively keen to limit the role of
government; at the other was Rüstow for whom the state must pursue a policy of
Vitalpolitik and work to create the ethical conditions of self-reliance in society, thus
countering the ethic of state dependency that he associated with socialism. This
however involved a range of policy positions, such as the creation of small towns and
promotion of family industry that hardly fits with Hayek’s epistemological economics
or his view of the state as posing an active danger to free market action.75
Nonetheless, at root, what Hayek found in their work, particularly in Eucken’s, was
74
Ralph Ptak, ‘Neoliberalism in Germany’,101. Another aspect of their thought was the need to
combat monopolies that might emerge in a competitive system. This is contrasted with the essentially
pro trust arguments of that emerged out of the Chicago School of Economics, another bastion of
‘neoliberalism’. See Wernhard Moschel, ‘The Proper Scope of Government Viewed from an
Ordoliberal Perspective’, Journal of Institutional and Theoretical Economics 157 (2001), 3-13. For a
view that argues that, initially at least, the positions of the two were closer together see Rob Van Horn
Van Horn, Rob, ‘Reinventing Monopoly and the Role of Corporations, the Roots of Chicago Law and
Economics’ in The Road From Mont Pelerin: The Making of The Neoliberal Thought Collective (eds.),
Philip Mirowski and Dieter Plehwe (Cambridge MA, 2009), 204-237.
75
The lack of definition regarding the proper limits of the ‘framework’, for a group who made the
concept a central theoretical concern, was a problem Hayek shared particularly during this period of his
career when the Ordoliberal influence was greatest. See section 4.
95
an alternative ending to Schmitt’s narrative of the decline of Weimar Germany.
Rather than Schmitt’s concept of ‘the strong state and the healthy economy’, they
advocated the ‘free economy and the strong state’.
In The Road to Serfdom there was much that bore the mark of the Ordoliberal answer
to the Schmittian dilemma: the creation of a strong framework by an active
government to remove politics from the economy. Hayek warned that to allow
politics to determine the allocation of economic output in post war Britain would be
disastrous. Instead the only way to improve society was to embrace once more free
competition. ‘We should not, by short sighted attempts to cure poverty by a
redistribution instead of by an increase in our income, so depress large classes as to
turn them into determined enemies of the existing political order’ he wrote as to do so
would be to make the same mistakes as Germany. ‘It should never be forgotten’ he
continued ‘that the one decisive factor in the rise of totalitarianism on the Continent,
which is yet absent in this country, is the existence of a large recently dispossessed
middle class.’ Instead there should be a recognition that ‘our hopes of avoiding the
fate which threatens must indeed to a large extent rest on the prospect that we can
resume rapid economic progress.’76 In order to entrench such a rejection of
redistribution a new framework of law would be required which was active in shaping
the best environment for competition but which did not seek to intrude upon
competition itself:
It is important not to confuse opposition against this kind of planning with a
dogmatic laissez-faire attitude. The liberal argument is in favour of making
76
Hayek, The Road to Serfdom, 215. This is reminiscent of Foucault’s statement that for Ordoliberals
there ‘can only be one true and fundamental social policy: economic growth.’ See Michel Foucault The
Birth of Biopolitics (London, 2008), 144.
96
the best possible use of the forces of competition as a means of co-ordinating
human efforts, not an argument for leaving things just as they are. It is based
on the conviction that where effective competition can be created, it is a better
way of guiding individual efforts than any other. It does not deny, but even
emphasises, that, in order that competition should work beneficially, a
carefully thought-out legal framework is required, and that neither the existing
nor the past legal rules are free from grave defects. Nor does it deny that
where it is impossible to create the conditions necessary to make competition
effective, we must resort to other methods of guiding economic activity.77
Once again, he argued that ‘The question whether the state should or should not "act"
or "interfere" poses an altogether false alternative, and the term laissez-faire is a
highly ambiguous and misleading description of the principles on which a liberal
policy is based.’ Instead it was important to realise that ‘every state must act and
every action of the state interferes with something or other.’ But there must be
certainty and predictability about the nature of state action. Returning to the
epistemological basis of his thought he argued that
The important question is whether the individual can foresee the action of the
state and make use of this knowledge as a datum in forming his own plans,
with the result that the state cannot control the use made of its machinery, and
that the individual knows precisely how far he will be protected against
77
Hayek, The Road to Serfdom, 37. It is noticeable how at this stage of his career Hayek proposed
measures to counter the growth of monopolies in keeping with an Ordoliberal perspective. See Hayek,
The Road to Serfdom, 203. Later, while recognising that monopolies tmay pose a threat to liberty, he
would become increasingly wary of measures to counter them. For important consideration of the
effects of monopolies on his concept of liberty see Chapter Three section 4.
97
interference from others, or whether the state is in a position to frustrate
individual efforts.78
Most importantly of all, the legal framework provided must separate the economic
from the political:
It is necessary in the first instance that the parties in the market should be free
to sell and buy at any price at which they can find a partner to the transaction,
and that anybody should be free to produce, sell, and buy anything that may be
produced or sold at all. And 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. Any attempt to control prices or quantities of particular
commodities deprives competition of its power of bringing about an effective
co-ordination of individual efforts, because price changes then cease to
register all the relevant changes in circumstances and no longer provide a
reliable guide for the individual's actions.79
Despite his insistence that government should stay out of the market and that the inner
working of the economy was no subject for politics, there is a lack of clarity about
what this means in practice. As in much Ordoliberal thought Hayek’s insistence on a
framework is a more effective rhetorical device than it is a solid guide to policy. He
was willing to allow that:
78
79
Hayek, The Road to Serfdom, 82.
Hayek, The Road to Serfdom, 38.
98
To prohibit the use of certain poisonous substances, or to require special
precautions in their use, to limit working hours or to require certain sanitary
arrangements, is fully compatible with the preservation of competition.80
Moreover, Hayek maintained that there was a role for government in providing basic
levels of social welfare, writing ‘nor is the preservation of competition incompatible
with an extensive system of social services-so long as the organisation of these
services is not designed in such a way as to make competition ineffective over wide
fields.’81 Given that much of Hayek’s analysis was based on the Schmittian position
that the political battle over securing the proceeds of welfare had resulted in the
demise of Weimar, this statement indicates a problematic indeterminacy about the
proper nature of the legal framework and its relationship to democracy within
Hayek’s work.
Once there is an acceptance that the state must do certain things, and in a democracy
these things must ultimately be subject to political debate, there can be no definitive
way of stipulating exactly what the limits to government action should be. A
framework may be expansive allowing a wide range of activities to take place within
its bounds only seeking to enforce things such as criminal and property law. This
would look something like the minimal state advocated in the 1970s by Robert
Nozick. 82 Alternatively, frameworks may be tight prohibiting a large number of
productive or market practices. Whilst not prescriptive, as in a planned economy, this
may result in at least a direction of the economy by means of proscription. Hayek sat
in neither of these camps but, as Andrew Gamble has noted by allowing a measure of
80
Hayek, The Road to Serfdom, 39.
Hayek, The Road to Serfdom, 39.
82
Robert Nozick, Anarchy State and Utopia (Oxford, 1974).
81
99
government economic action, albeit with regard to welfare, he opened his philosophy
to criticism from those on the right such as Murray Rothbard whose own position was
at least consistent in forbidding state activity, as well as from those on the left, who
have argued that his general desire to restrict government was politically motivated
and intellectually unsupported by his theory.83 Despite the ostensible dualities of his
rhetoric, Hayek’s thought left him exposed on centre ground.
5. Reception of The Road to Serfdom
The Road to Serfdom was a British book intended for a British, or rather English,
audience. As Hayek wrote in the preface to the 1956 edition ‘the book was written in
England during the war years and was designed almost exclusively for English
readers. Indeed, it was addressed mainly to a very special class of readers in England’,
namely those ‘socialists of all parties’ attracted to planning.84 Hayek had intended the
book to produce a start of recognition among those readers that they were travelling
the same road as the Germans had done in the years after the First World War.
Instead the work was treated, generally respectfully, as something of a curiosity.’85
Hayek had taken an analysis of the unstable relationship between democracy and
liberalism and how to resolve that instability from the German experience using the
work of German theorists. It was hardly surprising that when such an analysis was
removed to a different political culture, one in fact that was at war with Germany, it
did not provoke the sort of recognition he had hoped for.
83
Gamble, Hayek, 49; 109-111. For more on Rothbard’s criticisms of Hayek’s definition of freedom
see Chapter Three section 3
84
Friedrich Hayek, ‘The Road to Serfdom after Twelve Years’ [preface to American paperback
edition, 1956] in Studies In Philosophy, Politics and Economics, (London, 1967), 216-228.
85
Hayek, Hayek on Hayek, 90.
100
In an early response to the book Keynes identified the indeterminacy regarding the
framework and the proper relationship between government and economy it contains.
He had read The Road to Serfdom on his way to the Bretton Woods negotiations in
America. Keynes was as opposed to the sort of central planning described in the book
as Hayek was and wrote ‘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.’86 However he recognised the
fault line that lay within it:
I come finally to what is really my only serious criticism of the book. You
admit here and there that it is a question of knowing where to draw the line.
You agree that the line has to be drawn somewhere [between free-enterprise
and planning], and that the logical extreme is not possible. But you give us no
guidance whatever as to where to draw it.87
Keynes was more of an elitist than Hayek, for him the expert economist and civil
servant could know best. In a democratic society however there is a strong argument
to be made that the shape and extent of the framework must be a subject of political
debate. Indeed, Hayek had even seemed to suggest as much himself in ‘Freedom and
the Economic System’, having written that government action may be appropriate
‘because a clear object desired by an overwhelming majority can only be achieved if a
small dissenting minority is coerced.’88 Clearly however this earlier position went
86
J.M. Keynes, ‘Letter to Hayek’ (28th June 1944) In Vol. 27 of the Collected Writings of John
Maynard Keynes. (ed.), Donald Moggridge. (London, 1980), 385.
87
Keynes, ‘Letter to Hayek’, 386.
88
Hayek, ‘Freedom and the Economic System’, 197. However, Hayek’s assessment of the post-war
welfare state, brought about democratically was negative. See Friedrich Hayek, Unpublished
“Postscript” to the Road to Serfdom. Hayek Archive Box 106, Folder 10.
101
against the entire argument of the Road to Serfdom and all his subsequent work.
Ultimately Hayek was never able to provide a satisfactory answer to the question of
‘where to draw the line?’
Many within Britain, even Hayek’s friend Lionel Robbins, found it difficult to accept
Hayek’s description of the dangers facing post-war Britain. As the liberal French
philosopher Bertrand de Jouvenal recalled, Beveridge, whose view of Nazism as a
product of capitalism had been the catalyst for Hayek’s work was not convinced by
Hayek’s ‘continental mind’.89 ‘Andrew Farrant and Edward McPhail recount how
British critics,
argued that Hayek’s thesis was singularly inapplicable to Britain: As Ronald
Coase—in many ways a Hayekian fellow-traveller—notes, “I read [Hayek’s
book] . . . I knew Hayek and I knew the British response to it. In Britain it was
a success, but much less than in the United States, because the general thesis
was that socialism would inevitably lead to a totalitarian society, totalitarian
state, or suppression of freedoms in other areas. In Britain, living in what is a
very tolerant society, few people could imagine that this was going to be the
result. I remember Lionel Robbins saying to me this is a very fine book from
the continental point of view. It just wasn’t British.”90
89
Edward McPhail and Andrew Farrant, ‘Hayek and the Sorcerer’s Apprentice: Whither the Hayekian
Logic of Intervention?’, American Journal of Economics and Sociology 72: 4 (2013), 973.
90
McPhail and Farrant ‘Hayek and the Sorcerer’s Apprentice’, 974. It was another ‘continental mind’,
one which would come to occupy a place at the heart of the British establishment, who was the least
impressed by The Road to Serfdom. Isaiah Berlin, then a diplomat in the British Embassy in
Washington, wrote to a friend in April 1945 that he was ‘still reading the awful Dr Hayek.’ Letter from
Isaiah Berlin to Elizabeth Morrow, 4th April, 1945 in Isaiah Berlin: Letters 1928-46 (ed.), Henry Hardy
(Cambridge, 2004), 540.
102
This is hardly surprising given the extent to which he made use of Schmitt to diagnose
a supposed pathology in the British body politic and the Ordoliberals to provide the
cure. Keynes provided a much better example of the British attitude to the task that
would face the country after the war and tried to convince Hayek of his logic.
‘Moderate planning will be safe if those carrying it out are rightly orientated in their
own minds and hearts to the moral issue’ he wrote, continuing ‘what we need is the
restoration of right moral thinking – a return to proper moral values in our social
philosophy. If only you could turn your crusade in that direction you would not feel
quite so much like Don Quixote.’91 In a considered and lengthy response to Hayek’s
work, which drew upon an early draft he had sent her, Barbara Wootton took issue
with Hayek’s argument that planning would result in fewer intellectual freedoms.
Instead she maintained that there was no reason why planning, when carried out
democratically should work to the detriment of the freedoms to which the British had
become accustomed.92
Hayek however was not for convincing. As an Austrian he was particularly sensitive
to those developments that had led to the rise of Nazism with the result that he
perceived them too readily elsewhere. On the 4th June 1945, in his first general
election campaign broadcast, Winston Churchill suggested that planning might result
in a British Gestapo. In this he was inspired, according to Macmillan, by The Road to
Serfdom.93 The claim caused some controversy and created the impression that
Churchill was labelling his wartime colleagues in the cabinet as potential Nazis. The
following night Clement Atlee, the leader of the Labour Party, in his own broadcast,
responded that Churchill’s speech consisted of ‘the second-hand version of the
91
Keynes, ‘Letter to Hayek’, 387.
Barbara Wootton, Freedom Under Planning (Chapel Hill, 1945).
93
Harold MacMillan, Tides of Fortune (London, 1969), 32.
92
103
academic views of an Austrian professor, Friedrich von Hayek.’94 The subsequent
Labour landslide indicates that Attlee’s promise of democratic oversight of a larger
section of the economy appealed more to the British people than warnings of
Churchill or Hayek.
There is some irony in Hayek’s insistence that Britain should not consider itself an
exception to what would happen when free market action was undermined by
democracy. It was at precisely this time that he also began to stress the
exceptionalism of British political history. Unlike continental Europe, Britain had
been the home of a true liberalism that prized freedom in economic life above all else.
This was the tradition it must rediscover for the sake of the post war world. At the
end of The Road to Serfdom Hayek wrote that although the subject of his work,
…has already invited more than one reference to Milton, it is difficult to resist
the temptation to add here one more quotation, a very familiar one, though
one, it seems, which nowadays nobody but a foreigner would dare to cite: "Let
not England forget her precedence of teaching nations how to live."95
That a general lack of awareness of the special nature of the British tradition had
grown up was in large part due, argued Hayek, to the low esteem in which ‘what is
now the fashion to call “Whig history”, history of the kind of which Lord Acton is
one of the last great representatives’, was held.96 ‘A foreign background is sometimes
helpful in seeing more clearly to what circumstances the peculiar excellencies of the
94
Ebenstein, Hayek 138. Jeremy Shearmur, ‘Hayek, The Road to Serfdom and the British
Conservatives’, Journal of the History of Economic Thought 28:3 (2006), 309 – 314.
95
Hayek, The Road to Serfdom, 222.
96
Friedrich Hayek, ‘Historians and the Future of Europe’ [1944] in Studies on The Abuse and Decline
of Reason: The Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell (Chicago, 2010),137.
104
moral atmosphere of a nation are due’ he continued,
And if one who, whatever the law may say, must for ever remain a foreigner,
may be allowed to say so, it is one of the most disheartening spectacles of our
time to see to what extent some of the most precious things which England has
given to the world are now held in contempt in England herself. The English
hardly know to what degree they differ from most other people.97
As part of his ‘abuse of reason’ project, Hayek had already begun his attempt to
explain how the British tradition he admired had come to be held in such contempt.
As the war drew to a close this effort would evolve into a concerted campaign on his
part to decontest the liberal tradition and reassert the true liberalism the British had
abandoned. His was however an interpretation of the British liberal tradition that
spoke to the concerns of an Austrian economist and was one that many Britons
struggled to recognise. For Hayek however, it had become clear that if free market
action were to be preserved then the tendency of democracy to result in government
seeking to shape the economy must be ended.
97
Hayek, The Road to Serfdom, 222.
105
Part Two: A Concept of Liberty
Chapter Three: Hayek’s Neo-Roman Concept of Liberty
1. Introduction- Time in the Wilderness
Though written for British audience, The Road to Serfdom became a surprise success
in the United States following its serialisation by the Reader’s Digest, one of
America’s bestselling monthly magazines.1 As a result Hayek conducted a wellattended lecture tour of the US.2 The work had not however been well received in all
quarters. Stuart Chase, who Hayek had criticised in his book, dismissed Hayek in
turn in a piece for The Nation entitled ‘Back to Grandfather: Dr Hayek’s Guide to the
Pre-War Era’.3 Herman Finer, from the University of Chicago, went as far to write an
entire, somewhat bitter, book The Road to Reaction in order to denounce Hayek’s
work.4 One reason, Hayek felt, for the vehemence of the reaction was that Americans
were as seduced by the language of planning in 1945 as the British had been in the
1930s. Whatever the state of expert debate, the large scale nationalisations in Britain
compared to their complete absence in the US renders this explanation unlikely.
What is true is that specifically Keynesian policies were gaining adherents in America
1
University of Chicago Press, having agreed to publish the book, gave the rights of serialisation to the
Reader’s Digest free of charge. The Reader’s Digest, founded in 1922, carried an anti-communist
message and also reproduced pieces that criticised President Franklin Delano Roosevelt’s 1930s New
Deal. Hayek approved of the simplified serialisation carried out by Max Eastman, Hayek, Hayek on
Hayek (London, 1994), 91-92. See also Joanne Sharp, Condensing the Cold War: Reader’s Digest and
American Identity (Minnesota, 2000). In the 1966 Foreword to the 1956 edition of The Road to
Serfdom Hayek notes he had given little thought to the book’s possible appeal in America. Friedrich
Hayek, ‘The Road to Serfdom after Twelve Years’ [preface to American paperback edition, 1956] in
Studies In Philosophy, Politics and Economics, (London, 1967), 216-228.
2
Friedrich Hayek, Hayek on Hayek An Autobiographical Dialogue (eds.), Stephen Kresge and Leif
Wenar (London, 1994), 91-3.
3
Stuart Chase, ‘Back to Grandfather: Dr Hayek’s Guide to the Pre-War Era’, The Nation (19th May,
1945), 565.
4
Herman Finer, The Road to Reaction (Boston, 1945).
106
as much as in Britain. In this atmosphere, an editorial in the New Republic wrote that
Hayek’s book ‘found an enthusiastic response in the United States among those who
are using the economic theories of the 1880s to justify the business practices of the
1940s.’5 The ascendency of Keynesianism would drive Hayek from the economics
profession and would ensure his exclusion from policy-making circles for the next
thirty years. 6 Hayek’s time in the wilderness was about to begin. In certain respects
this suited the task to which he now turned. He was to set about decontesting the
liberal tradition, in an attempt to show that his version of liberalism was the ‘true’
one. His work would of course require an audience, but initially it required a shift in
discipline and a period of study in the history of ideas.7 This would lead Hayek to a
definition of liberty that would inform his understanding of the appropriate
relationship between government, democracy and the economy.
Hayek had already begun his study of intellectual history in an attempt to explain how
British liberalism had taken its wrong turn in his wartime Economica articles. In the
years after the war he would dedicate himself fully to winning the argument. In
December 1945 Hayek delivered his lecture ‘Individualism: True and False’ to an
5
‘Poor Mr Hayek’, New Republic (23rd April 1945), 543.
Friedrich Hayek, ‘‘The Campaign Against Keynesian Inflation’ [a collection of articles
from1974/75/75/76] in New Studies in Philosophy, Politics, Economics and the History of Ideas
(London, 1978), 191-231. Hayek goes on to suggest however that the British economists in particular
supported the agreement because they felt it would be in the best interests of Britain rather than
providing a ‘satisfactory monetary order’.
7
The 1950s are the only decade, ‘between the ‘30s and ‘70s in which Hayek did not publish a major
original work. 1951 saw the edited volume of Mill’s letters: Friedrich Hayek, John Stuart Mill and
Harriet Taylor: Their Friendship and Subsequent Marriage [1951] in The Mill Taylor Friendship and
Other Writings: The Collected Works of F.A. Hayek, Vol. 16 (ed.), Sandra J. Peart (Chicago, 2014).
1952 saw the publication of his wartime Economica articles as well as an additional one ‘Comte and
Hegel’ in Studies on The Abuse and Decline of Reason: The Collected Works of FA Hayek Vol. 13
(ed.), Bruce Caldwell (Chicago, 2010). Also in 1952 a reworking of a some earlier work he conducted
as a student of psychology in the 1920s was published: Friedrich Hayek, The Sensory Order: An
Inquiry into the Foundations of Theoretical Psychology (London, 1952). In 1956 Hayek edited a
volume intended to redress the leftist interpretation of the industrial revolution: Capitalism and the
Historians (ed.), Friedrich Hayek (London, 1954).
6
107
audience at University College Dublin. This marked an escalation of the campaign of
decontestation, and placed the importance of free market action at its core. It
involved locating that view within a longer tradition. For the first time he claimed
that it was the 18th century political philosophy of ‘the Scottish philosophers, Burke,
and the English Whigs’ that best exemplified the lost true liberalism and sought to
place his own work in that intellectual context.8
Hayek’s effort to describe the British liberal tradition was by definition exclusive as
well as being highly idiosyncratic. He excluded theorists such as Jeremy Bentham
and even the older John Stuart Mill when most would have regarded them as
foundational figures within British liberalism. For Hayek however their work
functioned as a point of transmission for continental ideas that emphasised the sort of
rationalism he had already denounced with reference to the German Historical School
and notions that government might better do a better job of developing an economy
than Smith’s ‘invisible hand’.9 In delineating a tradition that emphasised free market
action Hayek noted that the authors he associated with true liberalism stressed that
this could only be defended within a regime of legally guaranteed liberty. Informed
by the classics, and primarily by those authors who had defended the Roman republic,
they understood liberty in terms of status rather than in terms of action: free market
action could only be secured by the liberties assured by the rule of law. Thus for
them there was no antagonism between liberty and law.10 Hayek defended this ‘neoroman’ definition of liberty in his 1960 work The Constitution of Liberty. Contrary to
8
Friedrich Hayek, ‘Individualism: True and False’ [1945] in Individualism and Economic Order
(Chicago, 1948), 4.
9
Hayek’s dismissal of 18th century French thought as overly rationalistic is supported by more recent
work by Pierre Rosanvallon. For example, see Pierre Rosanvallon ‘Political Rationalism and
Democracy in France in the 18th and 19th centuries’, Philosophy Social Criticism 28:6 (2002), 687701.
10
Friedrich Hayek, ‘Decline of The Rule of Law’, The Freeman (20th April 1953), 518-20.
108
many recent authors, for whom liberalism, with its emphasis on market freedom,
displaced the neo-roman concept, for Hayek it was the concept’s general acceptance
that had allowed liberalism to flourish.
Hayek adopted the neo-roman concept as the Whig authors on whom he drew had
interpreted it. Their interpretation however was exclusively concerned with the threat
of government power, or imperium. This partial interpretation suited Hayek’s own
mistrust of government. The suspicion of democracy that also appears within many
of these Whig tracts also chimed with Hayek’s own misgivings about the role of the
electorate and organised interests he had taken from Schmitt. Moreover, he found
that ‘the Whig doctrine of the rule of law’, with law viewed as creating rather than
restricting freedoms, fitted well with the Ordoliberal insistence on a clear but active
legal framework.11
The chapter will begin by examining how Hayek began to distinguish a British liberal
tradition from a continental one during the war while exploring how he claimed to
identify the intellectual roots of economic planning in 18th century France. Section
two will then analyse how he considered these continental ideas to have entered the
British liberal tradition. The third section will describe how, beginning with
‘Individualism: True and False’, Hayek embarked upon an unambiguous campaign of
decontestation in order to assert the version of liberalism he believed in. Section four
will argue that Hayek’s campaign led him to relate a history and a concept of liberty
similar in structure if not in scope to that which has been presented more recently by a
group of scholars led by Philip Pettit and Quentin Skinner. The final section will
11
Hayek, ‘Decline of The Rule of Law’, 519.
109
describe how the neo-roman concept Hayek adopted lent itself to his increasingly
elitist social outlook. This will involve consideration of how Hayek’s definition of
liberty reinforced his distinction between liberalism and democracy in a manner that
other liberals found untenable. Hayek’s adoption of the neo-roman concept of liberty,
arrived at as a result of his campaign of decontestation, marks a juncture in his career.
We can think of Hayek’s career prior to it in negative terms. His concern for free
market action had caused him to write about the relationship between government,
democracy and the economy in defensive terms; warning of dangers and entreating
readers to resist the encroachment of politics into economics. In the years following
its adoption Hayek became much more assertive in attacking dangers where he saw
them in terms of the threat they posed to liberty; in particular the idea of social justice
and the role of trade unions. Ultimately the neo-roman concept would inform his
most positive, least critical, contribution: his intellectual emergency equipment.
2. Scientistic Hubris
In The Road to Serfdom Hayek had stated at the outset that the true liberalism of
England had been undermined and its influence undone by German ideas
The rule of freedom which had been achieved in England seemed destined to
spread throughout the world. By about 1870 the reign of these ideas had
probably reached its easternmost expansion. From then onwards it began to
retreat and a different set of ideas, not really new but very old, began to
advance from the East. England lost her intellectual leadership in the political
and social sphere and became an importer of ideas. For the next sixty years
110
Germany became the centre from which the ideas destined to govern the world
in the twentieth century spread east and west.12
Germany may well have been the ‘centre’ from which ideology of planning, informed
by notions of collectivism and organization, had spread. However, Hayek had in fact
already begun to trace those ideas back further, to France.13 In ‘Scientism and The
Study of Society’ Hayek criticised those who imagined that the techniques of the
natural sciences were appropriate in the social sciences:14
During the first half of the nineteenth century a new attitude made its
appearance. The term ‘science’ came more and more to be confined to the
physical and biological disciplines which at the same time began to claim for
themselves a special rigorousness and certainty which distinguished them
from all others. Their success was such that they soon came to exercise an
extraordinary fascination on those working in other fields, who rapidly began
to imitate their teaching and vocabulary. Thus the tyranny commenced which
the methods and technique of the sciences in the narrow sense of the term
have ever since exercised over the other subjects. These became increasingly
concerned to vindicate their equal status by showing that their methods were
12
Friedrich Hayek, The Road to Serfdom (London, 2001), 21.
The book was, as Hayek had stated in the preface, a political book. It doubtless made sense to cast
the ruinous tradition as belonging to an enemy rather than an ally.
14
The inapplicability of limited models to complex phenomena remained a central concern for Hayek
informing his criticisms of attempts by authority to shape the overall order of economy and society.
For a detailed theoretical exposition of his position, see Friedrich Hayek, ‘The Theory of Complex
Phenomena’ [1964] in Studies In Philosophy, Politics And Economics Philosophy (London, 1967), 2242. At this stage of his career Hayek believed that positivist techniques, while inappropriate to the
study of society were appropriate to the natural sciences. Under the influence of Karl Popper, who
Hayek assisted in obtaining a position at the L.S.E., he subsequently changed this view. See Friedrich
Hayek, ‘Degrees of Explanation’ [1955] in Studies in Philosophy, Politics and Economics (London,
1967), 3-21. For Hayek’s relationship with Popper see Alan Ebenstein, Friedrich Hayek: A Biography
(New York, 2001), 155-166; Also, the classic work Karl Popper, The Logic of Scientific Discovery
(London, 2002).
13
111
the same as those of their brilliantly successful sisters rather than by adapting
their methods more and more to their own particular problems.15
This was the attitude Hayek termed ‘scientism’. It provides for an over confidence
and a belief that it is possible to predict social development.16 This ‘historicism’
creates a belief that, with social development understood, society can be planned in
such a way that encourages development in a beneficial manner. The article
demonstrates a deepening of Hayek’s historical vision. It goes beyond the
explanation of the roots of planning offered in ‘The Trend of Economic Thinking’
where the economics profession, particularly as it had developed in Germany, had
been held primarily responsible.17 Instead he was keen to stress that ‘the present
popularity of “economic planning” is directly traceable to the prevalence of the
scientistic ideas’ and forms of thought that significantly predated economics.18 It was
those forms of thought that led ultimately to the rise of the ‘engineers and planners’
who could claim, on the basis of the misapplication of the methods of the natural
sciences, to have understood the ‘science’ of society.
Rather than seek to shape and to direct society, the social scientist should instead
observe, building up general theories about society on the basis of compositive
reasoning.19 Like Hayek’s earlier work in the business cycle, however this view
received criticism as being the product of ‘do nothing’ logic. As one reviewer wrote
15
Friedrich Hayek, ‘Scientism and The Study of Society’ in Studies on the Abuse and Decline of
Reason: The Collected works of FA Hayek, Vol. 13. (ed.), Bruce Caldwell (Chicago, 2010), 78.
16
It was this ‘historicism’ that underpinned the work of Auguste Comte, G.W.F Hegel and Karl Marx.
See Friedrich Hayek, ‘Comte and Hegel’ in Studies on the Abuse and Decline of Reason, 289.
17
Friedrich Hayek, ‘The Trend of Economic Thinking’ [1933] in The Trend of Economic Thinking:
The Collected Works of FA Hayek, Vol. 3 (eds.), W.W. Bartley III and Stephen Kresge (London, 1991),
13-30.
18
Hayek, ‘Scientism and The Study of Society’, 156.
19
Hayek remarks that he takes the term compositive reasoning from the founder of the Austrian School
Carl Menger ‘Scientism and the Study of Society’, 102.
112
‘it exposes him furthermore to the serious charge of methodological and, ultimately,
of sociological agnosticism. He is saying, in effect, let us not inquire too deeply into
the structure of society because the knowledge thus discovered can be dangerous.’20
Despite Hayek’s apparent ‘epistemological modesty’ here however, this was not his
position.21 What was dangerous, he argued, were attempts to overhaul the existing
social order on the basis of grand sociological theory. Nonetheless, Hayek agreed
with the Ordoliberals that the legal framework should be improved over time. What
was required was the sort of ‘piecemeal engineering’ that had been advocated by his
colleague and friend Karl Popper.22 Exactly where to draw the line, or guidance
regarding when piecemeal engineering becomes excessive, is however missing from
his work.
If scientism underlay attempts at planning, Hayek wanted to know where it had come
from and how, importantly, it had come to affect the political discourse of his adopted
nation. Despite Britain having been at the forefront of the scientific revolution in the
16th and 17th centuries, it had not, for Hayek, been the birthplace of scientism.23
Instead scientism originated with the French Enlightenment, being ultimately a
product of Rene Descartes’s distinction between mind and matter that gave rise to the
20
Robert Bierstedt, ‘Review of The Counter Revolution of Science’, American Sociological Review
17:5 (1952), 629-630.
21
Edwige Kacenelenbogen, ‘Epistemological Modesty within Contemporary Political Thought: A Link
between Hayek’s Neoliberalism and Pettit’s Republicanism’, European Journal of Political Theory 8:4
(2009), 449–471.
22
Karl Popper, The Open Society and Its Enemies, Vol. 1: The Spell of Plato (London, 2002).
23
This is despite Hayek’s denunciation of Francis Bacon as ‘the prototype of the ‘demagogue of
science’ in Hayek, ‘The Counter Revolution of Science’, 102. This willingness to view Bacon as an
aberration in what he otherwise regards as the gradualist and evolutionary traditions of England is just
one early example of what would become something of a habit, part of his determination to establish a
dichotomy between British and Continental forms of thought. This perhaps was for political and
rhetorical purposes but it also suited his own sensibilities and preconceptions about England.
113
mistaken belief that the physical world could be comprehended in its entirety.24 The
17th century, argued Hayek, saw the ascendancy of a ‘favourite idea of positivist
Sociology’ propagated by men such as Condorcet, d’Alembert and Lagrange: ‘that of
an observer to whom physical and social phenomena would appear in the same light,
because “a stranger to our race, he would study human society as we study those of
the beavers and bees.”’25 Subsequently, the French revolution ‘swept away the old
system of colleges and universities’ and ‘thus a whole generation grew up to whom
that great storehouse of social wisdom…the great literature of all ages, was a closed
book.’26 Even more significantly, he wrote, the Revolutionary Convention
established an institution that was to become ‘the source of the scientistic hubris’ and
‘a model imitated by the whole world’: the Ecole Polytechnique.27 Science, rather
than the arts or humanities, informed the practices and ethos of the Ecole, and it was
here, argued Hayek, that those who would formulate some of the most grandiose
scientistic designs were tutored:
…it was in this atmosphere that Saint-Simon conceived some of the earliest
and most fantastic plans for the reorganisation of society…it was at the Ecole
polytechnique where, during the first twenty years of its existence, Auguste
Comte, Prosper Enfantin, Victor Considérant, and some hundreds of later
Saint- Simonians and Fourierists received their training, followed by a
24
Although at odds with their political positions, for his interpretation of Descartes’s influence on the
French Enlightenment, Hayek was indebted to Guido de Ruggiero’s History of European Liberalism
(Oxford, 1927) and Harold Laski’s Studies in Law and Politics (London, 1932). See Friedrich Hayek
Law, Legislation and Liberty, Vol. 1:Rules and Order (London, 1982), 146.
25
Friedrich Hayek, ‘The Counter Revolution of Science’ [1941] in Studies on The Abuse and Decline
of Reason: The Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell (Chicago, 2010), 173.
26
Hayek, ‘The Counter Revolution of Science’, 175-6.
27
The distinction between the French and British Enlightenment has influenced a subsequent
generation of free market, neo-conservative thinkers. See Gertrude Himmelfarb The Roads to
Modernity: The British, French, and American Enlightenment (London, 2008). However the broad
political appeal of stressing a British path to modernity is evidenced by the fact that former Labour
Chancellor and Prime Minister, Gordon Brown, provides the introduction.
114
succession of social reformers throughout the century down to Georges
Sorel.28
Hayek identifies John Stuart Mill as the point of transmission of these continental
ideas into British liberalism. Hayek’s relationship with Mill was complex. He
regarded him as a great proponent of true liberalism in works such as On Liberty, but
also viewed much of his work as overly rationalistic. He also considered his reliance
on the labour theory of value as problematic and his theoretical separation of
economic production and distribution, in combination with his chapters on socialism,
as profoundly injurious to the British liberal tradition.29 Hayek had been exposed to
Mitchell’s interpretation of Mill as an early institutional socialist during his time in
the United States.30 The view of Mill as a socialist was only reinforced by Mises’
work Liberalismus in which he is dismissed as ‘an epigone of classical liberalism’
who, under the influence of his close friend and later wife, Harriet Taylor, becomes
‘the great advocate of socialism’. In typically emphatic style Mises even goes so far
as to insist that ‘all the arguments that could be advanced in favour of socialism are
elaborated by him with loving care. In comparison with Mill all other socialist
writers—even Marx, Engels, and Lassalle—are scarcely of any
importance.’31Wherever Mill may come in the order of importance of socialist
thinkers, for Hayek his greatest disservice to liberalism lay in his introduction of
28
Hayek, ‘The Counter Revolution of Science’, 181. It is curious Hayek includes Sorel here who, with
his emphasis on the importance of myth, hardly fits the rationalist template Hayek is suggesting. It is
again perhaps part of his determination to suggest a French/British binary with the Ecole playing an
important part.
29
In an essential article on the subject, Bruce Caldwell has commented that ‘it is perhaps an
understatement to say that trying to understand F.A. Hayek’s assessment of John Stuart Mill is a
complicated matter.’ See Bruce Caldwell, ‘Hayek on Mill’, History of Political Economy 40:4 (2008),
689. Also, Philippe Légé, ‘Hayek’s Readings of Mill’, Journal of the History of Economic Thought 30
(2008), 199–215.
30
See Chapter One, section 2.
31
Ludwig von Mises, Liberalism (Kansas, 1962), 195.
115
European ideas of organisation into British liberal thought.32
Taking his cue from Mises, Hayek ascribed the growing influence of socialism and
collectivist ideas in Mill’s work to influence of Harriet Taylor. While Taylor’s
influence may have been decisive, it was Mill’s youthful attraction to intellectual
developments on the continent that rendered him vulnerable to socialism’s appeal,
especially his interest in the work of Saint Simon and Auguste Comte, the very
archetypes of the engineers and planners Hayek had written about:
In his Autobiography he describes them as “the writers by whom, more than
by any others, a new mode of thinking was brought home” to him and
recounts how particularly one of their publications, which seemed to him far
superior to the rest, Comte’s early System of Positive Policy, “harmonised well
with my existing notions, to which it seemed to give a scientific shape. I
already regarded the methods of physical science as the proper models for the
political. But the chief benefit which I derived at this time from the trains of
thought suggested by the Saint- Simonians and by Comte, was, that I obtained
a clearer conception than ever before of the peculiarities of an era of transition
in opinion, and ceased to mistake the moral and intellectual characteristics of
such an era, for the normal attributes of humanity.”33
Quoting further from Mill’s Autobiography, Hayek went on to recount that:
32
The view of Mill as a point of departure or development, depending on one’s political standpoint,
was standard for the interwar period. As Caldwell indicates it was one shared by Sidney Webb, L.T.
Hobhouse and Hayek’s colleague Harold Laski. It stems from Mill’s description of himself and Taylor
as being ‘decidedly under the general designation of Socialists’ in his Autobiography. Caldwell ‘Hayek
on Mill’, 692-693.
33
Hayek, ‘The Counter Revolution of Science’, 238.
116
…although he lost sight for a time of Comte, he was kept au courant of the
Saint- Simonians’ progress by Gustave d’Eichthal (who had also introduced
Carlyle to Saint-Simonism), how he read nearly everything they wrote and
how it was “partly by their writings that eyes were opened to the very limited
and temporary value of the old political economy, which assumes private
property and inheritance as indefeasible facts, and freedom of production and
exchange as the dernier mot of social improvement.”34
We have here, Hayek wrote ‘undoubtedly the first roots of J. S. Mill’s socialist
leanings’35 Despite the underlying influence of Saint Simon, it was Comte, SaintSimon’s collaborator and eventual adversary, that Mill did the most to propagate.
Comte developed a positive sociology that sought to discover the natural laws
according to which society should be organized.36 ‘Mill’s Logic,’ wrote Hayek
‘Buckle’s and Lecky’s historical works, and later Herbert Spencer, made Comte’s
ideas familiar to many who were often completely unaware of their source.’37
Moreover, it was Mill who had ‘by his advocacy of distributive justice and a generally
sympathetic attitude towards socialist aspirations…prepared the gradual transition of
a large part of the liberal intellectuals towards socialism.’38 Hayek would make it his
mission to try and win them back.
34
Hayek, ‘The Counter Revolution of Science’, 239.
Hayek, ‘The Counter Revolution of Science’, 239.
36
August Comte, Early Political Writing (ed.), Hugh Stuart Jones (Cambridge, 1998). For the part
played by Comte in the development of positivism and positivism’s subsequent influence in western
thought see Melissa Lane, ‘Positivism: Reactions and Developments’ in The Cambridge History of
Twentieth Century Political Thought (eds.), Terrance Ball and Richard Bellamy (Cambridge, 2003).
321-342.
37
Hayek ‘The Counter-Revolution of Science’, 279.
38
Friedrich Hayek ‘Liberalism’ [1973] in New Studies in Philosophy, Politics, Economics and the
History of Ideas (London, 1978), 129-130.
35
117
Given Mill’s later repudiation of Comte as a ‘liberticide’, Hayek’s ascription of Mill’s
later socialism to this earlier influence is problematic.39 Moreover, Mill’s variant of
socialism, based upon cooperation and a decentralisation of power, bears no
resemblance to the schemes espoused by Saint Simon or Comte.40 Hayek never
properly engaged with cooperation as an alternative to a system based on private
capital. When he discusses market socialism it is always in the context of some
central price fixing authority. This remains true even where he touches upon
syndicalism.41 But Mill advocated free competition on the basis of a system of
worker ownership and the price mechanism.42 Hayek’s unwillingness to engage with
Mill on these terms and to simply dismiss him as an advocate of organisation is
telling. Many, if not all, of Hayek’s epistemological arguments against socialism
might well be overcome within a system of competitive cooperation as advocated by
Mill.43
3. A Campaign of Decontestation
Hayek recognised that liberalism was a contested tradition. Its core concept was
liberty, but that meant different things. As he noted at the outset of ‘Individualism:
True and False’:
39
Hayek, ‘The Counter-Revolution of Science’, 297.
J.S. Mill, ‘Chapters on Socialism’ in On Liberty and Other Writings (ed.) Stefan Collini (Cambridge,
1989). It is also worth noting that Mill was consistent in his rejection of Communism.
41
Friedrich Hayek, ‘Unions, Inflation and Profits’ [1959] in Studies In Philosophy, Politics And
Economics Philosophy (Chicago, 1967), 280-294; Friedrich Hayek, ‘The Corporation in Democratic
Society In Whose Interest Ought It To And Will It Be Run?’ [1960] in Studies In Philosophy, Politics
And Economics Philosophy (Chicago, 1967), 300-312..
42
Gregory Claeys ‘Justice, Independence, and Industrial Democracy: The Development of John Stuart
Mill's Views on Socialism’, The Journal of Politics 49:1 (1987), 122-147; Wendy Sarvasy, ‘A
Reconsideration of the Development and Structure of John Stuart Mill's Socialism’, The Western
Political Quarterly 38:2 (1985), 312-333.
43
Simon Griffiths, Engaging Enemies: Hayek and The Left (London, 2014); David Miller Market,
State and Society (Oxford, 1989).
40
118
The difficulty which we encounter is not merely the familiar fact that the
current political terms are notoriously ambiguous or even that the same term
often means nearly the opposite to different groups. There is the much more
serious fact that the same word frequently appears to unite people who in fact
believe in contradictory and irreconcilable ideals. Terms like "liberalism" or
"democracy," "capitalism" or "socialism," today no longer stand for coherent
systems of ideas. They have come to describe aggregations of quite
heterogeneous principles and facts which historical accident has associated
with these words but which have little in common beyond having been
advocated at different times by the same people or even merely under the
same name.44
Hayek’s lecture constitutes his first explicit attempt at to offer a new narration of the
history of liberalism and fix what true liberalism and true individualism consisted of.
In this respect it is an exercise in what Michael Freeden has termed ‘decontestation’.45
The lecture brings together his fear of democracy in a planned welfare state, taken
from Schmitt; the importance of a strong and evolving legal framework that separates
the political from the economic, taken from the Ordoliberals; and his new project of
establishing a clear dichotomy between the British and the French liberal traditions.
Now Hayek was arguing that the intellectual trends he had argued against during the
1930s, were in fact the dangerous fruit of false individualism. Its central purpose is to
reject the rationalism of the French tradition in favour of the British tradition that
44
45
Hayek, ‘Individualism: True and False’, 2-3.
Michael Freeden, Ideologies and Political Theory: A Conceptual Approach (Oxford, 1998).
119
views society as developing, in the words of Adam Ferguson, as ‘the result of ‘human
action but not of design.’ Fundamental to this was an individual’s control over their
own economic life and the free market action this required.46
Importantly, the lecture involved Hayek sketching a genealogy of the form of
liberalism that holds economic freedom as its core concern. ‘The true individualism
which I shall try to defend’ wrote Hayek,
…began its modern development with John Locke, and particularly with
Bernard Mandeville and David Hume, and achieved full stature for the first
time in the work of Josiah Tucker, Adam Ferguson, and Adam Smith and in
that of their great contemporary, Edmund Burke.47
Hayek expands his narrative of the decline of British liberalism to include two further
figures commonly regarded as great figures within the movement: Jeremy Bentham
and Herbert Spencer: ‘The Benthamites or philosophical radicals among them,
came…under the influence of another kind of individualism’, wrote Hayek namely
the rationalism of the French tradition.48 He goes on that ‘it was because John Stuart
Mill and Herbert Spencer, were almost as much influenced by the French as by the
English tradition, all sorts of conceptions and assumptions completely alien to true
individualism have come to be regarded as essential parts of its doctrine.’49 Given the
many exceptions Hayek had to make to his genealogy we must consider why he was
so intent on thinking in national terms. One reason is indicated by subsequent
46
Hayek, ‘Individualism: True and False’, 7-8.
Hayek, ‘Individualism: True and False’, 4.
48
Hayek, ‘Individualism: True and False’, 4.
49
Hayek, ‘Individualism: True and False’, 11.
47
120
interviews conducted with Hayek by his intended biographer, William Warren Bartley
III. Hayek reflected that while in the U.S. he would read alone and,
It was then that I discovered my sympathy with the British approach, a
country I did not yet know but whose literature increasingly captivated me. It
was this experience which, before I had ever set foot on English soil,
converted me to a thoroughly English view on moral and political matters,
which at once made me feel at home when I later first visited England three
and a half years later. . . . In the sense of that Gladstonian liberalism, I am
much more English than the English.50
It may simply have been that Hayek was sentimentally attached to the idea of England
or Britain, he frequently confused the two, as the true home of liberalism, with its
geographical discreteness contributing to the impression that it offered a distinct
alternative to what he regarded as the continental model. A second related
explanation is that Hayek, with good reason, sincerely regarded Britain as a country
that had pursued more liberal economic policies than its European counterparts. This
was at least the case until what he regarded as the ignominious year of 1931, when
Britain finally abandoned the path of ‘true’ liberalism in the face of global economic
crisis. A further explanation may be the extent to which Hayek was influenced by the
French historian Élie Halévy.51 Hugh Stuart Jones has argued that Hayek’s
interpretation of socialism as originating with French Saint-Simonianism owes much
to Halévy’s paper ‘The Age of Tyrannies’. It was published posthumously in
Economica, in 1941, during which time Hayek was editor of the journal and working
50
51
Hayek, Studies on The Abuse and Decline of Reason, 23.
Élie Halévy, The Era of Tyrannies (London, 1967).
121
on his ‘Abuse of Reason’ project.52 The similarities are significant. Halévy’s
‘discovery’ of the French, non-Marxist origins of socialism, with organisation rather
than class conflict the central concern is indeed the key theme of Hayek’s argument in
‘The Counter Revolution of Science.’53 While Halévy’s influence may well have been
significant, he would not have gone on to say that, because it was French in origin,
socialism was essentially un-British. For Hayek however this was the case and for the
first time he identified the ‘English Whigs’ as exemplars of the liberalism he wished
to see revived. Their work seemed to speak to those very 20th century European
concerns he had developed in reading Schmitt, Eucken and others. Increasingly,
Hayek would invoke the ideals of Whiggism in asserting an interpretation of
liberalism that was both distinct from democracy and did not seek to alter economic
outcomes or impinge upon free market action.54
In 1947 Hayek took the lead in founding the Mont Pèlerin Society (MPS), a group
dedicated to the discussion and dissemination of liberal ideas.55 It was composed of
52
For example, both considered the Webbs, with their Fabian Socialism as ‘exponents of the Prussian
model’ who ‘were obviously fascinated by the success of the Bismarckian State- Socialism’ in H.S
Jones, ‘The Era of Tyrannies: Élie Halévy and Friedrich von Hayek on Socialism’, European Journal
of Political Theory 1:1 (2002), 53-69; 62.
53
Halévy regarded this as ‘one of the most fruitful discoveries of the previous two decades’. Halevy’s
method ‘which typically proceeded by identifying two antinomical principles at work within a given
movement or set of ideas, and tracing the consequences of the tension between the two principles’ is
also highly reminiscent of Hayek’s. See Jones, ‘The Era of Tyrannies’, 62. However, Hayek had been
prone to think in dualities since at least the mid ‘30s.
54
Hayek made little attempt to draw out the differences between court and country Whigs. He does
however recognise an ‘Old Whig’ tradition associated with Burke and opponents of the French
Revolution. He also noted that the Whiggism of the 19 th century became associated with corruption.
See Friedrich Hayek, The Constitution of Liberty (Chicago, 1960), 408-9. Also worth noting his
Hayek’s steadfast insistence that David Hume was a Whig, despite Hume’s complex and often
frustrated relationship with the Whig party. See Friedrich Hayek, ‘The Legal and Moral Thought of
David Hume’ in Studies In Philosophy, Politics And Economics Philosophy (Chicago, 1967) 106-121.
For an article in support of Hayek’s position see Eugene Miller, ‘David Hume: Whig or Tory?’, New
Individualist Review 1:3 (1962), 165-174. For a study that is less eager to claim Hume for Whiggism
and that draws out the ambivalence of his position see J.G.A. Pocock, ‘Hume and The American
Revolution’ in Virtue, Commerce and History (Cambridge, 1985).
55
Max Hartwell, A History of The Mont Pèlerin Society (Indianapolis, 1995). The journey from
wilderness to influence is a common trope among both supporters and critics of what Philip Mirowski
and Dieter Plehwe have termed ‘the neoliberal thought collective’ associated with the Mont Pèlerin
122
many of those, including academics from the University of Chicago and from among
the Ordoliberals, with who he had been in contact during the 1930s.56 In 1950 Hayek
himself made the move to Chicago. However, he left Britain reluctantly. As he
recalled,
…while neither on my early visit to the United States nor during my later stay
there or still later in Germany did I feel that I really belonged there, English
ways of life seemed so naturally to accord with all my instincts and
dispositions that, if it had not been for very special circumstances, I should
never have wished to leave the country again.57
The circumstances were largely personal. Hayek left his first wife, Hella, in 1949,
before moving briefly to Arkansas in order to take advantage of their permissive
divorce laws. He divorced Hella in 1950 and married his second wife, Helene, only
weeks later in Vienna. Helene was Hayek’s second cousin with whom he had fallen
in love many years previously but who, apparently through a misunderstanding of his
intentions, had married another man. After the death of her husband Hayek was
determined not to let another opportunity pass. His behaviour in this matter however
resulted in him being ostracised by some of his closest friends at the L.S.E., primarily
Lionel Robins who was appalled. Under these circumstances Hayek sought
Society. See Philip Mirowski and Dieter Plehwe (eds.), The Road from Mont Pelerin: The Making of
the Neoliberal Thought Collective (Cambridge MA, 2015). It should be remembered however that
even during its initial years the Society had an influential membership including figures such as the
second post-war chancellor of Germany, Ludwig Erhard, and the second post-war President of Italy,
Luigi Einaudi.
56
See Daniel Stedman Jones, Masters of The Universe: Hayek, Friedman and the Birth of Neoliberal
Politics (Princeton, 2012), 73-84; Angus Burgin, The Great Persuasion: Reinventing Free Markets
Since the Depression (London, 2012), 55-86;
57
Hayek, Hayek on Hayek, 86.
123
alternative employment.58
A factor that somewhat complicates Hayek’s later insistence that he had felt forced to
move is the fact that he had already, in 1948, attempted to obtain a position at
Chicago, in the economics department. His advances were however declined in large
part because of the growing notoriety among progressives of The Road to Serfdom.
Hayek’s eventual appointment was not within the economics department, but to the
committee for social thought, with his acceptance there thanks to John Nef, the
committee’s head, championing Hayek’s application.59 1951 saw the publication of
Hayek’s edited collection of the letters exchanged between Mill and Taylor, with an
introduction that identified Taylor as influencing Mill towards socialism.60 Cass
Sunstein has described Hayek’s work on the subject as ‘an enormous,
uncharacteristic, and somewhat obsessive undertaking.’61 It is however possible that,
during this tumultuous period of his life, Hayek felt some personal empathy with the
couple who had, not unlike himself and Helene, endured a long thwarted love affair.
This may have caused him to take a particular interest in the letters. More likely
however is that a proper accounting with Mill’s role in the history of liberalism was
critical to Hayek’s on-going research project.62 This perhaps, rather than romance,
was what sustained his interest.
58
Ebenstein Hayek, 155-156; 169. Also, Hayek, Hayek on Hayek, 121.
For a revisionist account of the rise of the Chicago School of economics, which construes Hayek,
Henry Simons and Aaron Director as the key figures rather than Milton Friedman, see Rob Van Horn
and Philip Mirowski ‘The Rise of the Chicago School of Economics and the Birth of Neoliberalism’ in
The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (eds.), Philip Mirowski
and dieter Plehwe (Cambridge MA, 2009), 139-180.
60
For a critical reading of Hayek’s work see John Gray ‘How Friedrich Hayek became fascinated with
the romance of Harriet Taylor and J S Mill’, The New Statesman (28th May, 2015).
61
Cass Sunstein, ‘John & Harriet: Still Mysterious’ review of John Stuart Mill and Harriet Taylor:
Their Friendship and Subsequent Marriage, New York Review of Books (2nd April, 2015). Accessed at
http://www.nybooks.com/articles/2015/04/02/john-stuart-mill-harriet-taylor-hayek/ 16.06.2016.
59
62
It is by no means the case that the volume amounted to such an accounting however.
124
Hayek was to continue his campaign of decontestation at Chicago, keeping his focus
firmly on English intellectual history. His position on the committee of social thought
gave him greater reign to pursue his personal interests and thus he could turn his
attention more fully to the Whig tradition. Hayek regarded the Whigs’ insistence on
the rule of law to be their greatest achievement. In a two part article ‘The Decline of
The Rule of Law’ for the libertarian publication The Freeman, in 1952, he wrote:
…there is often no other way of discovering what is happening in our time
than to go back to the source in order to recover the original meaning of the
debased verbal coin which we still use. Today this is certainly true of the
conception of the Rule of Law which stood for the Englishman's ideal of
liberty, but which seems now to have lost both its meaning and its appeal.63
Hayek proceeded to make the distinction between liberty and democracy again noting
that the Greek word ‘isonomia’, meaning ‘government of law…was a very old term
which had preceded demokratia as the name of a political ideal.’ While he noted that
the principles of the rule of law are to be found in the tradition of the Common Law
there was, he wrote, a definite ‘rediscovery’ and ‘there can be little doubt’ he
reflected ‘about the source from which the Englishmen of the late Tudor and early
Stuart period derived their new political ideal for which their sons fought in the
seventeenth century; it was the rediscovery of the political philosophy of ancient
Greece and Rome which, as Thomas Hobbes complained, inspired the new
63
Hayek, ‘Decline of The Rule of Law’, 519.
125
enthusiasm for liberty.’64 Many of the classical texts had been translated during the
reign of Elizabeth I, and ‘to the seventeenth-century Englishmen, it seems’ wrote
Hayek, ‘the Latin authors, particularly Livy, Cicero, and Tacitus, became increasingly
the more important sources of political philosophy’.65 Hayek also draws attention to
the dispute between Thomas Hobbes and James Harrington as to whether a polity
should be governed by men or laws endorsing Harrington’s position that ‘the "art
whereby a civil society is instituted and preserved upon the foundation of common
right or interest" is "to follow Aristotle and Livy ... the empire of laws, not of men."’66
Hayek was keen to stress that the way he understood freedom, as fundamentally a
matter of free market action, was also the way in which his republican and Whig
predecessors understood it. Strikingly he drew a direct comparison between the
debates regarding the relationship between government and economy in his own time
with those that led to the English civil war:
Nor is it generally remembered today that the decisive struggle between King
and Parliament which led to the recognition and elaboration of the Rule of
Law was fought mainly over the kind of economic issues which are again the
center of controversy today. To the nineteenth-century historians the measures
of James I and Charles I which produced the conflict seemed antiquated
abuses without topical interest. Today, some of these disputes have an
64
Hayek, ‘Decline of The Rule of Law’, 519.
Hayek, ‘Decline of The Rule of Law’, 518.
66
Hayek, ‘Decline of The Rule of Law’, 519.
65
126
extraordinarily familiar ring. (In 1628 Charles I refrained from nationalizing
coal only when it was pointed out to him that it might cause a rebellion!)67
Clearly, Hayek endorsed the struggle of Parliament against the King and he argued
that ‘what contemporary Socialist lawyers have contemptuously dismissed as the
Whig doctrine of the Rule of Law’ was closely connected with the fight against
government-conferred monopoly and particularly with the discussion around the
Statute of Monopolies of 1624’ and that ‘it was mainly in this connection that that
great source of Whig doctrine, Sir Edward Coke, developed his interpretation of
Magna Carta.’68 For Hayek, Whiggism had become the best exemplar of true
liberalism and the concerns of the Whigs, with their apparent fight for free market
action particularly emphasised, were portrayed as being instructive for liberals in the
1950s.
Another major aspect of Hayek’s thought that comes to the fore during this period is
the concept of spontaneous order.69 This is the idea that social processes and
institutions evolve over time to meet particular needs. Developing largely on the
basis of trial and error, emerging based on experience, knowledge of best practice
inheres in such processes and institutions in a way it cannot when they are rationally
constructed.70 Hayek traces this basic insight back again to 18th century Britain,
67
Hayek, ‘Decline of The Rule of Law’, 519. Hayek may have arrived at this somewhat surprising
argument through conversations with John Nef who took a close interest in the history of the British
coal industry. See John Nef, The Rise of the British Coal industry (London, 1966).
68
Hayek, ‘Decline of The Rule of Law’, 520.
69
Hayek’s evolutionary social theory is a major line of research in his work. While intrinsic to his later
thought, detailed discussion of it lies outside the scope if this thesis. However, see Christina Petsoulas,
Hayek’s Liberalism and its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment
(London, 2001).
70
How the process works is not entirely clear from Hayek’s writing. In his earlier work trial and error
seems to play a larger role. In his later work a process of survival of the most efficient comes to the
fore.
127
finding it particularly in the work of David Hume, though the specialisation of labour
Smith describes can also be thought of as a process of spontaneous ordering. Hayek
also frequently quotes Adam Ferguson in stressing that effective institutions are ‘the
result of human action but not the execution of human design.’71 It is however his
contemporary Michael Polanyi who Hayek quotes at length as giving the best analysis
of the concept:
When order is achieved among human beings by allowing them to interact
with each other on their own initiative—subject only to the laws which
uniformly apply to all of them—we have a system of spontaneous order in
society.72
While the economy as a whole, when un-interfered with by government, could be
considered the acme of spontaneous order, perhaps the best discrete example was the
English Common Law. It was a body of impersonal and general rules that had
evolved to meet the particular needs of a society. In this it was the opposite of Hans
Kelsen’s prescriptions that law could be improved upon to meet the particular needs
of social groups.73 Hayek’s Whig inheritance, combined with his analysis of the
decline of liberalism, caused him to regard the law as properly being above
democratic debate. In this manner it could act as a way of restraining government
attempts to impinge upon the economy. While he also argued that law must be active
and the legal framework updated, the growing emphasis Hayek placed on pre-
71
Friedrich Hayek, The Constitution of Liberty (Chicago, 1960), 57.
It also seems to be Polanyi who coined the term in Michael Polanyi, ‘The Span of Central Direction’
in The Logic of Liberty (Chicago, 1951), 111-137.
73
See Chapter Two, section 3.
72
128
democratic Whig ideas, was leading him towards the position that judges, rather than
the democratically elected governments, should be the key actors in this process.
4. Defining the Neo-Roman Concept
Hayek’s engagement with Whiggism as part of his campaign of decontestation would
lead him to advocate a neo-roman concept of liberty. Despite his new focus on the
17th and 18th centuries however, he still remained fascinated by the career of Mill. In
his edited volume, Hayek had not included many of the longer letters Mill had written
to Taylor when he had, for health reasons, taken a trip to the Mediterranean in 1854-5.
However, Hayek recalled that,
It occurred to me that it might be interesting to repeat the journey after
exactly a hundred years with the aim of producing a fully annotated edition of
the letters. I succeeded in persuading the Guggenheim Foundation to give me
a substantial grant to finance the journey, and thus my wife and I were able to
spend a delightful seven months travelling by car, first through the west and
south of France, through Italy as far south as Naples, and then around most of
Sicily, to Corfu and Athens, which provided the center from which we visited
Euboea, Delphi, and much of the Peloponnesus.74
While the annotated volume never appeared, the journey did bear fruit in that it
helped Hayek draw up a plan, informed by a series of lectures delivered in Cairo on a
74
Hayek, Hayek on Hayek, 115-116.
129
detour during the trip, for his next major work, The Constitution of Liberty.75
In a 1956 broadcast for the BBC, Hayek drew upon the lectures and, for the first time,
defined liberty in neo-roman terms. After discussing the importance of the rule of law
he continued ‘differently expressed the aim of all this is to prevent arbitrary coercion.
After all, a man is free if he need not obey the arbitrary will of any other person.’76
This definition was somewhat different to the definition of liberty Isaiah Berlin would
present as being associated with liberalism two years later. In his hugely influential
inaugural lecture as Oxford's Chichele professor of social and political theory, ‘Two
Concepts of Liberty’, Berlin argued that ‘I am normally said to be free to the degree
to which no man or body of men interferes with my activity.77 For Hayek, what
rendered an individual un-free was being subject to the will of another at any given
moment. For Berlin, what rendered one un-free was the actual act of interference.
Berlin termed his liberal definition the negative concept of liberty and contrasted it to
the positive concept, which he associated with self-realisation. For him this positive
second concept lent itself to a less tolerant, more authoritarian type of polity. 78 For
75
Hayek had been invited by the Bank of Egypt to deliver the lectures. See Friedrich Hayek, The
Political Ideal of the Rule of Law (Cairo, 1955). There was also an anecdote Hayek was fond of
regarding his trip to Rome: ‘In his Autobiography, Mill describes how the conception for his book On
Liberty came to him walking up the steps of the capitol at Rome. When I repeated this on the
appropriate day a hundred years later, no inspiration, however, came to me. And as I later noticed, it
was indeed not to be expected, since Mill had fibbed: The letters show that the idea of writing such a
book had come to him before he reached Rome. Nevertheless, shortly after the conclusion of our
journey, I had before me a clear plan for a book on liberty arranged round the Cairo lectures.’ See
Hayek, Hayek on Hayek, 116.
76
Friedrich Hayek, ‘Freedom and The Rule of Law’, BBC Broadcast (1956) Hayek Archive Box 107,
Folder 29. Hayek had spoken of ‘arbitrary power’ and ‘arbitrary government’ in The Road to Serfdom
but not as part of an attempt to define liberty itself.
77
Berlin, ‘Two Concepts of Liberty’ in Four Essays on Liberty (Oxford, 1969), 132.
78
Hayek also identified both positive and negative liberty. Like Berlin, he regarded his own concept in
negative terms. This does not invalidate the distinction between Hayek and Berlin being made here
however. The neo-roman concept has also been understood in negative terms by its defenders. See
Quentin Skinner, Liberty Before Liberalism (Cambridge, 1998), 82-4. Skinner has however gone on to
130
the negative concept, there must exist ‘a certain minimum area of personal freedom
which must on no account be violated.’79 This is very like Hayek’s own insistence
that ‘each individual must have a private sphere delimited by general rules enforced
by the state.’80 How they differ is that for Berlin there must be an absence of
interference, or obstruction, with liberty conceived of in terms of physical action; for
Hayek even if there is no physical interference, should the potential for arbitrary
interference exist, then the individual living under that threat is still un-free. For
Hayek the law must completely counter arbitrary power by threat of legal sanction.
For Berlin this need not be the case, there may still be areas in which there is potential
for arbitrary interference which the law has not taken account of, yet so long as that
interference does not actually occur the individual can still be considered free. If we
follow Hayek, Berlin’s ostensibly liberal negative concept of liberty misconstrues
how the first liberals had understood liberty. For Hayek, it was their classical neoroman concept, which defined liberty as a guaranteed status secured under the rule of
law, rather than merely the absence of physical interference, that had brought about
liberalism’s birth and subsequent growth.81
Published in 1960, The Constitution of Liberty marks the culmination of Hayek’s
campaign of decontestation. It opens with the sentence: ‘If old truths are to retain their
hold on men's minds, they must be restated in the language and concepts of
successive generations.’82 Unlike Berlin, who, following Benjamin Constant,
regarded a negative understanding of liberty as belonging to the modernity, Hayek
argue that the neo-roman, should be understood as a third concept, albeit still a negative one in ‘A
Third Concept of Liberty’, Proceedings of the British Academy 117 (2002), 262.
79
Berlin, ‘Two Concepts of Liberty’, 132.
80
Hayek, The Constitution of Liberty, 145..
81
In this Hayek’s argument bears some similarities with those advanced in Andreas Kalyvas and
Andreas Katznelson, Liberal Beginnings: Making a Republic for the Moderns (Cambridge, 2008).
82
Hayek, The Constitution of Liberty, 1.
131
goes on to immediately define liberty in terms that would have been familiar to any
Roman:
It so happens that the meaning of freedom that we have adopted seems to be
the original meaning of the word. Man, or at least European man, enters
history divided into free and unfree; and this distinction had a very definite
meaning. The freedom of the free may have differed widely, but only in the
degree of an independence which the slave did not possess at all. It meant
always the possibility of a person's acting according to his own decisions and
plans, in contrast to the position of one who was irrevocably subject to the will
of another, who by arbitrary decision could coerce him to act or not to act in
specific ways. The time-honored phrase by which this freedom has often been
described is therefore "independence of the arbitrary will of another."83
The distinction between freeman and slave is at the heart of the neo-roman concept, as
detailed by Quentin Skinner.84 Hayek wished us to think of restraint and coercion as
equally harmful.85 Crucially, we can properly consider something restrictive or
coercive even if physical action is not involved. The very fact that another could
83
Hayek, The Constitution of Liberty, 12.
There has been significant debate within political philosophy regarding whether or not the neoroman, or republican, concept is actually distinct from the concept of non-interference. The main
protagonists in this debate have been Skinner and Pettit while their critics have included Eric Nelson,
‘Liberty: One Concept Too Many?’, Political Theory 33:1 (2005); Mathew Kramer, ‘Liberty and
Domination’ in Republicanism and Political Theory (eds.), Cecile Laborde and John Maynor (Oxford,
2008), 31-57; Ian Carter, ‘How are Power and Unfreedom Related?’ in Republicanism and Political
Theory (eds.), Cecile Laborde and John Maynor (Oxford, 2008) 52-82. Other theorists have criticised
non-domination for on the grounds that, as described by Pettit and others, it is insufficient for liberty,
rather than on the grounds that it lacks distinctiveness. See Sharon Krause, ‘Beyond Non-Domination:
Agency, Inequality, and the Meaning of Freedom’, Philosophy and Social Criticism (2013), 1-22;
Patchen Markell, ‘The Insufficiency of Non-Domination’, Political Theory 36:1 (2008), 9-36. This
thesis takes the position that the concept is distinct from that of non-interference. However, it is one
the central contentions of the thesis that the concept should not only be solely associated with a preliberal political tradition. See below and Chapter Three, sections 3 and 4.
85
Friedrich Hayek, The Constitution of Liberty,16-17.
84
132
arbitrarily interfere means the person is not free whether or not coercion actually
occurs. By coercion Hayek meant not only physical interference, but also ‘control of
the environment or circumstances of a person by another that, in order to avoid
greater evil, he is forced to act not according to a coherent plan of his own but to
serve the ends of another.’86 All of this is crucial for Hayek’s own economic theory.
Out of his work in the socialist calculation debate and the epistemological insights of
‘Economics and Knowledge’, had emerged the insistence that for economic
coordination to function, individuals must be able to make use of their own
knowledge and formulate their own plans. The possibility of arbitrary interference by
another undermined this. The critical benefit of the ‘Whig doctrine of the rule of law’
was that it introduced a degree of confidence into economic processes. As he wrote,
‘free action, in which a person pursues his own aims by the means indicated by his
own knowledge, must be based on data which cannot be shaped at will by another.’87
For free market action to exist and economic coordination to succeed, individuals
must know in advance that arbitrary interference will not occur because it is
precluded, as far as possible, by the rule of law.
The need for a clear legal framework meant that Hayek, unlike Berlin, did not regard
the law and legal interference as marking the limits of liberty. Berlin had argued,
with reference to the law, that ‘it remains true that the freedom of some must at times
be curtailed to secure the freedom of others.’88 For Hayek however, legal
interference in itself was not problematic because it was not arbitrary. It could be
incorporated into the data upon which people based their plans: it did not impinge
upon free market action. As he wrote:
86
Hayek, The Constitution of Liberty, 21.
Hayek, The Constitution of Liberty, 20.
88
Berlin, ‘Two Concepts of Liberty’, 126.
87
133
During the classical period of the Roman Law, it was once more understood
that there was no real conflict between freedom and the law, their generality,
certainty, and the restrictions they placed on the discretion of the authority,
which was the essential condition of freedom. 89
Hayek maintained that this understanding of the relationship between law and liberty,
rather than Berlin’s, was the one that was best associated with liberalism.
5. Hayek and Republicanism
The concept of liberty Hayek presents us with has been explored more recently by
those associated with an intellectual and political movement known as ‘neorepublicanism’. In general these authors refer to the concept as ‘the republican
concept of liberty’, informed as it is by the Roman law and the defenders of the
Roman republic as well as those who took arms against the crown in the English civil
war and the American Revolution.90 The leading political theorist of the movement,
Philip Pettit, has described the republican, or neo-roman, concept of liberty in contrast
to Berlin’s negative concept:
89
Hayek, ‘Decline of The Rule of Law’, 519.
They offer a significantly different account of the Republican tradition from another group of
writers, most prominent among whom was Hannah Arendt and J.G.A. Pocock. While the neorepublicans place the ‘republican concept of liberty’ at the centre of their theory, and thus the need for
legally enshrined rights, this other group takes an Aristotelian perspective that regards popular
sovereignty and civic virtue as republicanism’s core concerns. For them, legal rights are of secondary
importance to popular will and self-government. See Hannah Arendt, The Human Condition (Chicago,
1958); J.G.A. Pocock, The Machiavellian Moment: Florentine Political Thought and the Atlantic
Republican Tradition (Princeton, 1975); J.G.A. Pocock, Virtue Commerce and History (Cambridge,
1985); Charles Taylor, ‘What’s Wrong with Negative Liberty’ in Philosophy and the Human Sciences
Philosophical Papers 2 (Cambridge, 1985), 211-229; Michael Sandel, Justice, What’s the Right Thing
to Do? (New York, 2010).The two distinct groups have been characterised as ‘neo-roman’ and ‘neoathenian’ republicans respectively. Neo-romanism, with its stress on individual rights has been
regarded as a better fit with liberalism, while neo-athenianism is more communitarian in outlook.
90
134
The negative conception of freedom as non-interference and the positive
conception of freedom as self-mastery are not the only available ideals of
liberty; a third alternative is the conception of freedom as non-domination,
which requires that no one is able to interfere on an arbitrary basis— at their
pleasure—in the choices of the free person. This is the conception espoused in
the long republican tradition. Thus republicans regarded all of those who are
subject to another's arbitrary will as unfree, even if the other does not actually
interfere with them; there is no interference in such a case but there is a loss of
liberty. And, in cases where a regime of law did not subject people to an
arbitrary will, they thought that legal coercion was not a compromise of
people's liberty; there is interference in such a case but no loss of liberty
While Hayek never used the term, the similarity of Pettit’s non-domination to
Hayek’s own description of liberty is apparent. The same is true of how both Hayek
and Pettit’s republicans view the relationship between law and liberty. As Pettit
writes:
…the law that answers systematically to people's general interests and ideas—
represents a form of interference, it does not compromise people's liberty; it
constitutes a non‐mastering interferer. Republicans do not say, in the
modernist manner, that while the law coerces people and thereby reduces their
liberty, it compensates for the damage done by preventing more interference
135
than it represents. They hold that the properly constituted law is constitutive of
liberty in a way that undermines any such talk of compensation.91
That Hayek and subsequently Pettit and Skinner arrive at the same definition of
liberty is in large part explained by the similarity of the intellectual histories they
relate. While Hayek begins The Constitution of Liberty with the distinction between
the freeman and the slave, Quentin Skinner offers us a strikingly similar account of
the origins of liberty as it was traditionally understood concept.:
According to the republican theory, as classically propounded in the rubric De
statu hominum at the start of the Digest, the paramount distinction in civil
associations is between those who enjoy the status of liberi homines or
‘freemen’ and those who live in servitude. The rubric opens with the
contention that ‘the chief distinction in the law of persons is that all men are
either free or else are slaves’. As the next chapter explains, the libertas
enjoyed by free-men consists in their being ‘in their own power’ as opposed to
being ‘under the power of someone else’. By contrast, the loss of liberty
suffered by slaves arises from living ‘under the power of a master’ and hence
in subjection to his arbitrium or arbitrary will. 92
In terms equivalent to those offered by Hayek, Skinner has explained that according
to the republican, or neo-roman concept:
If the continuation of your liberties depends upon the arbitrary will of anyone
91
92
Philip Pettit, Republicanism a Theory of Freedom and Government (Oxford Online, 2003), 20-37.
Quentin Skinner, Hobbes and Republican Liberty (Cambridge, 2008), ix.
136
else, then you are not a free-man but a slave, even though you may have the
fullest de facto enjoyment of your liberties, and may therefore be able to act
entirely as you choose. Knowing that you are free to act or not to act solely
because there is someone who has chosen not to hinder you is what reduces
you from the standing of a free-man to a state of servitude. The second
necessary condition of living as a free-man under a system of positive law is
therefore that your capacity to exercise your rights and liberties must never be
subject to anyone else’s will.93
What makes the liber homo free is the ‘absence of dependence’ or, as Hayek wrote,
‘independence of the arbitrary will of another’.94
Skinner has demonstrated the persistence of the roman understanding of liberty in
Italy and its resurgence in the Italian states of the early renaissance.95 It then spread
across Europe and particularly to England, aided by the first translations of classical
texts in the reign of Elizabeth I. The concept continued to inform political debate and
throughout the later 17th and 18th centuries, being first the preserve of the Whigs who
engineered the coronation of William of Orange, but becoming the language through
which all parties and factions sought to assert their competing claims to power, from
the Court Whigs around the King, to the Country Whigs who found themselves on the
93
Quentin Skinner, ‘Rethinking Political Liberty’, History Workshop Journal 61 (2006), 157.
Philip Pettit, ‘Keeping Republicanism Simple: On a Difference with Quentin Skinner’, Political
Theory 30:3 (2002) 339-356; Hayek, The Constitution of Liberty, 12.
95
Quentin Skinner ‘Machiavelli’s Discorsi and the Pre-Humanist Origins of Republican Ideas’ in
Machiavelli and Republicanism (eds.), Gisela Bock, Maurizio Viroli and Quentin Skinner (Cambridge,
1993). While Hayek also notes the role of ‘the Italians of the early renaissance’, Skinner places greater
emphasis on the role of the Italian city-states and, in particular, Machiavelli’s Discorsi, in re-energising
the tradition and contributing to its re-emergence across Europe. Also, while Hayek had noted the
influence of Livy he overlooked the way in which it was Machiavelli who transmitted Livy’s
understanding of libertas as the ability ‘to stand upright by means of one’s own strength without
depending on the will of anyone else’. See Skinner, Liberty before Liberalism (Cambridge, 1998), 46;
Hayek, The Constitution of Liberty, 4.
94
137
margins and even, after Bolingbroke, among the Tories.96 It was also this
understanding that influenced the more radical authors of the 18th century, such as the
commonwealthmen and eventually the American revolutionaries who took up arms
against the King, and their supporters in Britain. It is perhaps Pettit, Skinner’s close
ally in the field of political theory, who gives the most convenient historical précis:
In speaking of republicanism, I refer to the long republican tradition—and,
indeed, the broad republican tradition—that has become the focus of interest
for a recent School of historical scholarship. This tradition had its origins in
classical Rome, being associated in particular with the name of Cicero. It was
resurrected in the Renaissance, featuring powerfully in the constitutional
thinking of Machiavelli, and it played an important role in the self‐conception
of the northern Italian republics: the first modern European polities. It
provided a language which dominated the politics of the modern West and had
a particular salience in the Dutch Republic, during the English Civil War, and
in the period leading up to the American and French Revolution.97
Hayek was in full agreement with all of this, excluding the final reference to the
French Revolution, which was, in his opinion, largely the product of false
individualism. The similarity between the two narratives is clear when compared to
Hayek’s history in The Constitution of Liberty, where he also notes that his true
liberalism was ‘developed on foundations provided by the ancient Greeks, the Italians
96
Quentin Skinner, ‘The Principles and Practice of Opposition: The Case of Bolingbroke versus
Walpole’, in Neil McKendrick (ed.), Historical Perspectives: Studies in English Thought and Society
in Honour of J. H. Plumb (London: 1974), 93-128.
97
Pettit, Republicanism, 19.
138
of the early Renaissance, and the Dutch.’98 Moreover, it was the ideals and the
understanding of liberty of the English Whigs ‘the American colonists carried with
them and which guided them in their struggle for independence and in the
establishment of their constitution.99 It was on this basis that he could write ‘the more
I learn about the evolution of ideas, the more I have become aware that I am simply
an unrepentant Old Whig-with the stress on the "old.""’100
The majority of the Whig exponents of the classical Roman understanding of liberty
had a partial interpretation of the concept. Early modern jurists understood the
Roman understanding of liberty to be conscious of two sources of arbitrary power:
public power, or imperium, and private power, or dominium.101 Whig authors however
were concerned almost exclusively with imperium. The dangers posed by private
power, or dominium, were overlooked. Doubtless this was due in large part to the
social standing. Being wealthy and well educated they did not fear falling under the
domination of other members of civil society so much as they feared domination by
the crown and, later, a corrupt executive.102 In fact they even regarded arbitrary
power in civil society as a natural and good thing. For example, Algernon Sidney, in a
17th century text Hayek makes frequent reference to, wrote that liberty was important
because it,
98
Hayek, The Constitution of Liberty, 4.
Hayek, The Constitution of Liberty, 408.
100
The distinction between old and new Whigs is from Edmund Burke’ An Appeal from the New
Whigs to the Old’, the New being Burke’s adversaries in the party, led by Charles James Fox, who
supported the French Revolution. See Edmund Burke ‘An Appeal from the New Whigs to the Old’
in Further Reflections on the French Revolution in France (ed.), Daniel Ritchie (Indianapolis, 1992).
Stressing the old also distinguished Hayek from ‘the Whig parties of the nineteenth century’, in both
Britain and the United States, who ‘finally brought discredit to the name among the radicals’. See
Hayek, The Constitution of Liberty, 409.
101
Blandine Kriegel, The State and The Rule of Law (Princeton, 1995).
102
Though in this regard the Whig party, under Walpole, was chief corruptor, and was opposed by a
shifting coalition of country Whigs and Tories led by Bolingbroke. See Skinner, ‘The Principles and
Practice of Opposition: The Case of Bolingbroke versus Walpole’.
99
139
…leaves me a liberty to take servants, and put them away at my pleasure. No
man…can tell me whether I am well or ill served by them. Nay, the state
takes no other cognizance of what passes between me and them, than to oblige
me to perform the contracts I make…if there be a contest between me and my
servant regarding my service, I only am to decide it: He must serve me in my
own way, or be gone if I think fit, tho he serve me never so well; and I do him
no wrong in putting him away.103
This was the general position of the Whig authors on whom Hayek drew. The
exclusion of dominium however leant itself well to Hayek’s own analysis that threats
to liberty should be thought of almost entirely with reference to government.104 Hayek
was opposed to government action within the economy for all the reasons already
explored in chapter one. However, he sought to acquire historical legitimation for this
in the work of his favoured republican and Whig authors.
The fact that Hayek could deploy the neo-roman concept of liberty poses some
significant challenges for Skinner and Pettit’s overall historical narrative and for the
neo-republican movement, which has hitherto associated it with a broadly leftist
redistributive agenda. Pettit and Skinner associate the neo-roman concept with
republican political concerns that emphasised protection against the powerful and
103
Algernon Sidney, Discourse Concerning Government, (ed.) Thomas G. West (Indianapolis, 1996),
548-549.
104
Gamble has observed that a two-way concern also exists within Hayek’s ‘true liberalism’ within
which an individual’s sphere of liberty. This is akin to dominium and imperium. As he writes, liberty
‘has to be secured against the arbitrary violence of other individuals, and it has to be guarded against
the encroachment of the state.’ See Andrew Gamble, ‘Hayek and Liberty’, Critical Review: A Journal
of Politics and Society 25:3–4 (2013), 343. Hayek however assumes that the existence of the rule of
law suffices to preclude dominium. The critical exception to this are the trade unions who, according to
Hayek enjoy extra-legal privileges and are thus able to arbitrarily interfere. See below.
140
popular political participation. The concept was however, they argue, displaced over
the course of the 19th century by the competing concept of non-interference which
they associate with liberalism. So successful was this displacement, writes Pettit, that
‘not only did the conception of freedom as non‐interference displace the republican
idea in the new liberal tradition. It apparently succeeded in staging this coup
d'état without anyone's noticing the usurpation that had taken place.’105 They regard
their work as a recovery of that older, lost concept. Clearly, Hayek’s use of the neoroman concept some decades before their work complicates this. Whereas for Pettit
and Skinner the neo-roman concept was displaced by liberalism, for Hayek it was the
very thing that, as stated above, brought liberalism into being. At times, Skinner’s
own work recognises that the concept was a spur to the sort of private industry
associated with liberalism. For supporters of the neo-roman concept, ‘a community
living under arbitrary government’ he writes,
will find itself languishing for lack of energy and initiative, and restricted
above all in its range of economic activities. Among early modern defenders
of republican liberty, Trenchard and Gordon place particular emphasis on this
argument in Cato’s Letters, developing self-congratulating contrast between
the commercial success of free states such as great Britain and the poverty of
arbitrary regimes such as Turkey and France…The essence of Trenchard and
Gordon’s argument is that “where there is liberty, there are encouragements to
labour, because people labour for themselves: and no one can take from them
105
Pettit, Republicanism, 50.
141
the acquisitions that the make” whereas in arbitrary countries, men in trade are
every moment liable to be undone.106
Skinner also recognises an element of commercial individualism among certain
republican authors.107 This again elides the sort of clear distinctions between the two
traditions some have sought to make.108
Hayek was using the neo-roman concept as a means to defend liberalism, a tradition
Pettit and Skinner view as antithetical to it. Moreover, Hayek’s version of liberalism,
fearful of popular sovereignty and firmly opposed to the redistribution of wealth, was
far removed from their own generally leftist leanings. In many respects Hayek’s use
of the neo-roman concept is similar to that of the 19th century laissez faire republicans
identified by Alex Gourevitch.109 They argued that an economy based on freely made
contracts respected the independence of all. The only threat to independence, for both
workers and employers, arose when the government sought to impose extra
conditions for the purposes of greater welfare. In fact, it is this partial interpretation
of the neo-roman concept, deployed by Whigs, laissez faire republicans and Hayek,
rather than Pettit’s more comprehensive version that has been its most frequent
manifestation. Those neo-republicans who view the concept as uniquely amenable to
106
Skinner, ‘Freedom as the Absence of Arbitrary Power’, 91. Hayek himself makes reference to
Trenchard and Gordon’s Cato’s Letters in ‘The Denationalisation of Money’. See Chapter Four section
4. See also Ian Higgins, ‘Remarks on Cato’s Letters’ in Cultures of Whiggism (ed.), David Womersley
(Newark, 2005), 127-148.
107
Quentin Skinner, ‘The Republican Ideal of Political Liberty’, in Machiavelli and Republicanism
(eds.), Gisela Bock, Maurizio Viroli and Quentin Skinner (Cambridge, 1993) 293-302. This stands in
stark contrast to authors such as Pocock and supporters of the neo-athenian school of republicanism for
whom commerce was a source of corruption in the republican tradition. See Pocock, The
Machiavellian Moment, 506-552.
108
Eugenio Biagini has also argued that the writings of many 19 th century liberal authors were also
imbued with ‘neo-roman’ values, though those associated with the more civic and participatory aspect
of neo-romanism. See E.F Biagini ‘Neo-roman liberalism: ‘‘republican’’ values and British liberalism,
ca. 1860–1875’, History of European Ideas 29 (2003), 55–72.
109
Alex Gourevitch, From Slavery to the Cooperative Commonwealth: Labor and Republican Liberty
in the Nineteenth Century (Cambridge, 2015), 506-552.
142
helping create a society in which inequalities of wealth and power are reduced, must
be aware that it has most often been employed by those at the other end of the
political spectrum.
Dominium is not entirely missing from Hayek’s work however. In general, a law that
protects persons, property and insists on the freedom and enforcement of contract is
enough to prevent it arising. Nonetheless, there is one group, he argued, who
operated outside the law, and so constituted a source of domination: the trade unions.
Influenced by A.V. Dicey, Hayek singled out the 1906 Trades Disputes Act as
creating a situation in which unions were granted extra-legal privilege, allowing them
to coerce individuals into joining and excluding them from professions if they did
not.110 Most importantly, it relieved trade unions of liability for damages caused to an
employer during a dispute. Hayek argued that this placed unions outside the law.
Accordingly, they were the only group he consistently regarded as posing a threat to
freedom other than government.
Importantly however, Hayek also accepted the possibility of dominium arising in one
other circumstance: that of inescapable monopoly. ‘A monopolist could exercise true
coercion’ he accepted,
…if he were, say, the owner of a spring in an oasis. Let us say that other
persons settled there on the assumption that water would always be available
110
Hayek, The Constitution of Liberty, 268. In fact, the Act had simply resolved the ambiguous and
changing legal position of trade unions over the second half of the 19 th century. It had only sought to
reconfirm the legal position of the unions as expressed in legislation from the 1870s which certain
courts had in the interim sought to over-rule. Most significant in this respect was the Taff Vale ruling
of 1901. See Jim Tomlinson, Government and The Enterprise Since 1900 (Oxford, 1994), 27; 44-45.
143
at a reasonable price and then found, perhaps because a second spring dried
up, that they had no choice but to do whatever the owner of the spring
demanded of them if they were to survive: here would be a clear case of
coercion. One could conceive of a few other instances where a monopolist
might control an essential commodity on which people were completely
dependent.111
Hayek also later accepted that ‘it may be true that, in the last century in communities
with only a single factory or mine, the local manager could exercise almost dictatorial
power over the workers.’112
While deploying the neo-roman concept partially, Hayek was unable to completely
shed the concern for dominium bound up within it. His acceptance of dominium is the
point at which we can prise open the ‘ideological closures’ in his work.113 If
government is not the only threat, and liberty must be defended even in the context of
market relationships, then it becomes a valid goal to seek to reduce arbitrary power in
civil society as much as possible. The fact that Hayek is primarily concerned about
free market action means, significantly, that we must go beyond the sort of
constitutional republicanism espoused by Pettit if we are to meet Hayek’s central
concern, the efficient use of knowledge. For Hayek, what is centrally important is
freedom within the market, the absence of arbitrary power in economic processes of
production and exchange: what is important is freedom at work. In developing the
implication of Hayek’s neo-romanism, we arrive at a way of thinking about the
111
Hayek, The Constitution of Liberty, 136.
Friedrich Hayek, ‘The Distortion of relative Prices by Monopoly in the labour Market’ in Hobart
Paper 87 (London, 1984), 41. He argued that geographical mobility had however put an end to this.
113
Andrew Gamble, Hayek: The Iron Cage of Liberty (Cambridge, 1996), x.
112
144
relationship between government, democracy and the economy that defined itself in
opposition to the laissez faire republicanism that Hayek’s work might, at first sight
seem comparable to. With dominium, something he recognises but resists,
reincorporated into Hayek’s thought then the insistence on the absence of arbitrary
power at work and in the market place more closely echoes 19th century labour
republicanism.114 Like Hayek, they insisted that each should be free to enjoy control
over their own work, making plans and pursuing their aims free from the threat of
arbitrary interference. In their case however they stressed that bosses and managers
posed the greatest threat, rather than agents of the state. To guard against this
required a combination of legal guarantees, regulating conditions and working hours,
and also enterprises founded upon common ownership and workplace democracy.
When dominium takes its proper place in Hayek’s thought, the relationship between
government, democracy and the economy is transformed. Government, rather than a
threat, becomes a guarantor of liberty, and democracy, at work and at the ballot box,
becomes the way in which arbitrary power is kept down allowing all to contribute to
the economy in productive and innovative ways.
Closely connected to the absence of dominium is the suspicion of democracy. It was
in large part the growth of democracy over the course of the 19th century that allowed
those outside the governing elite to push for greater social welfare and reduce their
exposure to arbitrary power. For Hayek however, influenced by Schmitt, it was
precisely this process that had undermined the neutrality of the pre-democratic liberal
state. Hayek understood democracy only as source of arbitrary power, rather than as a
bulwark against it.
114
Gourevitch, From Slavery to the Cooperative Commonwealth, 138-190.
145
Hayek found support for his Schmittian position once again from Whiggism. Nor
were the Romans, with whom the concept originated, democrats in any fundamental
sense. The aspiration of the plebeians was not democracy, but protection from
becoming in potestate domini, from falling into dependence upon the will of the
powerful. Even institutions of popular representation, such as the plebeian tribunes,
developed out of this concern. This attitude towards democracy was to carry down to
Machiavelli and the English republicans for whom, in Pettit’s words, the ‘focus on
avoiding interference rather than on achieving participation remains in place’.115
Even James Harrington, who ‘follows Machiavelli in regarding democratic controls as
important for liberty…clearly sees people's liberty as consisting in something distinct
from participation in government’, and:
Sometimes Harrington actively downplays popular democracy. “The spirit of
the people is no wise to be trusted with their liberty, but by stated laws or
orders; so the trust is not in the spirit of the people, but in the frame of those
orders.” The distrust evinced in this remark is echoed in contemporary
republicans such as John Milton, who actively shuns ‘the noise and shouting
of a rude multitude’ and, a little later, Algernon Sidney who says of “pure
democracy”: “I know of no such thing. And if it be in the world have nothing
to say for it.116
It is this aspect of neo-roman thought that has been criticised by John McCormick.
For him, the neo-roman focus on guarding against the imperium associated with the
115
116
Pettit, Republicanism, 28.
Pettit, Republicanism, 29.
146
‘tyranny of the majority’ has leant itself to ‘aristocratic’ and senatorial concern that
places too much emphasis on checks and balances. He argues that such are the
traditional ‘oligarchic tendencies of republicanism’, the type of republicanism
advanced by Pettit and Skinner ‘can only reinforce what is worst about contemporary
liberal democracy: the free hand that socioeconomic and political elites enjoy at the
expense of the general populace’ he has argued.117 Similarly, Daniel Kapust has
argued that the neo-roman concept is compatible with non-democratic government.118
Hayek’s subsequent ‘intellectual emergency equipment’ of the 1970s, examined in the
coming chapters, was designed to limit the power of government and remove the
influence of democracy over the money supply. He sought to roll back popular
sovereignty and re-establish a separation of politics and economics. His
recommendations for constitutional reform might well be described as ‘senatorial’
and even ‘aristocratic’. His recommendations regarding money would entrench the
advantages of socioeconomic elites. That he was guided in his recommendations by
the neo-roman concept supports the arguments made by Kapust and McCormick.119
Pettit has countered claims that the neo-republican project associated with his work is
too restrictive of popular sovereignty in his book On The People’s Terms, where the
emphasis is placed firmly on the importance of democratic participation.120 It must be
stressed that for Pettit, Skinner and all of those in sympathy with their work, the
117
John McCormick, ‘Machiavelli against Republicanism: On the Cambridge School's "Guicciardinian
Moments"’, Political Theory 31: 5 (2003), 616-7.
118
Daniel Kapust, ‘Skinner Pettit and Livy: The Conflict of the Orders and the Ambiguity of
Republican Liberty’, History of Political Thought 15:3 (2010), 377-401.
119
Rather than a senatorial constitutional architecture McCormick advocates an interpretation of the
republican tradition that places political participation at its core rather than individual independence.
Only in this way, he argues, will it then become possible to secure the type of independence that Pettit
and Skinner want to see. In this McCromick is inspired by Machiavelli. Accordingly he reads
Machiavelli’s priorities somewhat differently from Skinner. See John McCormick, Machiavellian
Democracy (Cambridge, 2011).
120
Philip Pettit, On The People’s Terms (Cambridge, 2012), 187-291.
147
democratic element is crucial for any modern manifestation of the neo-roman
concept. In its absence, both imperium and dominium can grow unchecked.
Nonetheless, it remains an inescapable historical truth that for the majority of those
who deployed the concept this was not the case. It also remains true that ‘authors in
the Roman and neo-Roman republican tradition…did not see it (freedom) as being
tied definitionally to participation in a self-determining polity’ and that ‘while the
republican tradition finds value and importance in democratic participation, it does
not treat it as a bedrock value.’121 As such, just as it has been shown that the neoroman concept can be used by those who want to limit the state, counter legal
protections for workers and combat welfare, neo-republicans must also be aware that
it can be deployed by those in favour of limiting the democratic means by which those
progressive measures are pursued.
6. Reception of The Campaign
The Constitution of Liberty, intended as his magnum opus did not receive the
attention Hayek had hoped it would. As Ronald Hamowy has noted ‘reviewers
generally could not help having been impressed by Hayek’s erudition and cogency
but had serious reservations about his conclusions and largely because of this found
them unconvincing.’122 It was reviewed in no more than a handful of scholarly
121
Philip Pettit, ‘Keeping Republican Freedom Simple’, 8.
Donald Hamowy, ‘Introductory Essay’ in The Constitution of Liberty, Collected Works Vol. 12
(Chicago, 2011), 17-19. Shortly after the publication of the book, Hayek fell into a depression. He
later ascribed it to being told to quit smoking, which he did at first but then resumed. A second bout of
depression occurred soon after Hayek made an unhappy move from Freiburg to Salzburg, in 1969. This
second time he ascribed it to mis-prescribed diabetes medication, but he only fully recovered after the
award of the Nobel Prize in Economics in 1974. Despite Hayek’s diagnoses, is seems reasonable to
suppose that these waves of depression were more closely linked to career disappointments. See
Hayek, Hayek on Hayek, 115-116.
122
148
journals.123 This indicates how Hayek still lay outside the academic mainstream and
had largely ceased to be recognised as a constructive participant in academic debate.
These truly were Hayek’s ‘prophet in the wilderness’ years referred to by
Hobsbawm.124 The time he had spent amongst fellow travellers as President of the
Mont Pèlerin Society over the previous decade had perhaps kept him in ignorance of
the extent to which he had come to be perceived as the ‘magnificent dinosaur’ he was
subsequently labelled by the British moral philosopher Anthony Quinton.125
Criticisms of the book came from both left and right. Those on the left condemned it
for being overly conservative, too beguiled by the sort of spontaneous forces
described by Polanyi and too unwilling to see how the state could enhance liberty. If
people had adhered to Hayek’s vision of society then ‘we would still be living in a
state of slavery’ wrote Sidney Hook. 126 The libertarian right took issue with Hayek’s
view that general prohibitive rules would produce a free society, arguing that such
rules could in fact be fashioned to illiberal ends. More importantly for this thesis
however, they also disapproved of Hayek’ acceptance that dominium can occur within
the market. Hamowy, in an influential review, simply disagreed that being in a
position of power such as the owner of a spring in a desert and refusing to sell could
constitute coercion ‘since the owner of the spring forces no action on the settlers.’ 127
Likewise Murray Rothbard opposed the ‘gravely self-contradictory nature of
123
Examples of reviews: Pierre Bauchet, “The Constitution of Liberty,” Revue économique, 13 (1962),
143–44; Charles S Hyneman, “The Constitution of Liberty,” Midwest Journal of Political Science 5
(1961), 86–87; H. B. Mayo, “The Constitution of Liberty,” Canadian Journal of Economics and
Political Science 27 (1961), 115–16; and Edmund L Pincoffs, “The Constitution of Liberty,”
Philosophical Review, 70 (1961), 433–34.
124
Cassidy, John, ‘The Hayek Century’ (7th February 2000) New Yorker Accessed at
http://www.hoover.org/research/hayek-century 09.10.15
125
John Cassidy, ‘The Hayek Century’.
126
Sidney Hook, ‘Of Tradition and Change: The Constitution of Liberty by F. A. Hayek’, New York
Times Book Review, (21st February, 1960), 6.
127
Ronald Hamowy, ‘Hayek's Concept of Freedom: A Critique’, New Individualist Review 1:1 (1961)
28-31.
149
including a forced activity or exchange in the same rubric of "coercion" with
someone's peaceful refusal to make an exchange.’128 What this reveals is how
different Hayek’s neo-roman concept of liberty was from their concept of freedom as
non-interference.
Hayek’s old friend and MPS member, Lionel Robbins, wrote a sympathetic albeit
ultimately critical review.129 Such was the impact of Berlin’s lecture ‘Two Concepts
of Liberty’ that Robbins considered Hayek’s definition to fall neatly within the
former’s negative category. Despite noting the importance of arbitrariness to Hayek’s
argument, he did not recognise the distinction between Hayek’s ‘independence of the
arbitrary will of another’ and Berlin’s ‘absence of interference.’130 Robbins could also
not accept Hayek’s argument that political freedom was not an essential part of
liberty.
Another member of the Pèlerin Society, and Hayek’s colleague at Chicago, Frank
Knight, took a similar position. 131 Coming from an American perspective that did not
necessarily view liberalism as the product of a Whig inheritance he placed far greater
emphasis on democratic participation. The extent to which their views differed
became pointedly apparent in Knight’s review of The Constitution of Liberty, where
he wrote:
128
Murray Rothbard, ‘FA Hayek and The Concept of Coercion’ in The Ethics of Liberty, Accessed at
https://mises.org/library/fa-hayek-and-concept-coercion 03.07.16.
129
Lionel Robbins, Hayek on Liberty’, Economica 28 (1961), 66-81.
130
Indeed, it would take over thirty years before Pettit and Skinner began to tease apart the difference
between the two definitions.
131
Knight is often regarded as the father of the Chicago School of economics. See Angus Burgin,
Burgin, ‘The Radical Conservatism of Frank H. Knight’, Modern Intellectual History, 6:3 (2009), 51338.
150
…man is a social being, and freedom in society rests on agreement on forms
and terms of association, i.e. free agreement on the laws, i.e. “government by
discussion.” . . . The book . . . is propaganda for “government by law,” but
against law “making”; – law should be left, or “almost,” to spontaneous
change in tradition.132
For Knight, Hayek’s desire to distinguish liberalism and democracy as two separate
traditions was both anachronistic and gave no real sense of how law might in future
be made and changed in a way that met the needs of the moment. For him, Hayek’s
liberal vision was both unrealistic and unacceptable.133 Instead Knight argued that
‘the broad crucial task of free society is to reach agreement by discussion of the kind
of civilization it is to create for the future; hence it must agree on the meaning of
progress.’134 Democracy is crucial to this process. For Knight, it must not be reduced
to a procedural husk but should be regarded as constitutive of liberalism itself. 135
Tellingly, Knight criticised Hayek for not recognising the importance of the
democratic revolutions of the 19th century as a constitutive part of the liberal tradition.
It was this lack of recognition that would lead to one of the strangest paradoxes of
Hayek’s thought, to be examined in chapter five: that in his concern to limit the
132
Frank Knight, ‘Laissez Faire: Pro and Con’, Journal of Political Economy, 75:6 (1967), 787.
See Ross Emmet, ‘Discussion and the Evolution of Institutions in a Liberal Democracy: Frank
Knight Joins the Debate’ in Hayek, Mill and the Liberal Tradition (ed.), Andrew Farrant (London,
2011), 57.
134
Frank Knight, ‘Science, Society, and the Modes of Law,’ quoted in Emmet, ‘Discussion and the
Evolution of Institutions in a Liberal Democracy’, 67.
135
Knight felt that a large disparity in the distribution of wealth between groups of individuals could
pose a threat to the liberty. Whereas Hayek consistently opposed progressive taxation, Knight argued
that ‘such measures as progressive taxation and relief and the provision of public services, especially
free education for the children of the poor’ were necessary for the maintenance of a liberal order.
Compare Friedrich Hayek, ‘The Case Against Progressive Income Taxes’, The Freeman (28th
December, 1953) with Frank Knight, ‘Science, Philosophy, and Social Procedure’, Ethics 52:3 (1942),
253-274.
133
151
potential imperium of ‘unlimited democracy’, the recommendations he would make
for constitutional reform would, if taken up, expose individuals to far greater arbitrary
interference by an undemocratically checked government. Hayek’s campaign of
decontestation had lent his fear of government and democracy historical credibility
and the definition of liberty he had arrived at informed his subsequent work. He
would no longer merely seek to defend the merits of free market action but would
attack those ideas and developments he saw as posing a threat to his version of
liberty, which viewed government with suspicion and held that democracy must have
no authority over the economy.
152
Part Three: Offering Answers- Hayek’s Intellectual emergency
Equipment
Chapter Four: Restricting Government through the Denationalisation of
Money
1. Introduction- Shifting Problems, Shifting Solutions
Over the course of the 1960s a three-volume work, Law, Legislation and Liberty,
would emerge from what was intended as an addendum to The Constitution of Liberty
on ‘the mirage of social justice’.1 Prior to the campaign of decontestation Hayek had
been on the defensive, warning of the dangers posed by false liberalism. In the years
after 1960 however he was less concerned to define and defend his version of the
liberal order and more determined to attack ways of thinking he viewed as antithetical
to it. This more strident approach was buttressed by his new clarity about what he
meant by liberty and it would culminate in his ‘intellectual emergency equipment’.
The lukewarm reception that greeted The Constitution of Liberty signalled the failure
of Hayek’s campaign to decontest the term ‘liberalism’. Nonetheless, as he set out in
a 1967 lecture ‘The Confusion of Language in Political Thought’, he still hoped to
redress ‘the extent to which serious discussion has been vitiated by the ambiguity of
1
Friedrich Hayek, Hayek on Hayek: An Autobiographical Dialogue (eds.) Stephen Kresge and Leif
Warner (London, 1994), 116. The third volume would not in fact be published until 1979. Hayek
addresses the reasons for the delay in the preface to the consolidated 1982 edition of Law, Legislation
and Liberty. The majority of the work was however finished by the end of the 1960s. See Friedrich
Hayek, Law, Legislation and Liberty: A New Statement of the Liberal Principles [3 Volume edition]
(London, 1982), xv-xviii.
153
some key terms , which for lack of more precise ones we have to constantly use.’2 If
he could not effectively reclaim the word ‘liberalism’, then he would devise his own
neologisms for the study of social and political structures in order to argue for his
version of the appropriate relationship between government, democracy and the
economy. The paper sets out the basic terms that structure Legislation and Liberty,
Vol. 1: Rules and Order.3 In this enterprise Hayek sought the advice of his former
colleague, the conservative philosopher Michael Oakeshott, whose distinction
between civil and enterprise associations, shared similarities with Hayek’s own
thought.4 Indeed, in their correspondence Oakeshott noted the similarity of their
endeavours around this time.5 For Hayek however, setting out of this language was
only the prelude to the second volume, The Mirage of Social Justice, whose content
had been the catalyst for the entire work.
By 1956 Hayek noted that the threat of ‘hot socialism’ had subsided. 6 It had
however been replaced by a commitment to the welfare state and to full employment.7
2
Friedrich Hayek, ‘The Confusion of Language in Political Thought’ [1967] in New Studies in
Philosophy, Politics, Economics and the History of Ideas (London, 1978), 72.
3
In the Constitution of Liberty the term ‘spontaneous order’ had been used while in Law, Legislation
and Liberty this became a cosmos. Opposed to this, what had been a man-made organisation became
taxis; What he had referred to as a law governed society now became nomos; Commands, became
thesis. Highly complex orders, made up of a number of cosmos, of which the market system was the
best, most complex example, he termed catallaxy. By this stage of his career Hayek objected to the
term economy on the basis that in its Aristotelian origins it referred to the expenditure of the
organisation of the household, or oikos. What is generally referred to as the economy was for Hayek
the very opposite of this, not an organization but a spontaneous order.
4
Hayek notes that his neologisms have been deployed previously by Oakeshott but not he believed, in
print. See Hayek ‘The Confusion of Language in Political Thought’, 89. See also Michael Oakeshott
On Human Conduct (Oxford, 1975). The two were both opposed to ‘rationalism’, see Oakeshott
Experience and Its Modes (Cambridge, 1933); Richard Boyd and James Ashley Morrison ‘F. A.
Hayek, Michael Oakeshott, and the Concept of Spontaneous Order’ in Liberalism, Conservatism,
and Hayek’s Idea of Spontaneous Order (eds.), Louise Hunt and Peter McNamara (Springer
Online, 2007), 87-105.
5
Letter from Michael Oakeshott to Friedrich Hayek (29th January, 1968), Hayek Archive Box 40,
Folder 42.
6
Friedrich Hayek, ‘The Road to Serfdom after Twelve Years’ [preface to American paperback edition,
1956] in Studies In Philosophy, Politics and Economics, (London, 1967), 220.
7
For Margaret Thatcher’s annotated copy of 1944 White Paper on Employment Accessed at
http://www.margaretthatcher.org/document/110368 11.12.15.
154
This commitment resulted in a new approach by which government sought to manage
the economy employing methods informed by the work of John Maynard Keynes.8 It
was also the boldest embodiment of an official commitment to social justice,
understood as a standard of living for all, that stood in stark contrast to the residual
unemployment and policies of austerity of the 1930s. For Hayek, it was the pursuit of
social justice that transferred responsibility for welfare from the individual to the
government and in doing so gave legitimacy to the exercise of arbitrary government
power. Moreover, not only was this inimical to Hayek’s interpretation of the neoroman concept, it was also the chief driver of inflation: it provided a moral
imprimatur for government control of the money supply, the very issue that had
initiated Hayek’s critique of government power in the 1920s.
Over the 1960s Hayek would attack the ‘new morality’ of social justice and warn of
its inflationary implications. He remained marginalised however, both within
academia and in public debate. All of this was to change with the end of the supposed
‘Keynesian consensus’.9 From the late 1960s onwards, following the devaluation of
the pound in 1967, the dollar coming off the gold standard in 1971, and the oil crisis
of 1973, the rise in inflation became increasingly precipitous. As a result, Hayek
returned to both the public stage and to the attention of the economics profession, his
warnings apparently confirmed. In 1974 he was awarded the Nobel Prize in
Economic Science. Moreover, Hayek increasingly found he had friends in political
circles, among certain sections of the Conservative Party.
8
Keynes had in fact died in 1946 but the policy applications of Keynes’s theory would be worked
through by John Hicks and Nicholas Kaldor, both former colleagues of Hayek, amongst others.
9
John Eatwell and Murray Milgate, The Fall and Rise of The Keynesian Consensus (Oxford, 2011).
155
Hayek’s eventual position on money reveals both a shift and a basic consistency in his
work. It certainly involves a move from advocating fixed exchange rates, tied to a
gold bullion standard, to supporting free floating ones. Yet the fact his radical
scheme removes power from government over money demonstrates consistency in his
abiding concern: that politics should not interfere with the market. This is also a
monetary theory informed by his classical understanding of liberty, as the ability to
formulate one’s own plans free from the threat of arbitrary government power, which
he had developed over the preceding decades. For him, arbitrary actions that increase
inflation undermine well-laid plans and run contrary to this. Yet the solution Hayek
proposed did move markedly away from his earlier advocacy of the need for a strong
state to frame the free market as argued by his Ordoliberal colleagues. Hayek’s
partial, Whiggish, interpretation of the neo-roman concept, combined with his
despondency at the creed of social justice, had resulted in a greater fear of
government. He no longer regarded active government as a means of re-establishing
the boundary between state and economy.10 Instead Hayek took a distinctly
libertarian turn advocating that, in effect, government money should cease to exist.
This was far from the vision of the ‘strong state and the free economy’ that many in
the Conservative party held. As a result his ideas were almost completely ignored
while he was simultaneously feted by his growing group of admirers as the prophet
and guide of the ‘counter attack on socialism’.11
10
This raises problems for Victor Vanberg’s suggestion that the work of Hayek and the ordoliberals
can form the basis of a common research programme Viktor Vanberg, ‘Hayek in Freiburg’ in Hayek:
A Collaborative Biography, Part 1 Influences from to Bartley (ed.), Robert Leeson, (London, 2013),
93-122.
11
Letter from Keith Joseph to Friedrich Hayek (July 6 th 1983) Hayek Archive Box 29, Folder 43.
156
This chapter will examine how, and in what context, Hayek’s work developed over
the 1960s and 70s. It will proceed to look at how Hayek argued that the trade unions
were deploying the language of social justice in order to take a greater share of
society’s resources and how, in the context of a Keynesian commitment to full
employment, this resulted in inflation. It will examine reactions to inflation, both
public and political, as it continued to rise during the 1970s before describing how
Hayek emerged back onto the public scene following the award of his Nobel prize. It
will both consider and criticise Hayek’s radical proposals for competition in money,
culminating in him proposing his first piece of intellectual emergency equipment,
‘The Denationalisation of Money’ before finally exploring the reception of this work
by contemporaries and critics since.
2. Excuses and Responsibilities: Social Justice, Government and Inflation
In the winter of 1961-2, at the age of 62, Hayek received the offer of a professorship,
with favourable terms of retirement, from the University of Freiburg.12 Soon after
arriving he began to draft Law, Legislation and Liberty. The impetus for embarking
on what proved to be a long and major undertaking, so soon after completing what
had been intended as the comprehensive statement of his thought, was the increasing
hold that the concept of ‘social justice’ appeared to have over the popular and
political imagination. Social justice required that certain groups receive particular
treatment or be granted special dispensations. Hayek traced the ideal of social justice
to the demands for distributive justice that emerged with the growth of democracy
12
Ordinarily Hayek’s age would have disqualified him from such an offer. Special arrangements had
to be made by the dean of the University with the Prime Minister of Baden-Wurttemberg. Both were
keen to counter the growing influence of Social Democracy in the state and felt Hayek would prove a
useful intellectual ally. See Viktor Vanberg, ‘Hayek in Freiburg’, 93-122.
157
following the French revolution.13 This product of demokratia however contravened
the classical principle of isonomia that had been so stressed by the Whigs. Hayek
would come to regard it as a ‘Trojan horse’ and a new means by which socialists
could pursue their rationalistic and organising aims, given that their previous methods
had been largely discredited.14
As early as 1956, Hayek recognised that ‘six years of socialist government in England
have not produced anything resembling a totalitarian state.’ Nonetheless, he went on:
…those who argue that this has disproved the thesis of The Road to Serfdom
have really missed one of its main points: that the most important change
which extensive government control produces is a psychological change, an
alteration in the character of the people.15
Fundamental to this change in character was the rise of a new morality he would later
associate with’ social justice’, a morality that looked to the state rather than the self
for security and cultivated dependence, the very antithesis of liberty according to the
neo-roman concept.16 It was a theme he would explore further the following year
13
Friedrich Hayek, The Constitution of Liberty, (Chicago, 1960), 234- 235.
Hayek, The Constitution of Liberty, 252.
15
Hayek, ‘The Road to Serfdom after Twelve Years’, 224.
16
There is some debate in the literature as to whether Hayek regarded the logic he applied to planning
in The Road to Serfdom should also apply to the welfare state: namely that it would lead to a full blown
command economy. Caldwell has argued that Hayek is much more gradualist in his estimation of the
growth of socialism when writing about welfare states. See Bruce Caldwell, ‘Hayek on Socialism and
on the Welfare State: A Comment on Farrant and McPhail's 'Does F.A. Hayek's Road to Serfdom
Deserve to Make a Comeback?' Accessed at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1687109 04.07.16. McPhail and Farrant have
instead argued that Hayek was not particularly discriminating and that he regarded the mixed economy
as equally as dangerous as the planned economy. See Edward McPhail and Andrew Farrant ‘Hayek and
the Sorcerer’s Apprentice: Whither the Hayekian Logic of Intervention?’ American Journal of
Economics and Sociology, 72:4 (2013), 966-982. See also Peter J. Boettke, Calculation and
Coordination (London, 2001). However, it is not clear where the substance of their disagreement lies.
Caldwell does not maintain that Hayek recognised a middle way merely that the processes described in
14
158
when he wrote of a new morality that,
…differed fundamentally from the traditionally accepted tenets of morality
and justice, which, on principle, expect a man to give due consideration only
to those consequences of his actions which in normal circumstances would be
readily apparent to him; from this it easily followed that a man came to regard
it as desirable that he should be instructed as to what he should or could do in
any given case by someone endowed with greater knowledge and judgment
than himself. This whole conception of social conduct is most closely linked,
therefore, with a desire for a comprehensive blueprint of the social scene as a
whole and a code of social conduct based upon it in accordance with a
uniform and orderly plan.17
The article had been prompted by a break with his intellectual allies in the German
Ordoliberal School who had deemed it ‘appropriate and desirable to qualify the term
“free market economy” by calling it “social market economy”'. Hayek complained
‘that even the constitution of the Federal German Republic, instead of adhering to the
clear and traditional conception of a Rechtsstaat, used the new and ambiguous phrase
'a social Rechtsstaat'. Yet, he added, ‘I doubt very much whether anyone could really
explain what the addition of this adjectival frill is supposed to denote.’18 Of all the
The Road to Serfdom, occur more gradually in a mixed economy. What is true, as McPhail and Farrant
emphasise more than Caldwell, is that for Hayek the psychological effects of reliance on the state may
be equally as debilitating and equally quickly felt in both contexts. Hayek’s insistence on the
impossibility of a middle way is, to repeat the point made in Chapter Two, a problem for his thought,
given that he is willing to accept some government action. It also runs contrary to historical
experience, see Jim Tomlinson, Hayek and The Market (London, 1990), 52.
17
Friedrich Hayek, ‘What is Social?-What Does it Mean?’ in Studies In Philosophy, Politics and
Economics, (London, 1967), 240.
18
Friedrich Hayek, What is Social?-What Does it Mean?’, ‘What is “Social”?-What Does it Mean?’
[1957] in Studies In Philosophy, Politics and Economics, (London, 1967),
238.
159
members of the School, it was Eucken who Hayek held in the greatest esteem and
with whom he had the closest relationship after resuming close contact after the
Second World War.19 After Eucken’s death in 1950, the influence of the Ordoliberal
perspective on Hayek’s work seemed to wane. Such was Hayek’s deep mistrust of
government, informed by his thinking about liberty and fed by his dislike of policies
in pursuit of social justice, that even after his move to Freiberg, the spiritual home of
Ordoliberalism, he could no longer accept the more positive role the School assigned
to the state. While, in the context of rejecting the still discredited laissez faire, he
might admit government had a role to play, it was an increasingly limited one.
Hayek would later remark that due to Eucken’s death ‘the Ordo circle never matured
into a major movement’ instead it exhibited ‘a restrained liberalism’ and that while
once Eucken and his circle embodied the Great German liberal tradition’ it ‘had
unfortunately become defunct.’20
Law, Legislation and Liberty grew out of desire on Hayek’s part to demonstrate that
‘social justice’ is in effect ‘a universally used expression which to many people
embodies a quasi-religious belief that has no content whatever and serves merely to
insinuate that we ought to consent to a demand of some particular group.’21 If
socialism had been an influence in ‘all parties’ before and during the Second World
War, now that same influence was exercised by social justice. Central to the dynamics
of the push for ‘social justice’ were the trade unions. It was the unions, argued
19
Nils Goldschmidt and Jan Otmar Hesse, ‘Hayek, Eucken and The Road to Serfdom’ in Hayek: A
Collaborative Biography, Part 1 Influences from to Bartley (ed.), Robert Leeson, (London, 2013),
123-145. Victor Vanberg has observed that the concept of Ordnungspolitik seems to find expression in
Hayek’s work during the period of the 30s and 40s when he was in regular contact with Eucken. See
Vanberg, ‘Hayek in Freiberg’, 93-122.
20
Friedrich Hayek, ‘The Rediscovery of Freedom’ in The Fortunes of Liberalism, The Collected Works
of FA Hayek, Vol. 4 (ed.), Peter Klein (Indianapolis, 1992), 188-189.
21
Hayek, Law, Legislation and Liberty, xvi.
160
Hayek, who first,
…succeeded in clothing their demands with the aura of legitimacy (and in
being allowed to use coercion for their enforcement) by representing them as a
requirement of 'social justice'…. It is now simply those who are numerically
strong, or can readily be organized to withhold essential services, who gain in
the process of political bargaining which governs legislation in contemporary
democracy.22
The demands of social justice were also the primary driver of inflation. In The
Constitution of liberty Hayek had warned that the provision of such things as health
care and old age pensions would have the effect of encouraging government to
expand the money supply in order to meet growing demand thus creating inflation.23
By the ‘70s this seemed like a secondary problem to the wage demands of trade
unions:
With regard to the trade union demands, particular trade unions can achieve
only a relative improvement of the wages of their members, at the price of
reducing the general productivity of labour and thus the general level of real
wages, combined with the necessity in which they can place a government that
controls the quantity of money to inflate, this system is rapidly destroying the
economic order. Trades unions can now put governments in a position in
which the only choice they have is to inflate or to be blamed for the
unemployment which is caused by the wage policy of the trades unions
22
23
Hayek, Law, Legislation and Liberty, Vol. 1, 142.
Hayek, The Constitution of Liberty, 295-305.
161
(especially their policy of keeping relations between wages of different unions
constant). This position must before long destroy the whole market order,
probably through the price controls which accelerating inflation will force
governments to impose.24
The consequences of this were profound. Not only did social justice threaten to
inculcate dependency and undermine liberty as status, its economic effects were such
that it impacted free action in a very direct way. The frequent disturbance of the
money supply frustrated the plans of individuals, as well as setting the scene for a
more direct curtailment of market freedoms in the form of incomes policies and price
controls.25
Despite singling out the role of the trade unions in causing inflation, ultimate
responsibility lay not with them, but with government. Union demands for higher
wages did not in themselves cause inflation. The root cause was instead government
increase of the money supply.26
Wage demands only had inflationary effects in the
context of the commitment to full employment:
…the effect of union action will depend on the principles governing monetary
policy. What with the doctrines that are now widely accepted and the policies
accordingly expected from the monetary authorities, there can be little doubt
that current union policies must lead to continuous and progressive inflation.
24
Hayek, Law, Legislation and Liberty, Vol.3, 144.
Hayek, Law, Legislation and Liberty, Vol.3, 95.
26
In this Hayek agreed with the foremost proponent of what came to be called monetarism, Milton
Friedman who had reintroduced the concept to the profession in a restatement of Irving Fisher’s
quantity theory of money. See Milton Friedman ‘The Quantity Theory of Money – a restatement’ in
Studies in the Quantity Theory of Money, (Chicago, 1956). Also, see section 4.
25
162
The chief reason for this is that the dominant "full-employment" doctrines
explicitly relieve the unions of the responsibility for any unemployment and
place the duty of preserving full employment on the monetary and fiscal
authorities….If labor insists on a level of money wages too high to allow of
full employment, the supply of money must be so increased as to raise prices
to a level where the real value of the prevailing money wages is no longer
greater than the productivity of the workers seeking employment.27
Thus by increasing the money supply the actual value of money fell and it became
possible to sustain full employment. This was not however a sustainable situation,
Hayek warned. While such inflationary policies may maintain high employment in
the short term, they merely postponed, and even exacerbated, the reckoning that must
come, causing much greater unemployment later on.28
Rather than management of the economy in the interest of full employment and social
justice Hayek still advocated an approach informed by his idea of the economy as
ultimately self-correcting. If government were prevented from acting arbitrarily with
regard to the money supply then the economic order would rectify itself. In 1960
Hayek had argued that inflation ‘in the long run, must destroy the foundations of a
free society’ and, echoing his work in the ‘30s, maintained that the only way to
prevent this was the establishment of ‘rules versus authorities in monetary policy’.29
It was a position he held to throughout the period in which he wrote the majority of
Law, legislation and Liberty. As the first volume came to publication however, it no
27
Hayek, The Constitution of Liberty, 280.
Hayek, Law, Legislation and Liberty, Vol.3, 59.
29
Hayek, The Constitution of Liberty, 334.
28
163
longer seemed to Hayek that liberty might only be destroyed ‘in the long run’ or
indeed that governments could be trusted to adhere to ‘rules’.
3. Hayek’s Radicalisation
Hayek’s thought was radicalised during the inflationary crisis of the early 1970s.
Despite maintaining a consistent position regarding the need to weaken state authority
over the money supply, the issue of inflation and its link to Keynesianism had not
been a particularly prominent factor in Hayek’s post war thought, as he reflected:
when even some of the colleagues I most respected supported the wholly
Keynesian Bretton Woods agreement, I largely withdrew from the debate,
since to proclaim my dissent from the near unanimous view of the orthodox
phalanx would merely have deprived me of a hearing on matters about which I
was more concerned at the time.30
The Bretton Woods agreement, as part of a bundle of other arrangements, resulted in
a period of unprecedented economic growth in the post-war period. As Andrew
Gamble writes ‘currencies were made convertible, exchange rates were fixed and
progress towards reduction of tariffs through successive rounds of negotiation through
GATT were endorsed. The IMF and the World Bank were confirmed as the principle
international agencies charged with policing and lubricating the system.’31 In place of
a gold standard, currencies were pegged to the dollar, which was theoretically
convertible to gold. In addition, governments were required to keep the value of their
30
31
Hayek, ‘The Campaign Against Keynesian Inflation’, 219.
Andrew Gamble, The Free Economy and the Strong State, (London, 1994), 17.
164
currency to within 1 per cent of an agreed exchange rate. For Hayek however, in
practice this gave governments far too much scope to pursue inflationary policies.
The general acceptance of Keynesian approaches put pressure on surplus countries to
expand their money supply, rather than requiring deficit countries to contract their
supply, in order to maintain the agreed rates.32 Nonetheless, levels of inflation
remained low exhibiting no particular trend between the early ‘50s and late ‘60s.33
During what Hayek himself admitted was ‘a unique 25 year period of great
prosperity’ there was a small audience for warnings about inflation.34 Hilde Behrend,
in her research during the period, found that over a third of the population had ‘no
clear view of what the word meant.’35 Given this it is perhaps of little surprise that
work on the subject was a secondary concern, even for Hayek.
All of this was to change from the early 1970s onwards. In 1967 the Labour
government was forced to devalue the pound. It had inherited a significant budget
deficit of around £800 million and this, combined with a slowdown in exports, made
devaluation the only alternative to borrowing from abroad to finance the deficit. It
had also been hoped that the move would result in exports receiving a boost. In fact
the devaluation had the effect of leading to a rapid increase of inflation.36 In the
winter of 1971/72 The U.S. severed the link between gold and the dollar signalling
the end of the Bretton Woods arrangements. With such restraints removed, national
32
Hayek, ‘The Campaign Against Keynesian’ 201.
Jim Tomlinson, ‘Thatcher, Monetarism and the Politics of Inflation’ in Making Thatcher’s Britain
(ed.), Ben Jackson and Robert Saunders (Cambridge, 2012), 754.
34
There were exceptions to this particularly in the Conservative Party. For example, 1958 saw the
resignation of the Chancellor of the Exchequer, Peter Thorneycroft, along with ministers Enoch Powell
and Nigel Birch. They disagreed with Macmillan’s increased government spending plans.
Thorneycroft later became a strong supporter of monetarism under Margaret Thatcher. See Tomlinson,
‘Thatcher, Monetarism and the Politics of Inflation’ 63.
35
Jim Tomlinson, ‘British Government and Popular Understanding of Inflation in the mid-1970s’, The
Economic History Review 67:3 (2014). 750-768.
36
Alec Cairncross and Barry Eichengreen, Sterling in Decline: the Devaluations of 1931, 1949
and 1967 (Oxford, 1983).
33
165
governments were free to pursue policies of monetary expansion unhindered by that
previous, albeit somewhat lax, discipline. The rising rate of inflation was accelerated
still further by the 1973 oil crisis. Having already increased markedly after 1967
‘inflation rose further to an average 7.6 per cent between 1970 and 1972. From 1973
to 1975 there was another major acceleration, with the average rising to 16.4 per cent
per annum. By 1975, with inflation at its all time high of 27 per cent, counter
inflation policy entered a dramatic new phase.’37 While the immediate impact of the
oil crisis was to throw Britain into recession, inflation remained the most significant
economic and electoral issue of the 1970s.
The extent of inflation was unprecedented in peacetime and it produced some extreme
rhetoric from those on the right, calling into question the very survival of the British
state. In February 1974 Edward Heath called a general election in the face of wage
demands made by the mining unions. The question he posed the country was ‘Who
governs?’ arguing that parliament must not be forced to bow to union pressure. In the
campaign, the Conservative manifesto argued that inflationary demands made by the
unions could ‘destroy not just our standard of living, but all our hopes for the
future.’38 The result was a hung Parliament with Labour as the largest party. Harold
Wilson, Labour Prime Minister for a second time, called another election in October
of the same year. This time the language from the Conservatives was even more
incendiary warning that ‘inflation at its present rate threatens not only the standard of
living of everybody in the country, but also the survival of our free and democratic
37
Tomlinson, ‘British Government and Popular Understanding of Inflation in the mid-1970s’, 752.
Conservative Party Election Manifesto ‘Firm Action for a Fair Britain’ (February, 1974). Accessed
at http://www.conservativemanifesto.com/1974/Feb/february-1974-conservative-manifesto.shtml
11.05.16.
38
166
institutions’39 The result however was an increase in the Labour vote giving the party
an overall majority of one seat.
For a section in the Conservative Party, Heath had asked the wrong question in
February. The critical issue was not ‘who governs?’, but ‘how do we govern?’ The
Heath government had failed to recognise that the only way to end inflation was for
government to restrict the money supply. Limiting the money supply was of course a
pre-Keynesian economic doctrine, but in its more technical 1970s manifestation it
became known as monetarism. It commanded broad consent among Conservative
frontbenchers when they met with Heath at the Selsdon Park Hotel in 1970 to
formulate that year’s election manifesto.40 Nonetheless, in power Heath had failed to
live up to his free market promise. Despite a much-resisted Industrial Relations Act
of 1971 and some attempts at budgetary restraint, after 1972 the Heath government
performed a U-turn as it sought to boost demand in the economy through fiscal and
monetary stimulus and, in an attempt to keep inflation low introduced an
unsuccessful, statutory, incomes policy. Even the October 1974 manifesto, while
recognising the need to ‘control the money supply’ retained a commitment to prices
and incomes policies as well and acknowledged the important role played by the
unions within the economy.41 For many this was simply too close to Labour and their
‘social contract’, which also recognised a reduction of inflation as ‘the first priority’
of a new government, to be achieved through an agreement with unions to pursue pay
39
Conservative Party General Election Manifesto, ‘Putting Britain First: A National Policy’ (October,
1974) Accessed at http://www.conservativemanifesto.com/1974/oct/october-1974-conservativemanifesto.shtml 11.05.16.
40
Harold Wilson, who thought of himself as a moderniser above all, coined the phrase ‘Selsdon man’
in reference to those who held ‘the atavistic desire to reverse the course of twenty-five years of social
revolution’. See Vinen, Thatcher’s Britain, 34
41
October 1974 Conservative Party General Election Manifesto ‘Putting Britain First: A national
policy’ Accessed athttp://www.conservativemanifesto.com/1974/oct/october-1974-conservativemanifesto.shtml 04.07.16.
167
restraint in exchange for a repeal of Heath’s 1971 Industrial relations Act, food
subsidies and rent controls.42 All of this infuriated those on the free market wing of
the party. In their subsequent interpretations of the 1970s monetarists attributed the
failures of the 1970s to the vacillations of Heath and his chancellor, Anthony
Barber.43
The early leading figure within the monetarist wing of the Conservatives was Enoch
Powell. In April 1968 Heath had removed Powell from the post of shadow defence
secretary in the wake of his infamous ‘rivers of blood speech’ on the basis that the
speech amounted to an incitement to racial hatred. In 1974 Powell left the party
entirely to stand for the Ulster Unionists in South Down. Powell’s influence over
many conservatives had never been based on his anti-immigrant stance however, but
on his steadfast opposition to all forms of government intervention in the economy.44
In a speech at Chippenham the month after the ‘rivers of blood’ speech he made the
point that ‘inflation with all its attendant evils, comes about for one reason and one
reason only: the Government causes it.’45 Powell was a member of the Mont Pèlerin
Society (MPS) and had been impressed by The Constitution of Liberty. 46 He became
angry with Hayek however after he had revealed, somewhat indiscreetly, in an
interview with The Daily Telegraph that he considered Powell to suffer from
42
Tomlinson, ‘British Government and Popular Understanding of Inflation in the mid-1970s’, 754
Aled Davies, ‘The Evolution of British Monetarism: 1968 – 1979’ University of Oxford Discussion
Papers in Economic and Social History Number 104, October 2012. Accessed at
http://www.nuff.ox.ac.uk/economics/history/Paper104/davies104.pdf 05.05.16. Davies also notes that it
was the Labour opposition under shadow chancellor Denis Healey that referred most to controlling the
value of the money supply as a means of criticising the government’s policies.
44
As Richard Vinen writes, ‘Increasingly he argued that the sole economic duty of government lay in
control of the money supply’. See Richard Vinen, Thatcher’s Britain: The Politics and Social
Upheaval of the Thatcher Era (London, 2010), 50-51.
45
Enoch Powell Speech at Chippenham, 11th May, 1968. Accessed at http://www.enochpowell.net/fr46.html 23.06.16
46
Julia Stapleton, Political Intellectuals and Public Identities in Britain Since 1850 (Manchester, 2001),
179.
43
168
‘emotional instability’. This was due to Powell’s refusal to observe a minute’s
silence, called at the MPS, for the Israeli Olympic athletes murdered in 1972 on the
basis that it would be wrong to mark one set of murders in the midst of what he
considered an ‘epidemic’ of political violence. Hayek apologised and Powell
accepted. Nonetheless, he would resign from the MPS in 1980, dismissing it as a
‘Hayek adulation Society, with a minor niche for Friedman’. Powell expressly
disliked Hayek’s ‘Teutonic habit of telling the English, whom he does not in the least
understand, how to set about governing themselves.’47 Nonetheless, as Keynesianism
became increasingly discredited amid the inflationary crisis, Hayek’s ideas were once
again finding a receptive audience in influential circles.
Despite Powell’s enduring hold over many conservatives, his absence from the party
removed any possibility of him wielding direct influence over policy. The mantle of
chief monetarist would however be taken up by Keith Joseph. Joseph was the leading
critic in the party of the Heathites and had, like Powell before him, been influenced by
Hayek.48 In 1974 he established the Centre for Policy Studies which, along with the
Institute for Economic Affairs that Hayek had encouraged Anthony Fisher to found
twenty years earlier, sought to advance free market ideas. In a speech in Preston in
September 1974 entitled ‘Inflation is Caused By Governments’ he made his position
clear: ‘inflation is threatening to destroy our society. It is threatening to destroy not
just the relative prosperity to which most of us have become accustomed…but it will
47
Julia Stapleton, Political Intellectuals and Public Identities, 179. Powell’s statement regarding the
MPS as an adulation society is probably misleading. By 1980 Hayek’s involvement was diminishing
while Friedman’s influence was ascendant as was that of its more economistic American members. See
Angus Burgin, The Great Persuasion: Reinventing Free Markets Since the Depression (Cambridge
MA, 2012).
48
Andrew Denham and Mark Garnett, Keith Joseph (London, 2001).
169
lead to catastrophe…and to the end of freedom.’49 The speech took aim at
Keynesianism and insisted that ultimately it was government that posed a threat to
economic order through its monetary policies. Hayek wrote to Joseph to congratulate
him on the speech to which Joseph admiringly replied that he was ‘only far too
gratified’ by Hayek’s ‘blessing’.50
It was something of an error, and indeed a regret, of Hayek’s, that his critique of
Keynesianism and the inflation he associated with it was dispersed across a range of
works.51 However in 1972 the Institute of Economic Affairs published selections
from a collection of articles, which drew together Hayek’s critique. This collection, A
Tiger by the Tail, came at something of a fortuitous moment.52 As its editor Sudha
Shenoy later commented, ‘Keynes's unassailability died between the first and second
editions’, between 1972 and 1978.53 The recent relative success of the collection may
well have caught the attention of the awarding committee of the Nobel Prize in
Economics. In December 1974, they awarded it to Hayek and Gunnar Myrdal, the
Swedish social democratic economist.54 The award of the prize to the 75 year old
Hayek, a man who had not written in either an original or applied manner on the
subject for over a quarter of a century, testifies to the extent to which the profession
was in ferment as the ‘Keynesian consensus’ split in the face of the new economic
49
Keith Joseph, ‘Inflation is Caused by Governments’ Speech at Preston 5 th September 1974. Accessed
at http://www.margaretthatcher.org/document/110607 19.03.16
50
Letter from Keith Joseph to Friedrich Hayek (26 th October, 1974) The Hayek Archive Box 29,
Folder 43.
51
Hayek, Hayek on Hayek, 128.
52
Friedrich Hayek, A Tiger By the Tail (ed.), Sudha Shenoy (|London, 1972).
53
Sudha Shenoy interview with Mises Daily, (2003). Accessed at http://mises.org/library/global26.02.15. In fact Hayek had begun to reengage with the issue of inflation but given the state of his
mental health not consistently. For example, see given as a lecture ‘Can We Still Avoid Inflation’
given before the Trustees and guests of the Foundation for Economic Education at Tarrytown, New
York on (18th May, 1970). Accessed at http://www.hayekcenter.org/friedrichhayek/hayekonweb.html
04.07.16.
54
For reflections on the political wrangling behind the awarding of the prize see David Laidler, ‘The
1974 Hayek-Myrdal Nobel Prize’ in Hayek: A Collaborative Biography, Part 1 Influences from to
Bartley (ed.), Leeson, Robert (London, 2013), 71-73.
170
realities.55 Hayek was Keynes’s oldest critic and it seemed many of his predictions
were coming to pass. From 1974 onwards, free market economists, albeit from the
Chicago School rather than those of the Austrian variety, would increasingly come to
dominate the winners list.56 In his acceptance speech, ‘The Pretence of Knowledge’,
Hayek argued that the policies pursued over the previous twenty-five years had been
due to the sort of rationalism, or scientism, that he had specified during his wartime
‘abuse of reason’ project. 57 While the formulas that underpinned Keynesianism made
sense to a scientific mind, the truth was that the economy functioned not on the basis
of the aggregates upon which formulas were based, but upon millions of micro
relationships for which there was no possible formulaic expression. Linking economic
theory to his abiding concern for liberty he also insinuates, provocatively given his
audience, that Keynesian policies had given licence to promises of ‘beneficial
consequences’ but are ‘likely to lead to a new power to coerce other men being
conferred on some authority’ and that
recognition of the insuperable limits to his knowledge ought indeed to teach
the student of society a lesson of humility which should guard him against
becoming an accomplice in men's fatal striving to control society - a striving
which makes him not only a tyrant over his fellows, but which may well make
him the destroyer of a civilization which no brain has designed but which has
grown from the free efforts of millions of individuals.58
55
Hayek himself had been sceptical about the establishment of the prize, and felt that if anything it
should be awarded for recent work. This opinion was delivered after his award however and at the
time he was very happy to receive it. See Ebenstein, Hayek: A Biography (New York, 2001), 262.
56
For example, Milton Friedman, 1976; George Stigler, 1982; James Buchannan, 1986; Gary Becker,
1992. After Friedman’s award Gunnar Myrdal called for the prize to be abolished.
57
Friedrich Hayek, ‘The Pretence of Knowledge’ [1974] in New Studies in Philosophy, Politics,
Economics and the History of Ideas (London, 1978), 23-34..
58
Hayek, ‘The Pretence of Knowledge’, 34.
171
The emphasis Hayek was placing on the relationship between economics and freedom
was clear. While his warnings against Keynesian approaches in the 30s had stressed
their negative effects on coordination and free economic action, he now warned,
having been radicalised by the inflation of the 1970s, that they could undermine
liberty and even civilization itself.
Hayek took his anti-Keynesian message around the USA in 1975. As the crisis
continued he warned his audiences that,
‘We have a choice only between three possibilities: to allow a rapidly
accelerating open inflation to continue until it has brought about a complete
disorganization of all economic activity; to impose controls of wages and
prices which will for a time conceal the effects of a continued inflation but
would inevitably lead to a centrally directed and totalitarian economic system;
and, finally, a determined termination of the increase of the quantity of money
which would soon, through the appearance of substantial unemployment,
make manifest all those misdirections of labour which the inflation of the past
years has brought about and which the two other procedures would further
increase.’59
One major inconsistency in Hayek’s writing on money also comes from this period.
It is inconsistent not only with his earlier work when in the 1930s he had argued for
Britain remaining on the gold standard despite the economic crisis, but also with his
59
Hayek ‘The Campaign Against Keynesian Inflation’ in New Studies, 198.
172
subsequent writings. At this point in the ‘70s Hayek was ready to accept that the
deflationary dangers of a downturn could be catastrophic and had indeed played a
major role in turning the economic crash of 1929 into a depression. ‘I have to
confess’ he admitted in Rome
…. I did then believe that a short process of deflation might break that rigidity
of money wages… If I were today responsible for the monetary policy of a
country I would certainly endeavour to prevent a threatening actual deflation,
that is an absolute decrease of the stream of incomes, with all suitable means,
and would announce that I intend to do.60
This is where Hayek comes closest to Keynes in terms of public policy prescriptions.
It is a striking admission for someone who had argued for a vision of the market as a
spontaneous order that must be left to its own internal, ultimately self-correcting,
processes. His long-time friend Gottfried Harbeler subsequently drew attention to
this apparently contradictory position.61 Hayek recognised ‘that 40 years ago I argued
differently and that I have since altered my opinion’ but not he held ‘about the
theoretical explanation of the events but about the practical possibility of removing
the obstacles to the functioning of the system in a particular way.’62 Thus, to his mind
he was not renouncing his basic view of the market he was simply recasting his
advice in terms of what he considered politically possible. This bears some
resemblance to Hayek’s comments to Wilhelm Röpke in 1930 that monetary
expansion should be avoided in Germany, as was then being considered by the Braun
60
Hayek ‘The Campaign Against Keynesian Inflation’, 206-207.
See Gottfried Harberler, ‘Reflections on Hayek’s Business Cycle Theory’, Cato Journal 6:2 (1986),
422.
62
Hayek ‘The Campaign Against Keynesian Inflation’, 206.
61
173
Committee, ‘unless the political situation is so serious that continuing unemployment
would lead to a political revolution.’63 Under the threat of deflation, and ensuing
recession, Hayek was ready to countenance monetary expansion: he now seemed
willing to compromise his position, in extremis, on the basis of pragmatism.
However, a restriction of the money supply of the sort Hayek was still advocating in
the early 1970s would have required something like the deflationary policies
introduced by Britain in 1922, or more dramatically, a reform of the currency of the
sort carried out by Germany in 1923.64 It is difficult to imagine either of these options
being pragmatically possible.
Nonetheless, such was Hayek’s faith in the ability of the economic system to correct
itself he still maintained some form of radical retrenchment was possible.
If Hayek had discovered pragmatism, it was of a strange kind, one that involved
asking how far the existing economic and political system could be pushed before it
broke entirely. In 1975 he appeared on NBC’s ‘Meet the Press’ in the United States.
One of the interviewers, Robert Rowan of the Washington Post pushed Hayek to say
what level of unemployment he felt willing to tolerate should governments follow his
advice and reduce the money supply in order to combat inflation. Hayek argued that
a significant monetary contraction would have the desired effects in a rapid fashion:
unemployment might rise steeply, but it would not last long. This meant he ‘could
not exclude a temporary rise to thirteen, fourteen per cent’ unemployment, ‘or
something like that’. When pressed by Rowan whether ‘the social fabric’ of the
country could tolerate such a rate, Hayek responded ‘for a few months certainly’.
This of course involved the assumption that the economy would correct itself as well
63
64
Hayek ‘The Campaign Against Keynesian Inflation’, 211
Gamble, The Free Economy and The Strong State, 51.
174
functioning as a spontaneous order should. That however hardly accords with his
recent admission that expansionary policies may be required in extreme
circumstances.65
Similar debates were also being had in Britain, particularly within the Conservative
Party: just what level of unemployment could society stand? The failure of the
Labour Party’s ‘social contract’ with the unions to keep wage demands low had
impressed upon many within the Conservatives the unworkability of voluntary
incomes policies. In 1975 the monetarist wing of the party received a major boost
when Margaret Thatcher was elected to the leadership of the party after Heath’s
second general election defeat.66 Many had regarded Joseph as the monetarist wing’s
most likely challenger to Heath. He had however excluded himself from
consideration as a result of controversial comments made regarding the ‘human stock’
of the nation in October 1974. Thatcher, his close ally, put herself forward in his
place. She insisted that while Heath had stopped being Selsdon Man she was ‘still
Selsdon woman’.67
Thatcher appointed Joseph as the party’s head of policy and research and he remained
one of her closest advisors throughout the early period of her leadership.68
65
Transcript of Frierich Hayek on ‘Meet the Press’ (22nd June1975). Accessed at
https://mises.org/library/hayek-meets-press-1975 27.02.16.
66
Thatcher was however viewed as a moderate on the economy, falling somewhere between staunch
advocates of monetarism and the Heathites, during her election campaign. See Vinen, Thatcher’s
Britain, 60-74,
67
Ros Brunt, ‘Thatcher Uses her Woman’s Touch’, Marxism Today (June, 1987), 22-24.
68
His relationship with the leader was extremely close ‘”England’s greatest man” was how Thatcher
herself chose to describe him – or, when the Prime Minister happened to see her Secretary of State for
Education scurrying through the streets, “a darling man”. It was an affection touchingly reciprocated by
Joseph: “I beam at the very sight of her’. At Joseph’s memorial service Thatcher said, ‘Keith should
have become Prime Minister…So many of us felt that was his destiny.’ Peter Clarke, ‘The
Antagoniser’s Agoniser’, review of Andrew Denham and Mark Garnett, Keith Joseph in London
Review of Books 23:14 (19 July 2001), 7-8.
175
Like Hayek, he felt that a sharp reduction in the money supply would produce a
severe but short increase in unemployment and that this was favourable to a
prolonged period at a lower level. Such a shock would quickly produce a change in
the behaviour of economic actors and, crucially, force the unions to face economic
realities.69 There were others in the party who would become known derisively as the
‘wets’ who counselled caution.70 Shortly after her election, during a meeting on
future economic policy, colleagues urging a cautious approach to treatment of the
money supply confronted Thatcher. This was the occasion on which, in response, she
is reputed to have held up a copy of The Constitution of Liberty and exclaimed ‘This
is what we believe’.71
For Hayek the situation was clear: a significant increase in unemployment was
unavoidable. Of overriding importance, more important even than the short-term
effects of unemployment, was that governments should not be able to exercise
arbitrary control over the value of money:
The primary aim must again become the stability of the value of money and
the currency authorities must again be effectively protected against that
political pressure which today forces them so often to take measures which are
politically advantageous in the short run but harmful in the long run.72
In 1979 Thatcher was elected as Prime Minister opening the way for the sort of
69
Tomlinson, ‘Monetarism and the Politics of Inflation’, 69-72.
Vinen, Thatcher’s Britain, 117-8.
71
Richard Cockett, Thinking the Unthinkable: think Tanks and the Economic Counter Revolution
1931-83 (London, 1994), 174. Thatcher also claimed to have been inspired by The Road to Serfdom at
University though how familiar she was with Hayek’s work is in fact far from clear. See John
Campbell Margaret Thatcher, Vol.1: The Grocer’s Daughter (London, 2007), 60.
72
Hayek, ‘The campaign Against Keynesian Inflation’, 207.
70
176
monetarist policies that Hayek and Joseph advocated. Yet the decisive removal of
government control of money and thus, its ability to affect the economy, would not be
achieved in the way Hayek hoped.
4. First Piece of Emergency Equipment: The Denationalisation of Money
For Hayek inflation undermined free market action. It was a symptom of arbitrary
government power, an affront to a regime of liberty: clear confirmation of imperium.
However, the economist most closely associated with monetarism and the battle
against inflation is not in fact Hayek, but Milton Friedman, Hayek’s one time
colleague at Chicago and fellow member of the Mont Pèlerin Society. 73 Both also
held similar political views on the proper relationship between government and the
market and Friedman would testify to Hayek’s influence on him politically, though
the two were never close socially or even professionally.74
Friedman argued the volume of money should grow ‘month by month, and indeed, so
far as possible, day by day, at an annual rate of X per cent, where X is some number
between 3 and 5.’75 By such a method he too hoped to limit the power of
government. Hayek however disapproved of Friedman’s work in much the same way
as he disapproved of Keynes’s. Both were based on the same macroeconomic
aggregates Hayek found so objectionable. While sympathetic to the desire to end
government control over the increase in money, Hayek thought that setting a
monetary target on the basis of a macroeconomic formula again overlooked the
73
A good introduction to his large body of work is Essays in Positive Economics (Chicago, 1963) and
Milton Friedman and Anna Schwarz A Monetary History of the United States, 1867–1960 (Princeton,
1963).
74
For detail on the personal relationship between the two see Ebenstein, Hayek, 66-76.
75
Milton Friedman, Capitalism and Freedom (Chicago, 1962), 4.
177
micro-economic complexities of the real economy and, moreover, that to make
publicly known the limit to the increase in money in any given period would cause
panic when that limit was approached.76 When interviewed he remarked,
you know, one of the things I often have publicly said is that one of the things
I most regret is not having returned to a criticism of Keynes’s treatise, but it is
as much true of not having criticized Milton’s [Essays in] Positive Economics,
which in a way is quite as dangerous a book.77
For both Hayek and Friedman however, the central issue was ending arbitrary
government control of money. In the 1930s Hayek had advocated the gold standard
and subsequently the commodity standard as a means of imposing monetary
discipline on governments. By the mid-1970s, fearing that inflation would lead to
catastrophe and having less faith in government than ever, due to the pursuit of social
justice and the way in which his definition of liberty had developed, he was ready to
offer more radical proposals.
At the 1975 Geneva Gold and Monetary Conference in Lausanne Hayek renounced
his support for fixed exchange rates and instead advocated competition between
national currencies within any territorial jurisdiction. Always keen to place his work
in the longer Whig/liberal tradition, in his lecture ‘Choice in Currency’ he framed the
central problem facing the monetary system as that posed earlier in Trenchard and
Gordon’s Cato’s Letters: ‘I have just read in an English Whig tract more than 250
years old: “Who would establish a bank in an arbitrary country, or trust his money
76
Friedrich Hayek, ‘The Denationalisation of Money’ [1976] in Good Money Part Two: The Collected
Works of F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 184.
77
Hayek, Hayek on Hayek, 128.
178
constantly there?”’ he wrote.78 Hayek argued that permitting the use of any national
currency within the territory of another would be an effective way to discipline
governments as it would introduce competition into the currency system. The result
would be that users would favour the currencies of states that maintained polices of
‘sound money’ and kept their currencies stable. Those who did not would find their
currency becoming increasingly worthless. By such a means, Hayek argued,
governments would be dissuaded from expansionary monetary policies if they wished
their currencies to remain in use. By introducing competition, the territorial
monopoly of a single government over money would be broken. He wrote:
I have no objection to governments issuing money, but I believe their claim to
a monopoly, or their power to limit the kinds of money in which contracts may
be concluded within their territory, or to determine the rates at which monies
can be exchanged, to be wholly harmful. At this moment it seems that the best
thing we could wish governments to do is for, say, all the members of the
European Economic Community, or, better still, all the governments of the
Atlantic Community, to bind themselves mutually not to place any restrictions
on the free use within their territories of one another's - or any other currencies, including their purchase and sale at any price the parties decide
upon, or on their use as accounting units in which to keep books.79
The introduction of competition would also be better than the establishment of a
monetary union across Europe in the manner that had begun to be proposed.
78
Friedrich Hayek, ‘Choice in Currency’ [1976] in Good Money Part Two: The Collected Works of
F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 124. For more on Cato’s Letters written by
a fellow traveller of Hayek’s also involved with his collected works, see Ronald Hamowy, ‘Cato’s
Letters, John Locke and the Republican Paradigm’, History of Political Thought 11 (1990), 273-94.
79
Hayek, ‘Choice in Currency’, 121.
179
Competition, and not ‘a utopian European Monetary Unit, seems to me now both the
practicable and the desirable arrangement to aim at’ offered Hayek. 80 ‘The upshot’ of
the system proposed by Hayek
…would probably be that the currencies of those countries trusted to pursue a
responsible monetary policy would tend to displace gradually those of a less
reliable character. The reputation of financial righteousness would become a
jealously guarded asset of all issuers of money, since they would know that
even the slightest deviation from the path of honesty would reduce the demand
for their product.81
The great benefit of the scheme would be that it would end the influence of macro
economists over politicians. ‘You may feel’ he wrote
…that my proposal amounts to no less than the abolition of monetary policy;
and you would not be quite wrong…. It seems to me that if we could prevent
governments from meddling with money, we would do more good than any
government has ever done in this regard. And private enterprise would
probably have done better than the best they have ever done.82
Hayek however gives no consideration to the broader social and political effects that a
national currency falling out of demand might have. While it might be possible to
rectify faith in a currency where its continued existence is guaranteed, brands subject
to competition frequently disappear never to return. What effect this might have in a
80
Hayek, ‘Choice in Currency’, 121-125.
Hayek, ‘Choice in Currency’, 123.
82
Hayek, ‘Choice in Currency’, 125.
81
180
world still composed of national states is missing from the argument. Without sound
finance of the sort recommended by Hayek it is perfectly conceivable that these states
would forever lose control over the circulation of money within their own borders.
Moreover, the emergence of a favoured currency could recreate the old problems of
government monopoly on a far greater scale as, in these circumstances, one currency
might acquire a virtually global monopoly. While this may speed trade it would
undermine all the benefits of competition and magnify all the dangers of monopoly.
Hayek had been sensitive to the danger of monopolies during the 1930s, under the
influence of the Ordoliberals, however his increasing estrangement from their
movement had coincided with a more general nonchalance regarding monopolies.
That competition would over time undermine monopoly became an article of faith.
This is reflected in his money scheme failing as it does to recognise that the existing
system of national currency use prevents the monopolisation of money use by one
currency. Hayek’s own proposals could, rather than ensure competition prevails,
result in its destruction.
In 1976 Hayek went even further, abandoning any pragmatism he might have
previously displayed by pursuing the libertarian logic his turn of thought had taken. 83
In his pamphlet ‘The Denationalisation of Money’ he called not simply for a
disciplining of governments but for a decisive end to states being the sole entities able
to issue currency.84 This scheme would, he hoped, fundamentally and irreversibly
alter the relationship between the government, the economy and democracy. If
adopted, no longer would special interests, in the name of social justice or any other
creed, be able to pressure governments through the ballot box to pursue inflationary
83
Hayek interrupted work on his major long-term project, Law, Legislation and Liberty in order to
write the pamphlet and indeed to provide a second edition in 1978.
84
‘The Denationalisation of Money’, 128-229.
181
policies in a manner that was inimical to liberty, the rule of law and was
incommensurable with free market action. Government control of money, he argued,
…is a power which at present is the most serious threat not only to a working
international economy but also to personal freedom; and it will remain a threat
so long as governments have the physical power to enforce such controls. It is
to be hoped that people will gradually recognise this threat to their personal
freedom and that they will make the complete prohibition of such measures an
entrenched constitutional provision.85
Hayek regarded his new scheme as one half of his ‘intellectual emergency equipment’
that might save Britain from ‘the nightmare of increasingly totalitarian powers.’86 In
1977 he would state clearly that ‘my proposal is not, as I would wish merely a sort of
standby arrangement…It is not merely an emergency plan’, it was rather something
that was required more urgently. 87
Despite the significant length of the pamphlet, the essence of the scheme can be
gained by the following quotation:
Since readers will probably at once ask how such issues can come to be
generally accepted as money, the best way to begin is probably to describe
85
Friedrich Hayek, ‘The Denationalisation of Money’, 222.
Hayek, Law, Legislation and Liberty, xx. The second half was his constitutional reforms, examined
in Chapter 5.
87
Friedrich Hayek, ‘Towards a Free Market Monetary System’ [1977] in Good Money Part Two: The
Collected Works of F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 236. By 1982, in the
preface to the consolidated edition of Law, Legislation and Liberty, he was referring to his plans as
‘stand-by equipment’. It may seem that the coming to power of his political allies in both the UK and
the USA, with the elections of Thatcher and Ronald Reagan, had calmed him. More likely he viewed
this as a temporary hiatus. He still felt that it ‘may not be very far away when the breakdown of the
existing institutions becomes unmistakeable.’ Hayek, Law, Legislation and Liberty, xx.
86
182
how I would proceed if I were in charge of, say, one of the major Swiss joint
stock banks. Assuming it to be legally possible (which I have not examined), I
would announce the issue of non-interest bearing certificates or notes, and the
readiness to open current cheque accounts, in terms of a unit with a distinct
registered trade name such as 'ducat'. The only legal obligation I would
assume would be to redeem these notes and deposits on demand with, at the
option of the holder, either 5 Swiss francs or 5 D-marks or 2 dollars per ducat.
This redemption value would however be intended only as a floor below
which the value of the unit could not fall because I would announce at the
same time my intention to regulate the quantity of the ducats so as to keep
their (precisely defined) purchasing power as nearly as possible constant. I
would also explain to the public that I was fully aware I could hope to keep
these ducats in circulation only if I fulfilled the expectation that their real
value would be kept approximately constant.88
Hayek’s old idea of the commodity standard underpins the scheme as it is by keeping
the value of the ‘ducat’ stable in relation to such a basket of commodities that
confidence in a currency is maintained:
And I would announce that I proposed from time to time to state the precise
commodity equivalent in terms of which I intended to keep the value of the
ducat constant, but that I reserved the right, after announcement, to alter the
composition of the commodity standard as experience and the revealed
88
Hayek, ‘The Denationalisation of Money’, 153.
183
preferences of the public suggested.89
While Hayek noted that people might wish to use a currency prone to depreciation for
loans and appreciation for savings and similar transactions, he was confident that it
was those that could maintain stability that would ultimately win out in the market,
not least because of the accounting needs of businesses.90 He also believed that ‘a
thousand hounds’ of a vigilant press would ensure that banks reported accurately on
the value of their currency in relation to the commodity standard. In such a monetary
system government monetary policy would be ‘neither desirable nor possible’ and
national central banks would inevitably be abolished.
Hayek viewed his scheme as ‘the one way in which we may still hope to stop the
continuous progress of all government towards totalitarianism which already appears
to many acute observers as inevitable.’91 Attempts to debase the currency were the
means by which rulers had for centuries sought to extend their power while
undermining the economy. It was the means by which imperium had most often
sought to assert its arbitrary power. So massive had the issue of inflation become that
Hayek could write, although it had fallen from his focus for some decades, that
‘history is largely a history of inflation’.92 He had been freed, he felt, of ‘the
mystique of legal tender’, which was evident even in the Constitution of Liberty.93
The coin as much as the flag had always been a symbol of might he argued yet the
89
Hayek, ‘The Denationalisation of Money’, 153.
Hayek, ‘The Denationalisation of Money’, 172.
91
Hayek, ‘The Denationalisation of Money’, 229.
92
Hayek, ‘The Denationalisation of Money’, 142.
93
There is some ambiguity here. While he was still accepting of the need for governmentally approved
legal tender in that earlier work, he later points out that he had questioned in a footnote the need for a
government monopoly of money and it was this kernel of thought that had been developing over the
subsequent fifteen years.
90
184
survival of valor impositus, the notion that it is government imprimatur, in some semi
mystical sense, that confers value upon currency is a delusion. What is remarkable,
he reflected, is how both he and everyone else had allowed themselves to remain
under this delusion for over two thousand years. During the ‘30s Hayek had argued
that government control of money distorted the overall economic order. By the ‘70s,
defining liberty in a partial neo-roman way, he had come to regard it as the means by
which imperium is preserved.
Hayek recognised that his scheme might be dismissed as utopian but countered that,
We cannot, of course, hope for such a reform before the public understands
what is at stake and what it has to gain. But those who think the whole
proposal wholly impracticable and utopian should remember that 200 years
ago in The Wealth of Nations Adam Smith wrote that “to expect, indeed, that
the freedom of trade should ever be entirely restored in Great Britain, is as
absurd as to expect that an Oceana or Utopia should ever be established in it'”
It took nearly 90 years from the publication of his work in 1776 until Great
Britain became the first country to establish complete free trade in 1860.94
Hayek also noted that Smith never once included the issue of money among his key
duties of government.95 What Hayek called for was ‘a Free Money Movement
comparable to the Free Trade Movement of the nineteenth century.’96
94
Hayek, ‘The Denationalisation of Money’, 228.
Hayek, ‘The Denationalisation of Money’,141-142.
96 Hayek, ‘The Denationalisation of Money’, 229.
95
185
While he makes reference to the nineteenth century the proposals are Hayek at his
most libertarian, articulating very 20th century concerns.97 In his insistence on
capitalist money for the capitalist system and that capitalists must ‘be allowed to
provide themselves the money they need’ Hayek wished to strike at the heart of state
power. 98 This was not an attempt merely to re-establish the 19th century distinction
between government and economy or to recreate the neutral state Schmitt had talked
of. Nor did it conform to the view of a strong active state of the sort he had advocated
previously under the influence of the Ordoliberals. Such was the extent of Hayek’s
radicalisation that he no longer felt that future governments would honour the
state/economy distinction and so he sought to destroy the source of their power by
removing their control of money: the free economy would require a weak state.
5. Reception of The Scheme
An early reviewer of Hayek’s work noted that ‘if one treats the government’s role in
money production as a social institution that has evolved as a “result of human action
but not of design” then a more reserved attitude should be taken towards changing
it.’99 In other words, in arguing that government money is the product of brute force
Hayek was too willing to dismiss its role in the evolution of the modern economy.
While talking of the importance of evolved institutions, he was too ready to dispense
with them in favour of a rationally constructed scheme. A similar criticism has been
97
The appeal of libertarianism was growing during the 1970s. 1974 had seen the publication of Robert
Nozick’s highly influential libertarian work Anarchy, State and Utopia (Oxford, 1974).
98
Friedrich Hayek, ‘The Future Unit of Value’ [1981] in Good Money Part Two: The Collected Works
of F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 238-252. Hayek even had a secret name
for ‘The Future Unit of Value’ he refused to share as, after having taken legal advice found it was only
possible to take out a trademark on an article in which a person or entity was dealing. As the scheme
remained entirely an academic exercise he was of course unable to register his term for the unit as a
trademark. Instead, in public at least, he referred to the future unit as the Solid.
99
D.H. Howard, ‘Review of Denationalisation of Money’, Journal of Monetary Economics 8 (1977)
483-5.
186
made by Chandran Kukathas when he writes of the instability between Hayek’s
Humean and Kantian elements.100 Defenders of Hayek could point to his
endorsement, albeit fleeting, of Karl Popper and William Warren Bartley’s
philosophy of ‘critical rationalism’.101 They opposed what they termed
justificationism, the attempt to justify a stance with reference to a further anterior
position, because of the manner in which it leads either to infinite regress or
dogmatism. Unfortunately, they argued, such attempts at justification characterised
all the major strains of western thought. Instead they advocated a ‘critical rationalist’
approach that, as described by Rafe Champion, ‘holds all positions and propositions
open to criticism.’ This means that ‘it is possible to justify a preference for a
particular position in the light of evidence and arguments produced to date, on the
understanding that preferences change in the light of new evidence and arguments.’102
However, it remains based upon universal moral standards and a respect for moral
systems, forbidding positions that are radically transformative of an overall moral or
social order. Champion has argued that this overcomes Kukathas’s critique of
instability in Hayek’s own work. As Hayek wrote,
The proper conclusion from the considerations that I have advanced is by no
means that we may confidently accept all the old and traditional values. Nor
even that there are any values or moral principles which science may not
occasionally question. The social scientist who endevours to understand how
100
Gamble, Hayek: The Iron Cage of Liberty (Cambridge, 1996) 40; Chandran Kukathas Hayek and
Modern Liberalism (Oxford, 1989), 225-218.
101
Bartley, having completed a biography of Popper also received the task of acting as Hayek’s official
biographer. He was also, as discussed in the introduction, Hayek’s chief assistant for his final work,
The Fatal Conceit, though it seems this was in fact as much Bartley’s as it was Hayek’s. See Friedrich
Hayek, The Fatal Conceit: The Errors of Socialism: The Collected Works of FA Hayek, Volume 1 (ed.),
William Warren Bartley III (Chicago, 1988).
102
Rafe Champion ‘Hayek Bartley and Popper: Justificationism and the Abuse of Reason’ in in Hayek:
A Collaborative Biography, Part 1 Influences from to Bartley (ed.), Robert Leeson, (London, 2013),
213-225.
187
society functions, and to discover where it can be improved, must claim the
right to examine critically, and even to judge every single value of our society.
The consequence of what I have said is merely that we can never at one and
the same time question all of its values. Such absolute doubt could lead only
to the destruction of our civilisation’103
So for Hayek, as for Popper, some institutions and rules could be changed so long as
the whole social structure was not threatened.104 However, the radical and far reaching nature of some of Hayek’s 1970s proposals with consequences for the
integral working of both politics and the economy is of such scale as to fall foul of
Hayek’s own limiting criterion.105
Moreover, it is not only that Hayek’s scheme is inconsistent with much of his social
philosophy.106 It also seems to underestimate the importance of experience and
evolution on a practical basis. If the government monopoly of money has been little
more than a forceful imposition of government why has it survived? Benjamin Klein
had been the first to argue that ‘I do not think that adoption of Hayek’s . . . policy
recommendation of complete domestic freedom of choice in currency would
103
Rafe Champion, ‘Hayek Bartley and Popper: Justificationaism and the Abuse of Reason’, 220.
This line of thought can be traced back at least as far as his endorsement of ‘piecemeal social
engineering’ in Karl Popper, The Open Society and Its Enemies, Vol. 1: The Spirit of Plato (London,
1945).
105
Stanley Fischer wrote ‘Hayek’s tract is Messianic not analytic’ in Stanley Fischer, ‘Friedman versus
Hayek on private money: Review essay’, Journal of Monetary Economics 17:3 (1986), 434. Fischer
went on to become vice Chair of the US Federal Reserve so perhaps his position is unsurprising,
although it is not unfounded.
106
Moreover, it is not clear that Hayek’s proposals were as subversive as he implied. Though he talks
of a government monopoly of money and opines that were his scheme to be put into action
governments would likely seek to thwart it, he provides little evidence for either of these positions. See
Friedrich Hayek ‘Towards a Free Market Monetary System’, 235. Indeed, he readily admits he is
unsure of the legality, or otherwise, of his proposals. The claims about government monopoly of
currency he makes are somewhat undermined by his own acceptance, which he cites in order to support
his argument for the viability of competition, that in many border regions more than one type of
currency is regularly used, noting that there was nothing in the law to prevent parties from engaging in
bilateral exchange in any medium they chose to do so.
104
188
significantly reduce the amount of monopoly power on currency issue currently
possessed by each individual European government’ as people want government
backed money and would incline towards those currencies.107 Milton Friedman and
Anna Schwartz expanded on this.108 Recalling Walter Bagehot’s own reflections on
free banking, it may well be, they argued, that had government not become involved
then many private sources of money would have sprung up. However, it did and now
it is government money that people turn to, even in times of crisis like the 1970s.109
Central banks have also developed and endured because they perform a necessary
function as lenders of last resort. Hayek is dismissive of the need for such a function
but even he admits that if a private currency collapsed then savers would lose all the
cash they held in that currency. He assumes that they would have other assets. This
is remarkable given his early Viennese experience of what currency depreciation
could do to individuals and families. By the mid-‘70s however he was thinking in
terms of systems, of spontaneous orders and grand constitutional schemes rather than
in terms of people and what was most important was that in a competitive system the
loss of one currency would at least mean that ‘the whole structure of long term
contracts would remain unaffected’.110 Hayek underestimated the political
unacceptability of such a position along with the political and financial anarchy the
introduction of such a new arrangement would involve. Central banks had developed
107
Benjamin Klein, ‘Competing Monies: A Comment’, Journal of Money, Credit, and Banking 8
(1976), 513-519.
108
For a comparison of the positions of Hayek and Friedman on such currencies see William Luther
‘Friedman Versus Hayek on Private Outside Monies: New Evidence for the Debate’, Economic Affairs
33:1 (2013), 127-135.
109
They quote Bagehot: ‘The whole rests on an instinctive confidence generated by use and years. . . .
If some calamity swept it away, generations must elapse before at all the same trust would be placed in
any other equivalent. A many-reserve system, if some miracle should put it down in Lombard Street,
would seem monstrous there. Nobody would understand it, or confide in it. Credit is a power which
may grow, but cannot be constructed.’ To understand the import of this for an interpretation of Hayek,
replace the term ‘many reserve system’ with ‘many currency system’. Milton Friedman and Anna
Schwartz, ‘Has Government Any Role in Money’ in Money in Historical Perspective (Chicago,
1987), 312.
110
Hayek, ‘Denationalisation of Money’, 225.
189
over time as guarantors and lenders of last resort in the evolutionary manner he
usually prized, in order to avoid such calamities, not simply as the instruments of
imperious governments.111
After Thatcher’s election, Hayek’s work remained in vogue within the Conservative
party and within government.112 Joseph became a key player in government having
been appointed minister for industry where he drew up plans for the first
privatisations and, from 1981, became secretary of state for education and science,
where he unsuccessfully proposed the introduction of tuition fees and the introduction
of a system for the appraisal of the quality of research.113 Perhaps Joseph’s major
influence remained his ability to set the ideological tone for the party. In this he was
still much influenced by Hayek. He remained the conduit for his ideas to cabinet and
to the Prime Minister, making Thatcher aware of Hayek’s work and passing on letters.
‘It is you’ he wrote to Hayek following a dinner in July 1983, the month after
Thatcher’s second election win, ‘who have done more than any other to animate and
educate the counter-attack on socialism.’114
Despite the high regard with which his ideas were held within the party Hayek had
been right to reflect on his money scheme that it was ‘at present impracticable’.115 It
was not only impracticable; it was also completely unhelpful to Hayek’s political
allies. What he had advocated was a removal of state power of the sort that, once in
111
Sir John Clapham, The Bank of England (Cambridge, 1944); John Wood, A History of Central
Banking in Great Britain and the United States (Cambridge, 2005).
112
See for example Hayek’s lecture ‘The Muddle of the Middle’ to The Monday Club of the
Conservative Party (26th March 1980) Hayek Archive Box 131, Folder 13.
113
John Biffen, ‘The Power Behind the Throne’ obituary of Keith Joseph The Guardian Accessed at
http://www.theguardian.com/politics/1994/dec/12/obituaries 10.08.15.
114
Letter from Keith Joseph to Friedrich Hayek (July 6 th 1983) Hayek Archive Box 29, Folder 43
115
Hayek ‘Denationalisation of Money’,132.
190
government, Thatcher and those close to her had no desire to cede. Hayek was surely
not surprised that any government, even one that held him in such esteem, should not
want to give up control of money. His vision of a weakened state was not consistent
with the aims of the majority of the new right associated with Thatcher’s government
who sought to see the very opposite. Much more amenable to the requirements of
power were the ideas of Friedman who required no ‘utopian’ measures in order to
bring inflation under control. It remained the case however that even his Monetary
Base Control approach was not strictly adhered to and other measures such as
increasing the interest rate to reduce borrowing and decrease the money supply, were
not taken up because they clashed with other elements of the new right agenda,
primarily Thatcher’s vision of a ‘home owning democracy.’116 It was far from clear
that even Hayek’s favourite politicians were to be trusted with control of the money
supply.
That Friedmanite monetarism should prove an amenable tool of government hardly
surprised Hayek, who had compared his macro aggregate based approach to that of
Keynes. Other Austrian economists would go further arguing that there was in
essence no difference between Friedman and Keynes and that monetarism ‘does not
differ in its fundamental approach from the other dominant branch of
macroeconomics, that of Keynesianism.’117 This analysis fits well with that offered
by Jim Bulpitt in an influential article that argued that monetarism should be
understood as a technique of Thatcherite statecraft.118 While not qualitatively
116
Tomlinson, ‘Thatcher, Monetarism, and the Politics of Inflation’, 74
Gerald P. O'Driscoll, Jr., and Sudha R. Shenoy, ‘Inflation, Recession, and Stagflation’ in Edwin
Dolan (ed.), The Foundations of Modern Austrian Economics. (Kansas, 1976) Accessed at
http://www.econlib.org/library/NPDBooks/Dolan/dlnFMA13.html#Part 3, Essay 7 03.03.16
118
Jim Bulpitt, ‘The Discipline of the New Democracy: Mrs. Thatcher's Domestic Statecraft’, Political
Studies, 34 (1986), 19-39.
117
191
different to Keynesianism, in that both assume government supervision of money, it
insisted that for inflation to be controlled the amount of money must be reduced.119
As Bulpitt notes, this allowed the state to absent itself from disputes between
‘interests’, namely the unions and employers in exactly the manner Hayek had hoped
for but had been unable to imagine without his own emergency equipment. It also
allowed the Conservatives to pursue policies aimed at reducing government debt.120
In the longer term, while monetarism as a creed slipped from prominence it has
remained the overriding priority of government to keep inflation low, rather than to
secure full employment.121 It is the international financial money markets that have
imposed monetary discipline by virtue of ‘the huge volume of mobile liquid capital
and by the ever increasing sophistication and integration of the financial circuit’.122
All of this was of course achieved without Hayek’s utopian scheme. The effective
abolition of the pound formed no part of the Conservative’s vision of the strong state.
Hayek wished to remove arbitrary government power over money and in this way
remove a potential threat to liberty. This would also mean that the electorate, or
special interests within the electorate, would be unable to make use of government
power to shape economic outcomes. It was central to Hayek’s agenda to dethrone
politics and to privilege the market. To transfer responsibility for the monetary
system from government to banks would of course place enormous power in the
119
Bulpitt’s concept of statecraft bears some similarity to the concept of governmentality developed by
Michel Foucault. Foucualt talked explicitly about neoliberal governmentality in his 1979 lectures at
the Collège de France. See Michel Foucault, The Birth of Biopolitics (London, 2008), 161.
120
The idea that an effective monetarist policy could be primarily pursued by reducing borrowing was
dismissed by Friedman. See Tomlinson, ‘Thatcher, Monetarism, and the Politics of Inflation’, 75.
121
Responsibility for this was legally transferred to the Bank of England following its independence in
1997. It is highly unlikely Hayek would have viewed this as a sufficient removal of government
control over money. For discussion of the meaning of independence see Peter Howells ‘The U.S. Fed
and the Bank of England’, International Journal of Political Economy 42:3 (2013), 44-62.
122
Gamble, Free economy and Strong State 41.
192
hands of private institutions.123 This however also fit with his partial interpretation of
the neo-roman concept. For him, only government imperium posed a threat to liberty,
the threat of private power, or dominium is, as we have seen, missing. But if the
1970s seemed to point to the failure of governments to maintain market order and
refrain from arbitrary interference, more recent history suggests markets, poorly
regulated by political power, are at least as much of a danger.124 Whatever the case,
his scheme held no appeal in the corridors of power and as a result the fundamental
relationship between government, democracy and the economy would remain
unchanged. At least for Hayek, however, arbitrary government power would now be
in the hands of his political admirers.
123
Hayek’s pamphlet provided a stimulus to a subsequent body of work on free banking and private
currencies. For example, see Lawrence White, Free Banking in Britain: Theory, Experience and
Debate 1800–1845, (London, 2009); George Selgin, The Theory of Free Banking: Money Supply under
Competitive Note Issue (Lanham, 1988) and Kevin Dowd, The State and the Monetary System, (New
York, 1989).
124
Simon Griffiths, Engaging Enemies: Hayek and the Left (London, 2014), 139-143.
193
Chapter Five: Limiting Democracy in a Model Constitution
1. Introduction- Strong Rulers and Weak States
1960 saw Hayek’s second piece of ‘standby intellectual equipment’, his model
constitution, begin to emerge. Like his scheme for the denationalisation of money it
was informed by his understanding of liberty as the absence of arbitrary government
power. Like that scheme it refused to recognise that arbitrary interference could
emanate from private as well as public sources and that popular sovereignty, far from
being solely a source of coercion, was actually a necessary bulwark against both
dominium and imperium. Hayek’s constitution was designed to end arbitrary
government interference by limiting the remit of government through the
establishment of new legal norms and a stringent system of checks and balances
provided by a new upper house and a constitutional court. He also wanted to see
national government power decentralised as much as possible. In this way the state
might be weakened to allow for the flourishing of the free economy. Like the first
piece of emergency equipment then, the purpose of the second was to secure his
partial neo-roman concept of liberty and prevent democratic majorities using
government power to shape the economy.
Hayek’s model constitution was also as utopian as his plans for money and it went
similarly ignored as anything other than an intellectual curiosity.1 Despite this,
ironically, it was once again during this period that Hayek was most lauded by those
1
For reviews see Stephen G. Salkever, ‘Law, Legislation and Liberty, Vol. 3’, The Journal of Politics
43:1 (1981), 234-236; J.E.J. Altham, ‘The Political Order of Free people’, Philosophy, 57:220 (1982),
274-278; David Lewis Schaefer, ‘Review of Law, Legislation and Liberty, Vol. 3’, The American
Political Science Review 74:1 (1980), 165-166; Donald Meiklejohn, ‘Review: Democracy and the Rule
of Law’, Ethics 91:1 (1980), 117-124.
194
in the governing Conservative Party. Law, Legislation and Liberty Vol. 3: The
Political Order of a Free People, in which it was contained, was published in 1979,
the year of Thatcher’s election as Prime Minister.2 This alone rendered its
suggestions redundant for those on the right who wished to see trade union power
reversed and the welfare state remodelled. Having been elected to government, those
in the party such as Lord Hailsham, who had previously advocated constitutional
reform, found the issue to be less of a pressing concern. Indeed the powers that
parliamentary sovereignty conferred were now to be used in pursuit of political ends
with which Hayek had much sympathy.3
While Hayek’s money scheme had sought to provide a solution to the first major
problem he identified in his defensive period, the power of government over money,
the second sought to address the second: the impact of democracy on government.
Yet in outlining his proposals he contradicts many of his earlier positions regarding
the dangers of government by unaccountable experts.4 Moreover, Hayek provides no
clear suggestions as to how his constitution, which he comes to view more as a
pressing need than a guiding abstraction, is to be brought about. Nonetheless, his
defence of dictatorial regimes indicates that he regarded a period of dictatorship as at
least one path to its implementation. This is remarkable given his most famous work,
The Road to Serfdom, is framed as an argument against dictatorship. However, it
becomes understandable when considered in the context of his Whiggish neo-roman
understanding of liberty and his deep-seated fear of democratic majorities.
2
Friedrich Hayek, Law, Legislation and Liberty, Vol. 3: The Political Order of a Free People (London,
1982).
3
Lord Hailsham had called for a written constitution that would limit the power of the executive and
thus, its ability to grant union demands. Quintin Hogg Hailsham of St. Marylebone, The Dilemma of
Democracy (London, 1978).
4
Hayek, Road to Serfdom (London, 2001), 55-56.
195
Dictatorship was originally a Roman institution, designed for implementation in times
of crisis. Hayek regarded the 1970s to be just such a time. Pettit and Skinner have
argued that dictatorship, or authoritarianism is incommensurate with neo-roman
liberty, as it establishes unchecked authority. This may have validity from a
theoretical standpoint and it is undoubtedly a position one would wish to see held
within contemporary neo-republicanism, but it does not fit with the historical record,
in which republicans have on occasion welcomed dictatorship. Hayek himself
invokes the name of Cromwell as just such an instance.5 In the longer term however,
Hayek hoped that dictatorship would prove transitional, merely a prelude to the weak
state solution his model constitution offered.
This chapter will begin by returning to Hayek’s distinction between liberalism and
democracy, as it is fundamental to Hayek’s constitutional thought. It will then
examine what he regarded as the confusion between law making and administration
with reference to a BBC radio broadcast about ‘new nations’ as the European empires
fell. The industrial, political and economic situation in Britain in the 1970s will then
be explored as a way of, once again, setting the radicalisation of Hayek’s thought in
context. The chapter will then turn to an analysis of the model constitution with
attention paid to the limitation of government, the dethronement of politics and the
elevation of the judiciary it proposed. How these measures together constituted a
profound faith in elites will subsequently be considered. The libertarian nature of
Hayek’s constitution will also be analysed. The contradictory need for a liberal
authoritarianism before this stage can be realised will provide the focus of the final
section.
5
Friedrich Hayek, The Constitution of Liberty (Chicago, 1960), 530.
196
2. ‘New Nations’ and British Problems
By 1960 Hayek was ready to admit the impact Schmitt had on his own analysis of the
relationship between democracy and liberal government. Like Schmitt he held the
two to be conceptually distinct:
The difference between the two ideals stands out most clearly if we name their
opposites: for democracy it is authoritarian government; for liberalism it is
totalitarianism. Neither of the two systems necessarily excludes the opposite
of the other: a democracy may well wield totalitarian powers, and it is
conceivable that an authoritarian government may act on liberal principles.6
And it is Schmitt whom Hayek cited in support of his distinction.7 What is more, he
continued that ‘the conduct of Carl Schmitt under the Hitler regime does not alter the
fact that, of the modern German writings on the subject, his are still among the most
learned and perceptive.’8
Shortly after the publication of The Constitution of Liberty he gave a radio broadcast
on the BBC’s Third Programme titled ‘New Nations and the Problem of Power’ in
which he made some surprising and radical suggestions.9 In it he offers a new solution
to the Schmittian dilemma. Rather than the strong government advocated by the
6
Hayek, The Constitution of Liberty, 103.
Hayek, The Constitution of Liberty, 104.
8
Hayek, The Constitution of Liberty, 205.
9
Friedrich Hayek, ‘New Nations and the Problem of Power’ The Listener, (November 1960), 819-821.
The talk was overlooked in the Hayek scholarship until an article by Andrew Farrant and Richard
McPhail, ‘Can a Dictator Turn a Constitution into a Can-opener? F.A. Hayek and the Alchemy of
Transitional Dictatorship in Chile’, Review of Political Economy 26:3 (2014) 331-348.
7
197
Ordoliberals, he proposed, for the first time, a constitutional design that might save
liberalism from democracy by weakening government and the power of the state.
What is also striking about the broadcast is that, while nominally directed at ‘the
problem of power’ in ‘new nations’, Hayek is in fact discussing a pathology he
locates in the British constitution, the unlimited power of parliament, so much the
product of Whig influence he championed loudly elsewhere. As such, the talk can be
best understood not as a reflection on the problem of power in new nations, as the title
indicates, but in Britain.
The unlimited power of government, provided for by parliamentary sovereignty, was
facilitated by the confusion between law making and administration, argued Hayek.
‘If you look at the Acts of Parliament’, he complained, ‘you will find that 90 per cent
are not laws but are administrative orders decided by a democratic body ... and called
for that reason a law. I think we ought to call them Acts of Parliament and not
laws.’10 This was a more nuanced point than his previous warnings of ‘unlimited
democracy’, and it was a confusion that the ‘dogmatic democrats’ were able to take
advantage of. The talk was, as ever, informed by his particular version of liberty and
his intellectual history of English liberalism; one of the discourses we might imagine
the new states would be eager to abandon. His radical suggestions had grown out of
what had been only a footnote in his recent work when he reflected that the business
of government had become confused with the business of law making when the
House of Lords acquiesced in allowing the Commons to develop general laws on a
range of matters including taxation. Had it not done so, argued Hayek,
10
Hayek, ‘New Nations and the Problem of Power’. 819.
198
The result, would have been the development of . . . two assemblies with
different tasks . . . [one —“a legislative assembly in the true sense”]
developing the general laws of the country . . . [the other— “an executive
assembly”] directing the administration.11
The suggestions Hayek put forward for new nations were intended to separate law
making and government administration in the developing world and act as a brake on
those who wished to use the powers of government to structure the economy and
redistribute wealth. What new nations required, he argued, was for ‘the functions of
government’ to be ‘definitely curtailed’. By doing so the reach of politics could be
shortened. Establishing two distinct houses of parliament could do this: ‘I am
proposing to have two different bodies.’ said Hayek ‘one dealing with current
administration, and one with the gradual amendment of the permanent framework of
the law’: an administrative and a legislative assembly.12 In addition, he suggested ‘a
rather high age limit’, be set for eligibility for election to the legislative assembly and
on the basis of a term of fifteen years, in order to ‘give greater permanence’ and
‘much greater stability in every sense.’13 Also contained in his proposal was a much
greater role for the judiciary and the legal profession. A Supreme Court would be
required to adjudicate on matters where the functions of the two houses might come
into conflict. Hayek also reflected that ‘it is a great pity that in fact lawyers no longer
11
Hayek, ‘New Nations and the Problem of Power’, 820. The relevant footnote in The Constitution of
Liberty reads ‘It is interesting to speculate what the development would have been if at the time when
the House of Commons successfully claimed the exclusive control over expenditure and thereby in
effect the control of administration, the House of Lords had succeeded in achieving exclusive power of
laying down general laws, including the principles on which the private individual could be taxed. A
division of competence of the two legislative chambers on this principle has never been tried but may
be well worth consideration.’, Hayek, The Constitution of Liberty, 488.
12
Hayek, ‘New Nations and the Problem of Power’, 820. Confusingly, Hayek calls the general law
making body a ‘Legislative Assembly’ though he later draws a distinction between law proper and
legislation. He continued to use this term despite that later distinction.
13
Hayek, ‘New Nations and the Problem of Power’, 820.
199
regard themselves as competent to suggest what the law might be.’ Instead, he argued
that, under the influence of legal positivism, they had put themselves at the disposal
of politicians, and ‘listen to what the politicians want’ rather than seeking to restrain
them.14 Law, for Hayek, was something to be interpreted by an elite, rather than
decided upon by the people and their representatives.
The fact that Hayek was willing to put forward such a radical scheme may seem
surprising given that his recent book had given such weight to the importance of
culturally evolved institutions, like those emphasised by Hume and by Smith and
more recently his MPS colleague, Michael Polanyi.15 Hayek was not insensible to the
charge and observed that he laid himself ‘open to the . . . objection of being
inconsistent. . . . I have been arguing that constitutions in the old Whig tradition ought
to grow and not be made; and to suggest any completely new constitutional system is
somewhat absurd.’ However Hayek was able to justify this on the grounds that in the
‘new democracies’ institutions had not been allowed to evolve as they had in the west
and so a devised scheme would be required given that certain groups in such countries
held the ‘rightly sound fear that without any traditional political morals the newly
elected bodies may exceed their reasonable powers.’16
Regardless of this, that Hayek based his analysis on the British experience strongly
suggests that what would be good for the new nations would be equally as good for
the old. But he resists the conclusion. He was keen to stress that his scheme was
designed only with ‘new nations’ in mind and that ‘large-scale constitutional reform’
14
Hayek, ‘New Nations and the Problem of Power’, 821.
Michael Polanyi, The Logic of Liberty (Chicago, 1951).
16
Hayek, ‘New Nations and the Problem of Power’, 820.
15
200
was not a ‘possible or a likely development in this country’.17 Perhaps he was aware
of the political infeasibility of such ideas in Britain where ‘today most people would
think it is probably irrelevant’ to suggest ‘large scale constitutional reform’.18 More
challenging for the consistency of Hayek’s body of work, if he pursued the
implications of his analysis it would undermine his recent thesis that spontaneous
evolution had brought about the legal and political structures required for his abstract
notion of the free market, and that this had reached its high point in Victorian Britain.
After all, the preeminence of the Commons, the very thing that set the confusion of
law and administration in motion, had been asserted since the deposition of James II,
something Hayek regarded as a great Whig victory. 19 To say that the Whigs were the
fathers of the confusion would require a revision of both Hayek’s history and his
sociology of spontaneous order.
By 1973, as inflation continued to rise steeply, Hayek had become further radicalised
and was willing to state that,
I have belatedly come to agree with Josef Schumpeter who 30 years ago
argued that there was an irreconcilable conflict between democracy and
capitalism-except that it is not democracy as such but particular forms of
democratic organisation, now regarded as the only forms of democracy, which
will produce a progressive expansion of governmental control of economic
life even if the majority of the people wish to preserve a market economy.20
17
Hayek, ‘New Nations and the Problem of Power’, 820.
Hayek, ‘New Nations and the Problem of Power’, 819.
19
Hayek, The Constitution of Liberty, 169.
20
Friedrich Hayek, ‘Economic Freedom and Representative Government’ [1973] in New Studies in
Philosophy, Politics, Economics, and the History of Ideas (London, 1978), 107.
18
201
While a generalised acceptance of social justice, pursued through policies seeking the
redistribution of wealth, posed the greatest threat to free society, economic planning,
his oldest adversary, continued to play a role in this pursuit. It allowed unions to
make their case for higher wages, frequently couched in the language of moral
obligation, the direct responsibility of government. In Britain alone the list of
government run industries was a long one: water, iron and steel, public transport,
electricity, car manufacture and many other areas of the economy were administered
by government bodies deriving their authority from Parliament.21 This was the
apogee of the ‘mixed economy’ that Hayek had described some 40 years earlier as
‘interventionist chaos’.22 By 1979 Hayek could write that western countries were
‘moving towards an impasse from which political leaders will offer to extricate us by
desperate means’. What was required, he argued, was the ‘basic alteration in the
structure of democratic government’ - the adoption of a ‘different form’ of electoral
politics that preserves what is ‘valuable in democracy while discarding its
“objectionable features.’’’23 Hayek believed that, the days of ‘unlimited democracy
are numbered.’24 What remained to be seen was whether this would result in the sort
of fascist decisionism that Schmitt had advocated forty years earlier or whether those
on the free market right could come up with alternative arrangements.
The 1970s were a period of political and economic crises. The number of days lost to
strikes rose as a new generation of union leaders, less willing to negotiate with
government and employers, came to the fore. This discontent broke out into open
21
Reuben Kelf Cohen, British Nationalisation, 1945-1973 (London, 1973).
Friedrich Hayek, ‘The Nature and History of the Problem’ [1935] in Collectivist Economic Planning
(ed.), Friedrich Hayek (London, 1935), 22-24.
23
Friedrich Hayek, Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice
and Political Economy, [3 Volume edition] (London, 1982), xi-xiii.
24
Law, Legislation and Liberty, Vol. 3, 134.
22
202
conflict after the election of the Conservatives in 1970 and the introduction of a new
Industrial Relations Bill. Mark Pitchford has written that,
Industrial unrest was the leitmotif of Heath’s premiership. The official number
of days lost to strikes during the Heath Government was never less than 10
million per year, exceeding any post-war decade. In 1970, the number of days
lost were the most since the General Strike of 1926. In 1972, it more than
doubled to give a figure ten times worse than when Harold Wilson became
Prime Minister. Heath used the Emergency Powers Act (1920) five times to
declare a State of Emergency in less than four years. 25
At the start of Wilson’s second term it seemed labour relations might improve as the
coal dispute was settled and the Industrial Relations Act repealed. Labour’s social
contract also calmed the political climate.26 Nonetheless, wages and prices continued
to rise sharply. One of the biggest impacts of inflation was on the gap between the
earnings of public sector workers, whose pay remained relatively static, and those in
the private sector, where rates were more flexible. Eventually the public sector
workers went on strike over the imposition of a 5 per cent wage limit at a time when
inflation was still as much as 10 per cent. This resulted in the infamous ‘winter of
discontent’ of 1978/9.
In the 1980s those on the right successfully portrayed the 1970s as a period of civil
discord, the decade of the 3 day week, always drifting towards the winter of 1978
25
Mark Pitchford, The Conservative Party and The Extreme Right 1945-1975 (Manchester, 2011), 185.
Although Jim Tomlinson has argued that, in attempting to gain public support for wage restraint,
Labour laid the ground for later Conservative attempts to portray the 1970s inflation crisis as solely the
fault of the unions. Tomlinson, ‘British Government and Popular Understanding of Inflation in the
mid-1970s’, The Economic History Review 67:3 (2014) 750–768.
26
203
when bins and bodies famously went ignored, before Thatcher stepped in to save the
nation. Certainly, there had been a pervading sense of pessimism across all sections
of the press regarding the direction of the country and even the survival of the state.
On the right, The Spectator claimed that ‘Britannia’s dream of apocalypse’ was about
to come true and The Banker argued in 1974 that unless the situation was arrested
rapidly the last chance would have been lost ‘for the Parliamentary system to cope
with Britain’s economic problems.’27 Peter Jay wrote a series in The Times suggesting
that British democracy might not survive a period of industrial unrest combined with
the economic crisis. In the New Statesman, Auberon Waugh declared that ‘the party
system is finished’. It was a journalistic trend that became known as ‘doomwatch’.28
It would however be unwise to see the 1970s as constituting some sharp break with
the industrial and political climate of the past. Union discontent had begun to
increase towards the end of Harold Wilson’s first Labour government, particularly
after the publication of the white paper ‘In Place of Strife’ which recommended the
balloting of members and the establishment of a Commission for Industrial Relations
to regulate bargaining.29 Hayek himself was only too keen to stress the continuities
with the past. For him the misplaced British ‘genius for compromise’ had been too
apparent since the 1930s and was always bound to lead to disaster.30 It was hardly
unusual to blame the trade unions for the economic situation in the 1970s, but Hayek
could correctly claim that he had identified them as the source of the trouble early.
27
Tomlinson, ‘Thatcher, Monetarism and the Politics of Inflation’ in Making Thatcher’s Britain (eds.),
Ben Jackson and Robert Saunders (Cambridge, 2012), 65. On the right, there was a fear of internal as
well as external subversion of the state by communists and socialists. Government itself was not to be
trusted as the term ‘elective dictatorship’, coined by Lord Hailsham in 1976 indicates. See Quintin
Hogg Hailsham The Dilemma of Democracy.
28
Ricahrd Vinen, Thatcher’s Britain: The Politics and Social Upheaval of the 1980s (London, 2010),
76-77.
29
Ben Jackson and Robert Saunders, ‘Introduction: Varieties of Thatcherism’ in Making Thatcher’s
Britain, (eds.), Ben Jackson, Ben and Robert Saunders (Cambridge, 2012), 1-22.
30
Friedrich Hayek, ‘The Genius for Compromise’, The Spectator (Jan, 1945).
204
Ever since the introduction 1906 Trade Disputes Act, by Asquith’s New Liberal
government, he argued, false liberalism had been in the ascendancy. It had initiated a
trend that allowed democracy to undermine liberalism, with government reduced to
seeking favours from organised labour.
3. Second Piece of Emergency Equipment: A Model Constitution
Hayek had previously denied that he envisaged any application of his constitutional
ideas to Britain, but the events of the ‘60s and ‘70s had radicalised his thought in this
respect as it had with regards to money. In Law, Legislation and Liberty, he could
write that he had come to regard ‘the breakdown of the existing institutions’ as likely
and so he could recommend his model constitution as offering ‘a possible escape from
the fate which threatens us.’31 In fact the model was especially suited to Britain given
that it was a product of his analysis of the defects in the existing British constitution.
Hayek was also thinking of Britain when he wrote that ‘to leave the law in the hands
of elective governors is like leaving ‘the cat in charge of the cream jug-there soon
won't be any, at least no law in the sense in which it limits the discretionary powers of
government.’32 Those subject to Parliament in the 18th century were aware of the
danger Hayek described, he argued, in a way that those of the 20th were not. It was
because of the ‘defect in the construction of our supposedly constitutional
democracies’ he wrote, that ‘we have in fact again got that unlimited power which the
eighteenth-century Whigs represented as 'so wild and monstrous a thing that however
natural it be to desire it, it is as natural to oppose it'.’33
31
Hayek, Law, Legislation and Liberty, xx.
Hayek, Law, Legislation and Liberty, Vol. 3, 31.
33
Hayek, Law, Legislation and Liberty, Vol. 3, 29-31.
32
205
As his 1960 talk had suggested but failed to carry through and state explicitly, it was
the British parliament that provided perhaps the best example of the mix up in law
making and administration.34 The threat to freedom it represented was further
compounded by the expansion of government functions, usually as a result of the
pursuit of social justice. Here Hayek was not only arguing that bureaucracy was an
inefficient way of running the economy as Mises had.35 He was rather arguing, in a
manner redolent of the work of Jim Buchanan and Gordon Tullock, that bureaucracy,
or ‘para-government’ as he referred to it, had grown and become unaccountable even
to parliament which, having control of administration, had established bodies to do its
bidding.36 There had grown up an,
…exceedingly wasteful apparatus of para-government…consisting of trade
associations, trades unions and professional organizations, designed primarily
to divert as much as possible of the stream of governmental favour to their
members. It has come to be regarded as obviously necessary and unavoidable,
yet has arisen only in response to (or partly as defence against being
34
Hayek noted that the doctrine of the sovereignty of parliament, with the accrual of administrative as
well as rule making powers it entailed, was one of the key concerns of the American revolutionaries
but that despite this ‘American attempts to meet this difficulty’ set out the Constitution ‘have provided
only a limited protection.’ Hayek, Law, Legislation and Liberty Volume 3, 29-31.
35
Ludwig von Mises, Bureaucracy (Indianapolis, 1962).
36
Jim Buchanan and Gordon Tullock are regarded as the founders of Public Choice Theory. See James
Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional
Democracy (Michigan, 1962). Their highly influential critique of state agencies suggested that the best
way to prevent bureaucracies becoming large and unaccountable was to apply the discipline of market
rationale. The deeper implication of their work is that individual ends are best met within the market
rather than mediated by state bureaucracies. Nonetheless, some functions will still have to be
performed by the state. As such, quasi markets and other metrics of success will have to be employed.
This is the New Public Management employed by governments of the left and right since the 1980s.
See Kate McLoughlin, Stephen P. Osborne and Ewen Ferlie, The New Public Management: Current
Trends and Future Prospects (London, 2002); For a critical evaluation of New Public Management see
Mark Bevir, Democratic Governance (Oxford, 2010). Buchanan, like Hayek was very concerned with
‘rules of the game’ that might prevent abuses of power by state actors. There were however major
differences between the two. Buchanan however was less impressed by culturally evolved rules and
even advocated a 100 percent inheritance tax. Hayek does not cite Buchanan or Tullock for their work
on bureaucracy in Law, Legislation and Liberty.
206
disadvantaged in) the increasing necessity of an all-mighty majority
government maintaining its majority by buying the support of particular small
groups.37
‘Administrative agencies’ he wrote, had become ‘capable of issuing binding orders’
thus undermining the rule of law yet further. Moreover, the ‘para-government’ could
not be properly subject to Parliamentary scrutiny as representatives, constrained by
lack of time, expertise and moved by the need to please could at best give only
‘general directions’.38 The arbitrariness embodied in unaccountable bureaucracy was
antithetical to Hayek’s neo-roman conception of liberty as the absence of arbitrary
power.
In ‘A Model Constitution’, chapter seventeen of volume three, Hayek set out his
recommendations for rectifying the confusion between law making and administration
that he felt plagued the British constitution. The suggestions Hayek made would have
been familiar to those who had tuned in to the Third Programme in 1960. The first
thing to note is that once again Hayek was aware of the charge that, as a theorist who
had stressed the importance of evolutionary institutions, to propose such a novel
conception seemed self-contradictory. To this end he quotes Hume, whose own
evolutionary thought he held in the highest regard, and his ‘The Idea of a Perfect
Commonwealth’:
‘In all cases it must be advantageous to know what is the most perfect in the
37
Hayek, Law, Legislation and Liberty, Volume 3, 13.
Hayek, Law, Legislation and Liberty, Volume 3,144. This is perhaps surprising given that Hayek
recommended that Parliament should exist exactly to give ‘general directions’ while administration be
carried on separately. Hayek regarded such agencies as just another manifestation of arbitrary
government power however.
38
207
kind, that we may be able to bring any real constitution or form of government
as near it as possible, by such gentle alterations and innovations as may not
give too great a disturbance to society.’39
This however does not absolve Hayek of the charge of incoherence. His plan is not
gentle and its implementation would cause no small disturbance. Nor could it be
realised by gradual reform. In proposing a model constitution, not as some abstract
ideal but as a piece of emergency equipment that should be put in place to thwart
union power he is going far beyond the piecemeal critical rationalism of Popper,
discussed previously. He is being revolutionary. It remains inconsistent to criticise
socialists and nationalists as constructivists, to denounce the French Revolution for its
Cartesianism, and to censure an entire tradition within Western political thought,
taking in figures as diverse as Hobbes and Jefferson, for its contractarianism, only to
then devise a ‘model constitution’ because evolved institutions are not performing
according to a certain political pattern.
As in his 1960 broadcast, Hayek envisioned an upper and lower house, one concerned
with rulemaking in general, and the other with the administrative business of
government:
The one important difference between the position of such a representative
Governmental Assembly and the existing parliamentary bodies would of
course be that in all that it decided it would be bound by the rules of just
conduct laid down by the Legislative Assembly, and that, in particular, it
39
Hayek, Law, Legislation and Liberty Volume 3, 105.
208
could not issue any orders to private citizens which did not follow directly and
necessarily from the rules laid down by the latter. Within the limits of these
rules the government would, however, be complete master in organizing the
apparatus of government and deciding about the use of material and personal
resources entrusted to the government.40
Importantly the volume of government activity and the amount of money raised from
taxation would still be in the hands of the government assembly. But the nature of
government activity permitted under the law and the manner in which taxes are raised
would be specified and limited by the more general rules set down by the legislative
assembly. Hayek’s scheme is a long way from the practical politics of reconfiguring
the functions of government described by Andrew Gamble, but this limiting of the
scope rather than the volume of government does bear some notional similarity to that
process.41 However, as we shall see, the libertarian turn his thought takes means
Hayek’s vision is not that of the strong state the Conservative government sought to
create in the 1980s.
Fundamental to Hayek’s model constitution is his neo-roman conception of liberty
secured by the rule of law. He wrote:
The basic clause of such a constitution would have to state that in normal
times, and apart from certain clearly defined emergency situations, men could
be restrained from doing what they wished, or coerced to do particular things,
only in accordance with the recognized rules of just conduct designed to
40
41
Hayek, Law, Legislation and Liberty Volume 3, 119.
Andrew Gamble, The Strong State and The Free Economy (London, 1994).
209
define and protect the individual domain of each; and that the accepted set of
rules of this kind could be deliberately altered only by what we shall call the
Legislative Assembly… Such a clause would by itself achieve all and more
than the traditional Bills of Rights were meant to secure; and it would
therefore make any separate enumeration of a list of special protected
fundamental rights unnecessary.42
In this way Hayek hoped to prevent the exercise of arbitrary power.43 However, the
key question remains, what is the scale and nature of this domain? As discussed
earlier, Donald Hamowy criticised Hayek’s conception of the rule of law on the
grounds that just because a law was known and general did not necessarily make it
compatible with liberty. For example, ‘legislation prescribing the enslavement of
each male citizen for a period of two years, such enslavement to fall during the period
of his prime (say, between the ages of 18 and 36)’ would be compatible with that
criterion.44 Hayek had provided the unsatisfactory response that only coercion to
prevent worse coercion should be permitted and that such coercion should not be
regarded as inimical to liberty. How this might be agreed upon was absent. A
constitution that adopts this same conception of the rule of law is bound to be subject
to the same criticism. It may still be the case that the ‘recognised rules of conduct’
42
Hayek, Law, Legislation and Liberty Volume 3, 108-10.
To insist on a certain sphere of freedom was not in itself neo-roman. Berlin had called for much the
same. Once again, Hayek regarded held that such a sphere would be rendered null and void even if the
potential for arbitrary interference existed For Berlin the sphere was only breached when interference
occurred. This is the essence of the difference between liberty as status, as in the neo-roman concept,
and liberty as action, as in the classic negative concept. See Quentin Skinner, ’How Should we Think
about Freedom?’, A Neubauer Collegium Director's Lecture. Accessed at
https://www.youtube.com/watch?v=MvbMR5HB7BI 01.09.16. This was also a move away from
Hayek’s earlier support for a Bill of rights in The Constitution of Liberty. See Hayek, The Constitution
of Liberty, 216.
44
Ronald Hamowy, ‘Hayek's Concept of Freedom: A Critique’, New Individualist Review 1:1 (1961),
28-31; Joseph Raz makes a similar point in The Authority of Law: Essays on Law and Morality
(Oxford, 1983), 210-232.
43
210
endorse a period of enslavement. Indeed, the prevailing culture of social justice
Hayek dismissed is, in his eyes, a step on the road to just such an endorsement. There
is nothing to stop his Legislative Assembly being characterised by a similar concern
for social justice, or indeed, full blown socialism. It is simply not the case that it
would make ‘all socialist measures for redistribution impossible’.45 All it must do, on
Hayek’s terms is make laws that are both known and universal. On these terms, all
sorts of tyrannies, small and great are imaginable.
Hayek builds in other mechanisms for curtailing what he deplores as unlimited
democracy. One of these is a change in the franchise. The legislative assembly was
to be composed of those members of society who have distinguished themselves in
other fields, in ‘the ordinary business of life’ and should not be chosen in the same
manner as those sitting in the government assembly. Candidates should however only
become eligible for election when they reach the age of 45 and their terms should last
no longer than 15 years. Moreover, only their peers, those also aged 45, should be
able to vote. This means therefore that taking part in elections to the upper house
becomes a once in a lifetime event:
The result would be a legislative assembly of men and women between their
45th and 60th years, one-fifteenth of whom would be replaced every year. The
whole would thus mirror that part of the population which had already gained
experience and had had an opportunity to make their reputation, but who
would still be in their best years.46
45
46
Hayek, Law, Legislation and Liberty Vol. 3, 150.
Hayek, Law, Legislation and Liberty Vol.3, 113-114.
211
Keen, as usual, to draw classical associations Hayek wrote that,
Something like this was attempted by the ancient Athenians when they
allowed only the nomothetae, a distinct body, to change the fundamental
nomos… the term nomothetae was revived in a somewhat similar context in
seventeenth century England and again by J.S. Mill, it will be convenient
occasionally to use it as a name for that purely legislative body.47
He also hoped that ‘the formation of clubs of contemporaries’ from a relatively early
age would both engender greater sociability between classes as well as help to educate
and identify eventual candidates for election. When he wrote that ‘they would also
provide a regular channel for the expression of dissent of those not yet represented in
a Legislative Assembly’ his language was revealing.48 This was to be law making by
an elite, free of the need to seek re-election. Law was not to be the will of the people,
but the will of the nomothetae, who could be only tenuously influenced by extraparliamentary means.
4. Dethroning Politics, Enthroning Legalism
Hayek had shown himself willing to radically alter the terms of the franchise for the
Legislative Assembly, but he also applied similar logic to the lower house, the
Governmental Assembly. He had no commitment to the type of universal adult
suffrage that characterised contemporary democracies. Political freedoms do not
constitute a bedrock element of his concept of liberty. As he wrote in 1960, ‘it can
47
48
Hayek, Law, Legislation and Liberty Vol.3, 111-112.
Hayek, Law, Legislation and Liberty Vol.3, 118.
212
scarcely be contended that the inhabitants of the District of Columbia, or resident
aliens in the United States, or persons too young to be entitled to vote do not enjoy
full personal liberty because they do not share in political liberty.’49 For Hayek the
period of greatest liberty, vaguely identified as sometime in Victorian England,
predated the modern era of universal adult suffrage. Democratic processes should be
regarded as good only in procedural terms; as the most effective means of changing a
government when it becomes unpopular. But Hayek had come to regard democracy
as presently practiced, as posing a threat to free market action. As a result he
proposed further changes to the franchise. He could justify this on the basis that the
vote was not an essential aspect of liberty as he understood it:
That civil servants, old age pensioners, the unemployed, etc., should have a
vote on how they should be paid out of the pocket of the rest, and their vote be
solicited by a promise of a rise in their pay, is hardly a reasonable
arrangement. Nor would it seem reasonable that, in addition to formulating
projects for action, the government employees should also have a say on
whether their projects should be adopted or not, or that those who are subject
to orders by the Governmental Assembly should have a part in deciding what
these orders ought to be.50
Under such arrangements, as a university professor in receipt of government money,
Hayek would be disenfranchising himself. Such individuals, were their wages to be
paid by government for their entire careers, would then in effect only have the
opportunity to vote once in their lifetimes, in their 45th year. Moreover, he had earlier
49
50
Hayek, The Constitution of Liberty, 13-14.
Hayek, Law, Legislation and Liberty Vol. 3, 120.
213
expressed his concern that the structure of the modern economy, in which most
individuals are salaried employees rather than independent business people, itself
posed a threat to liberty as it did not educate them in the importance of private
property and instead cultivated a collectivist mindset, ‘They are thus relieved of some
of the responsibilities of economic life’ and
Where this class predominates, the conception of social justice becomes
largely adjusted to its needs. This applies not only to legislation but also to
institutions and business practices. Taxation comes to be based on a
conception of income which is essentially that of the employee. The
paternalistic provisions of the social services are tailored almost exclusively to
his requirements. Even the standards and techniques of consumers' credit are
primarily adjusted to them. And all that concerns the possession and
employment of capital as part of making one's living comes to be treated as
the special interest of a small privileged group which can justly be
discriminated against.51
Indeed, one of the greatest dangers in a democracy, he argued, comes from the fact
that the majority of the electorate is not composed of truly independent individuals
but instead of the comfortably employed. Such individuals, he argued,
…regard as unnecessary many exercises of freedom which are essential to the
independent if he is to perform his functions, and they hold views of deserts
and appropriate remuneration entirely different from his. Freedom is thus
51
Hayek, The Constitution of Liberty, 123.
214
seriously threatened today by the tendency of the employed majority to
impose upon the rest their standards and views of life. It may indeed prove to
be the most difficult task of all to persuade the employed masses that in the
general interest of their society, and therefore in their own long-term interest,
they should preserve such conditions as to enable a few to reach positions
which to them appear unattainable or not worth the effort and risk.52
Hayek was concerned about the entrepreneurial minority to such an extent he was
willing to restrict both the franchise and the powers of government. On the basis of
Hayek’s work then, it becomes logically sound to advocate, for the sake of liberty, the
exclusion of anyone in receipt of a salary of any kind from the franchise. Indeed, as
Gamble writes, ‘The political system he most admires, that of nineteenth century
England, had a property franchise and a gender franchise’ and ‘Hayek states that a
political system that restricts the vote to persons over forty, income earners, heads of
households, or literate persons is as much a democracy as one which confers the vote
on all adults at eighteen’.53 On the basis of Hayek’s analysis and his position that
laws need only to be known and general, it becomes possible to disenfranchise any
number of groups for any number of reasons. In such circumstances however, the
procedural value Hayek attaches to democracy also becomes meaningless.
Like his 1960 broadcast, Law, Legislation and Liberty reserved a critical role for a
constitutional court. Again, the court would decide which house should have power
over an issue when it was not clear whether it was a matter of government or law
making as ‘one could not assign different tasks to the two assemblies, unless one had
52
53
Hayek, The Constitution of Liberty, 120.
Andrew Gamble, Hayek: The Iron Cage of Liberty, (Cambridge, 1996), 94.
215
a third body deciding, in each particular instance, whose function it was.’54 The role
of judges in society generally was also to be crucial as it was to be the function of the
judge to interpret cases in such a way that allowed the legal framework to evolve. At
the bench, rather than in the Upper House, was where the majority of law would come
into being. This would place great power in the hands of the judiciary. Indeed
Richard Bellamy has gone so far as to suggest that, for Hayek, an ideal society would
be one governed solely by judges and that Hayek’s retains democratic procedures
only to ‘prevent the legal profession itself from becoming a monopoly of particular
interests’.55
Some consideration of Hayek’s own epistemological theory however suggest that
he overestimated the abilities of this judicial elite. Theodore Burczak has argued that
rule by judges would be ineffective because it would not be possible for that elite
group to acquire all the knowledge appropriate to good law making any more than it
would a dictator or for that matter an economic planner. ‘Hayek’s mistaken rejection
of democracy as a constitutive component of freedom’ writes Burczak, ‘is the result
of his overestimation of the epistemological abilities of judges.’56 The same criticism,
though in a weaker form due to the retention of an elective element, can be levelled at
Hayek’s Legislative Assembly.
John Gray has argued that Hayek sought to devise a common law Rechtsstaat and
looks to establish a tertium quid between the work of Hume and Kant by emphasising
the interpretive function of judges whilst limiting the scope of interpretation by the
54
Hayek, ‘New Nations and the Problem of Power’, 120.
Richard Bellamy, ‘Dethroning Politics’: Liberalism, Constitutionalism and Democracy in the
Thought of F. A. Hayek’, Journal of Political Science 24:4 (1994), 423.
56
Theodore Burczak, ‘Dictating Liberty’, Review of Political Economy, 26:3 (2014), 368–371.
55
216
need for rules to be universal and stable.57 Given the expanded role of government in
modern society however, Bellamy has argued it becomes increasingly difficult that to
think in the binary of general rules and directives in the way Hayek did. 58 In such
circumstances new measures are always likely to be justifiable as necessary either on
universalist Kantian grounds, or indeed resulting from the evolving needs of society
in the manner stressed by Hume. There is no reason to assume that judges would
resolve cases in the manner Hayek hopes any more than there is to assume the
Legislative Assembly would perform the way he hoped it will on the basis of his
generality criterion.
The common theme throughout Hayek’s ‘model constitution’ is faith in governing
and judicial elites. This is remarkable given that he viewed a large part of his
intellectual mission to warn against the danger of government by ‘experts’. However,
those were experts of a leftist stripe. In his idealised system his idealised elite would
govern in a manner sensitive to an idealised market. However, that he should imagine
his elite would govern in such a way ignores a whole series of public choice warnings
about the nature of government.59 Again this is remarkable given that The Road to
Serfdom can be seen, as Peter Boettke and Edward Lopez have argued, as a
forerunner of the public choice literature.60 James Buchannan and Gordon Tullock,
both members of Hayek’s Mont Pèlerin Society, demonstrated the self-interestedness
57
John Gray, Hayek on Liberty (Oxford, 1984), 7.
Bellamy, ‘Dethroning Politics’, 473.
59
Andrew Farrant and Edward McPhail make this point with reference to Hayek’s apparent faith in
certain dictators, which will be addressed below. However, the criticism can be applied to his
constitutional scheme more broadly. See Andrew Farrant and Edward McPhail, ‘Can a Dictator Turn a
Constitution into a Can-opener? F.A. Hayek and the Alchemy of Transitional Dictatorship in Chile’,
Review of Political Economy 26:3(2014), 331-348
60
Peter J Boettke and Edward J Lopez, ‘Austrian Economics and Public Choice’, The Review of
Austrian Economics, 15:2/3, (2002), 111–119.
58
217
of elected officials and civil servants in the ’60 and ‘70s.61 While their work relies
too heavily on a conception of homo economicus to the exclusion of ethics almost
entirely, Hayek finds himself in strange, almost Fabian, company if he imagines that
virtue and expertise, rather than public accountability, will produce good law making.
Given Hayek’s regard for the pre democratic age when government was the preserve
of elites perhaps all this should however be unsurprising. As Bellamy observes
however,
A return to an idealized version of the notable politics of the late eighteenth
and early nineteenth centuries, in which a few basic rules are set out by
members of a public-spirited elite, hardly seems appropriate to the tasks of
modern big governments.62
Yet Hayek did not want big government. Despite holding that the legislative
assembly would limit the scope of government power rather than the extent, his is
really a vision of a society where the market is the appropriate sphere of individual
action and agency, not the political arena. It is a vision of a market society overseen
by judges where government activity is peripheral and the preserve of an elite. To
portray the system, as Hayek does, as one of legal equality ignores all actual
inequalities in power, and the consequent capacity to interpret and shape the law that
entails. In the words of Cristi,
The Rule of Law that presides over this concrete and particular order of things
61
62
Gordon Tullock, Bureaucracy (Indianapolis, 2005).
Bellamy, ‘Dethroning Politics’, 435.
218
is surely blind to its own particularity. I see in this, though, more than just a
natural blindness: it is a disturbingly clear-sighted will and desire not to see.63
Although Hayek spent his career warning of the dangers of arbitrary public power, his
model constitution magnifies the potential for just such imperium. It places huge,
largely unchecked, power in the hands of a governing and judicial elite, leaving the
people with very little means of redress. It removes what Philip Pettit has described
as the ‘tracking’ function that democracy performs. It makes people dependent upon
the arbitrary will of governors as they have no way of removing them. Even then on
the basis of his own partial understanding of neo roman liberty, Hayek’s elitist model
constitution is a failure.
5. Liberal Authoritarianism
Hayek gives little guidance on how his model constitution might be enacted. If
Cristi and Scheuerman have noted similarities in Hayek’s and Schmitt’s work, it is
Farrant and McPhail who have demonstrated just how close Hayek comes to Schmitt
in his support for authoritarian regimes and the concept of ‘the transitional dictator’
who can undo socialism and restore free market action. However, they are unclear as
to whether the transitional dictatorship is required for the implementation of the
model constitution or whether the model constitution itself retains an in-built potential
for dictatorship. In fact, only the former of these is the case. Hayek seemed to
support a period of ‘strong state’ transition to be followed by a period in which the
strength of the state would wither following the implementation of his model
63
F.R. Cristi, ‘Hayek and Schitt on the Rule of Law’ Canadian Journal of Political Science / Revue
canadienne de science politique 17:3 (1984), 534.
219
constitution and as his money scheme took effect. The first phase would serve to
unwind the coils of social democracy, removing the encumbrances and of the
expanded responsibilities Schmitt had diagnosed as being fatal to liberal government.
It is likely a period of policing the market would also have to follow that. In the
longer term however, Hayek’s constitution was not designed to produce a government
that would work actively to bring about the best environment for competition. That
Ordoliberal strand of his thought had gone. The distinction between government and
law making, the lack of responsiveness of the upper chamber and the prominent role
of judges all militate against active government.64 Moreover, while Hayek’s
constitutional model does not have the same libertarian leanings as his money
scheme, it does still envisage highly decentralised forms of governance.65 With
general rules laid down by a Legislative Assembly,
Most service activities now rendered by central government could be devolved
to regional or local authorities which would possess the power to raise taxes at
a rate they could determine but which they could levy or apportion only
according to general rules laid down by a central legislature. I believe the
result would be the transformation of local and even regional governments
into quasi- commercial corporations competing for citizens. They would have
to offer a combination of advantages and costs which made life within their
territory at least as attractive as elsewhere within the reach of its potential
64
Unlike Schmitt, Hayek seeks to build safeguards against decisionism into his constitution by
separating the proclamation and cessation of emergency powers from their exercise, splitting authority
between the Legislative Assembly and the Governmental Assembly respectively Hayek, Law,
Legislation and Liberty, Vol. 3, 124-125.
65
In the preface to the combined volumes of Law, Legislation and Liberty Hayek notes the importance
of the then recently published libertarian work by Robert Nozick, Anarchy, State and Utopia (Oxford,
1974), but commenting that responding to it systematically would require yet another re-writing of his
work. Law, Legislation and Liberty p.xvii. In the same passage he makes reference both to John Rawls’
A Theory of Justice and Michael Oakeshott, On Human Conduct (Oxford, 1975).
220
citizens… To re-entrust the management of most service activities of
government to smaller units would probably lead to the revival of a communal
spirit which has been largely suffocated by centralization. 66
It was on this basis, and with these hopes in mind, that Hayek was able to endorse the
regimes of a number of authoritarian rulers.67 He regarded the threat to liberalism
constituted by the trade union capture of democratic institutions to be so severe in
many countries that it required a period of dictatorial power. In his talk about new
nations, Hayek spoke approvingly of the Portuguese Prime Minister, António de
Oliveira Salazar in his Third Programme broadcast. Portugal could hardly be
considered a new nation, but when discussing his nascent idea for the separation of
law making and government Hayek opined that,
one can conceive of a man like Salazar in Portugal, anxious to bring things
into a situation which can last for a long time, adopting this sort of principle
and transferring to a democratically elected assembly those limiting powers I
am suggesting, and feeling much more reassured than if he had to restore the
kind of system where the legislature had unlimited powers and could do what
it pleased.68
66
Hayek, Law, Legislation and Liberty, Vol.3, 146. Peter Boettke has sought to show how these aspects
of Hayek’s work can provide a common research programme with the studies of Elinor and Vincent
Ostrom (combined with the public choice theory of Buchannan and Tullock) and their attempts to
establish polycentric orders of governance. See See Peter Boettke, ‘Political Economy and the Science
of Association’, The Review of Austrian Economics 27:1 (2014), 97-110; Vincent Ostrom, The
Political Theory of a Compound Republic (Lanham, 2008); Elinor Ostrom, Governing the Commons:
The Evolution of Institutions for Collective Action (Cambridge, 2011).
67
See also Benjamin Selwyn, ‘Friedrich Hayek: in defence of dictatorship’ (9 th June, 2015) Accessed
at https://www.opendemocracy.net/benjamin-selwyn/friedrich-hayek-dictatorship 04.07.16.
68
Hayek, ‘New Nations and the Problem of Power’, 820.
221
By 1960 however, the only situation that had lasted for a long time in Portugal was
Salazar’s own rule.69 As prime minister, Salazar had acted as the authoritarian ruler of
Portugal from 1932 and would continue to do so until 1968. Hayek’s support for him
is at first surprising. It is true that Salazar governed with a veneer of constitutional
respectability following the implementation, by plebiscite, of a new constitution in
1933 but this is hardly an unusual move for a dictator. In reality, Salazar’s rule was a
period devoid of free or fair elections and of prevalent police repression. The 1930s
had seen the regime ape the Italian fascist organisations of Italy and Germany with
the Portuguese Legion and Portuguese Youth organisations, replete with fascist
salutes and uniforms. Hayek had earlier denounced such groups as symptoms of
serfdom, but by 1960 apparently all was forgotten. The constitution Salazar
introduced was, moreover, avowedly corporatist, espousing ideas that were anathema
to Hayek’s emphasis on free market action. Like Hayek, Salazar had been a professor
of economics in the 1920s but unlike Hayek he was no believer in free trade. Even as
Hayek gave his broadcast on the BBC, a second Plano de Fomento, the Portuguese
version of the Soviet Five Year Plans, was already underway.70
As a champion of a conservative brand of Catholic social doctrine Salazar was
decidedly not a liberal but wished instead to ‘proscribe definitely liberalism’.71 All
this makes Hayek’s approval of the regime superficially surprising. However, his
support becomes more intelligible when it is understood that the interpretation of
liberalism Salazar disliked was precisely that Hayek disliked. It was that born of false
69 A.H. de Oliveira Marques, History of Portugal, Vol. 2: From Empire to Corporate State (Columbia,
1972); James Anderson The History of Portugal (London, 2000); Tom Gallagher, ‘Controlled
Repression in Salazar’s Portugal’, Journal of Contemporary History 14:3 (1979), 385-402. See also
Pedro Pinto Lisbon Rising: Urban Social Movements in the Portuguese Revolution, 1974–75
(Manchester, 2013).
70
Oliveira Marques, History of Portugal, 182.
71
Salazar in speech from 1934 quoted in Oliveira Marques, History of Portugal ,183.
222
individualism and unlimited popular sovereignty that led to ‘partisan or social
struggles.’72 Salazar had come to power six years after a 1926 coup, the result of
dissatisfaction with the ‘unlimited’ but ineffectual democracy of the First Portuguese
Republic. He had saved Portugal, in Hayek’s terms, and in Schmitt’s too, from a
‘crisis of parliamentary democracy’ of the sort which Hayek warned ‘new nations’
might face in 1960, and which he subsequently insisted Britain faced in the 1970s. In
1962 Hayek sent Salazar a copy of The Constitution of Liberty along with a note
wishing him well ‘in his endeavour to design a constitution which is proof against the
abuses of democracy.’73 Notwithstanding, there was however to be no new
constitution under Salazar or under his successor Marcelo Caetano. Three years
earlier there had however been an amendment to the 1933 constitution that placed
responsibility for the election of the president in the hands of a small body of electors
rather than the people, whose free vote was already utterly compromised.74 Given his
subsequent approval of the regime Hayek could hardly have been opposed to this
particular ‘dethronement of politics’.
Salazar was not the only authoritarian figure Hayek was sympathetic to. In 1967, in a
letter to The Sunday Times, he defended General Suharto’s new regime which had
been established that year in Indonesia following a coup. The new government
should not be thought of as simply a military imposition, he argued, as its members
were ‘mostly not what we would regard as military men. They are in many instances
men coming from other professions who in the fight for independence have risen in
rank and remained in the army to ward off communism.’75 As Farrant and McPhail
72
Oliveira Marques, History of Portugal, Vol. 2, 183.
Letter from Friedrich Hayek to Salazar (1962) Hayek Archives Box 47 Folder 59.
74
A.H. de Oliveira Marques, History of Portugal, 223.
75
Friedrich Hayek ,‘The Generals’ Letter to The Sunday Times (5th November 1967).
73
223
note, Hayek approved of a recent article in The Sunday Times by Henry Brandon,
which described appreciatively how the new regime was denationalising industries
and welcoming foreign investment.76
If denationalisation and encouraging foreign investment were markers of an
authoritarian liberalism of which Hayek could approve, six years later he would
recognise them again in another military regime, this time in Chile. In September
1973, General Augusto Pinochet deposed the democratically elected government of
Salvador Allende. Allende, a socialist, who had been elected president in 1970, at the
head of a popular unity government composed mainly of socialist and communist
parties.77 The radical programme of the unity government exacerbated long-standing
divisions in the country. Inflation, as in most parts of the developed world, was high
and rising. In this context the government sought first to make goods and money
available to those from lower socio economic groups. It proceeded to bring important
industries under state control and the production of low cost high-end consumer
goods became a priority. Minimum wages were increased across many industries to
keep pace with inflation. All of this also took place alongside a radical programme of
land redistribution that had begun under Allende’s predecessor, Eduardo Frei
Montalva.78 These policies, combined with the continuing national and global
economic crisis stoked business and middle class resentment resulting in a major
strike in protest at government actions in March 1972. This led to Allende inviting
members of the military into the government and the commander in chief of the army
General Prats joined the cabinet. He however was forced to resign by antigovernment elements within the military and was replaced by Pinochet. The details
76
Farrant and McPhail, ‘Can a Dictator Turn a Constitution into a Can Opener?’, 336.
Carlos Huneeus, The Pinochet Regime (London, 2007), 33.
78
Paul Sigmund, The Overthrow of Allende and the Politics of Chile 1964-1976 (Pittsburgh, 1977).
77
224
surrounding the eventual takeover by Pinochet and his military collaborators are
complex and the full role of outside actors such as the U.S. Central Intelligence
Agency remains uncertain.79 What is known is that the treatment of left wing activists
and trade unionists that followed the coup was brutal: thousands were murdered and
many thousands more imprisoned, tortured and exiled.80
For Hayek, events in Chile leading up to the coup had been further confirmation of
the dangers of unlimited democracy and Allende’s reforms had only proved the
distinction between liberalism and democracy. Hayek made two trips to Pinochet’s
Chile, one in 1977 and another in 1981. His appraisal of the regime there has been a
source of much controversy. 81 The conservative Chilean newspaper El Mercurio
covered Hayek’s November 1977 visit to the country during which he met with
Pinochet. The paper reported that during a conversation with the General, Hayek,
told reporters that he talked to Pinochet about the issue of limited democracy
and representative government. . . . He said that in his writings he showed that
unlimited democracy does not work because it creates forces that in the end
destroys democracy. He said that the head of state listened carefully and that
he had asked him to provide him with the documents he had written on this
issue.82
79
Jonathan Haslem, The Nixon Administration and the Death of Allende’s Chile: A Case of Assisted
Suicide (London, 2005).
80
Report of the Chilean National Commission on Truth and Reconciliation. Accessed at
http://www.usip.org/sites/default/files/resources/collections/truth_commissions/Chile90Report/Chile90-Report.pdf on 05.05.16.
81
For an entry point into the discussion see Corey Robin, ‘Hayek von Pinochet’ Accessed at
http://coreyrobin.com/2012/07/08/hayek-von-pinochet/ also http://crookedtimber.org/2013/06/25/thehayek-pinochet-connection-a-second-reply-to-my-critics/ 25.09.15.
82
‘Premio Nobel Friedrich von Hayek’, El Mercurio (November, 1977), 27–28. Hayek Archive Box 38,
Folder 1.
225
Hayek had delivered a similar message in Argentina, the country he had visited before
travelling to Chile. In an interview there, with the magazine Somos, he said ‘generals
had been forced to take power [in] Argentina, Bolivia, Brazil, Chile and Uruguay’ in
order to save the countries from the ravages of unlimited democracy.83 On his return
to Europe, Hayek wrote two letters to The Times in which, mentioning Pinochet by
name, he continued to assert the greater danger of an illiberal democracy than a
supposedly liberal authoritarianism.84
Charlotte Cubitt, Hayek’s personal secretary from 1977 until his death in 1992,
recalled in her memoirs that he ‘took time off from his official commitments to walk
around and see for himself whether people were cheerful and content. He told me that
it was the sight of many sturdy and healthy children that had convinced him’ that
Chile was on the right track. She also revealed that Hayek did indeed find the
documents Pinochet had asked for. Just as he had sent The Constitution of Liberty to
Salazar, so Hayek sent a draft of his chapter ‘A Model Constitution’ to Pinochet two
years prior to its publication.85 One can only guess whether Pinochet took the time to
read it, but according to Karin Fischer, the constitution enacted in September was
named after Hayek’s 1960 work, The Constitution of Liberty. 86 In fact this title is
missing from the official document but it was referred to as such in popular and
83
Friedrich Hayek, ‘La inflacion es la mayor amenaza contra la liberdad’, Somos (25th November
1977), 32–36. Quoted in Farrant and McPhail ‘Can a Dictator turn a Constitution into a Can Opener?’,
337.
84
Friedrich Hayek, ‘The Dangers to Personal Liberty’ letter to The Times (11th July 1978); Friedrich
Hayek, ‘Freedom of Choice’ letter to The Times (3rd August 1978).
85
Charlotte Cubitt, A Life of Friedrich August von Hayek (Bedfordshire, Authors On Line, 2006),19.
86
While the direct influence of Hayek on Chile is perhaps debateable, the impact of another branch of
the neoliberal family, the Chicago school of economics, is clear. Inspired by the writing of Milton
Friedman and his colleagues a group of Chilean economists, who became known as ‘The Chicago
Boys’, put in place many of the monetarist policies and associated measures he recommended. See
Karin Fischer, ‘The Influence of Neoliberals in Chile before, during, and after Pinochet.” In The Road
From Mont Pelerin: The Making of the Neoliberal thought Collective (eds.), Philip Mirowski and
Dieter Plehwe (Harvard, 2009), 305-346.
226
official circles.87 On his return from Chile, Hayek published an essay in which he
was sympathetic to the Chilean regime, ‘Internationaler Rumford’, which can be
translated roughly as ‘International Calumny’.88 Fischer has argued that he openly
defended Pinochet although the truth is that Hayek was careful not to go this far.
Instead he sought to highlight what he regarded as the hypocrisy of the western press
in its treatment of Chile compared to Communist regimes. Nonetheless, the editor of
the Frankfurter Allgemeine Zeitung, Germany’s leading free market newspaper,
refused to print it as was deemed too favourable to the dictator.89
It was during this period that Hayek seemed to fully embrace the concept of what
Farrant, McPhail and Berger have described as ‘the transitional dictator’. On his
return to Europe, Hayek wrote a letter to The Times stating:
…that in some historical circumstances personal liberty may not have been
better protected under an authoritarian than democratic government. This has
occasionally been true since the beginning of democracy in ancient Athens,
where the liberty of the subjects was undoubtedly safer under the ’30 tyrants’
than under the democracy which killed Socrates and sent dozens of its best
men into exile by arbitrary decrees. In modern times there have of course been
many instances of authoritarian governments under which personal liberty was
safer than under democracies. I have never heard anything to the contrary of
the early years of Dr Salazar’s early government in Portugal and I doubt
87
For example, see a country study compiled for the U.S. Library of Congress: Rex A. Hudson, Chile:
A Country Study (Washington, 1994).
88
Friedrich Hayek, ‘Internationaler Rufmord’, Politische Studien 1 (1978), 44-45.
89
Andrew Farrant, Edward McPhail, and Sebastian Berger, ‘Preventing the “Abuses” of Democracy:
Hayek, the “Military Usurper” and Transitional Dictatorship in Chile?’, American Journal of
Economics and Sociology, 71:3 (2012), 515.
227
whether there is today in any democracy in Eastern Europe or on the
continents of Africa, South America or Asia (with the exception of Israel,
Singapore and Hong Kong), personal liberty as well secured as it was then in
Portugal. More recently I have not been able to find a single person even in
much maligned Chile who did not agree that personal freedom was much
greater under Pinochet than it had been under Allende. Nor have I heard any
sensible person claim that in the principalities of Monaco or Lichtenstein,
which I am told are not precisely democratic, personal liberty is smaller than
anywhere else!90
Nicholas Kaldor, the Keynesian inspired economist and a fellow émigré from central
Europe who had also been a former colleague of Hayek at the L.S.E., responded in
The Times to Hayek’s assessment,
Chile is a dictatorship equipped with secret police, detention camps, etc.
where strikes are ruled out and the organization of workers in trade unions is
prohibited . . . if we take Professor Hayek literally, a fascist dictatorship of
some kind should be regarded as the necessary precondition . . . of a “free
society.”91
While Hayek did not explicitly endorse the apparatus of dictatorship, and maintained
that the best constitutional arrangement is ‘limited democracy’, there is some truth in
Kaldor’s criticism. By limited democracy Hayek by then had in mind his ‘model
90
91
Friedrich Hayek, ‘Freedom of Choice’.
Nicholas Kaldor, ‘Chicago Boys in Chile’ Letter to The Times. (18th October 1978).
228
constitution’ and it increasingly seemed that he did indeed view dictatorship as a
necessary ‘precondition’ for its realisation.
When Hayek returned to Chile in 1981 he gave two interviews to El Mercurio. In
these he referred again to his intellectual history of Whig liberalism. The ‘tradition in
South America’ he informed the interviewer, is overly influenced by the rational
constructivism of ‘the French Revolution . . . a tradition that lies . . . in maximum
government power.’ Hayek went on, ‘South America has been overly influenced by
the totalitarian type of ideologies . . . this includes . . . Jeremy Bentham, who
effectively believed in the deliberate organization of everything.’ Accordingly, Latin
America ‘sought to imitate the French democratic tradition, that of the French
Revolution, which meant giving maximum powers to government”.92 Yet in
endorsing Pinochet, Hayek’s argument for the ‘Whig doctrine of the rule of law’
becomes its inverse, it becomes an argument for dictatorship:
As long-term institutions, I am totally against dictatorships. But a dictatorship
may be a necessary system for a transitional period. At times it is necessary
for a country to have, for a time, some form or other of dictatorial power. As
you will understand, it is possible for a dictator to govern in a liberal way. And
it is also possible for a democracy to govern with a total lack of liberalism.
Personally, I prefer a liberal dictator to democratic government lacking in
liberalism. My personal impression . . . is that in Chile . . . we will witness a
transition from a dictatorial government to a liberal government . . . during
this transition it may be necessary to maintain certain dictatorial powers, not
92
‘Lider y Maestro del Liberalismo Economico’, El Mercurio (12th April 1981) D9.
229
as something permanent, but as a temporary arrangement.93
Hayek regarded Pinochet as an ‘honourable general.’94 In the interviews however
Hayek recognised that any return to the rule of law, preferably structured around his
model constitution depended on the ‘good faith’ of the dictator. This is remarkable
for a man who had spent the earlier part of his career, most forcefully in The Road to
Serfdom, warning of the dangers of dictatorship and had argued, as Farrant, McPhail
and Berger observe that under such regimes ‘a readiness to do bad things becomes a
path to promotion and power.’ 95 Hayek had likewise dismissed Dickenson in the
‘30s, for imagining that socialist dictatorship could lead to libertarian socialism.
When the dictator believed in the free market however, it seemed Hayek was willing
to reverse his position going so far as to insist that ‘democracy needs “a good
cleaning” by strong governments.’96 When a Venezuelan interviewer asked in 1981
about the proliferation of ‘totalitarian’ regimes in South America Hayek responded,
Don’t confuse totalitarianism with authoritarianism. I don’t know of any
totalitarian governments in Latin America. The only one was under Allende.
Chile is now a great success. The world shall come to regard the recovery of
Chile as one of the great economic miracles of our time.97
93
‘Lider y Maestro del Liberalismo Economico’, D9.
Farrant, McPhail, Berger, ‘Transitional Dictatorship’, 346.
95
Farrant, McPhail, Berger, ‘Transitional Dictatorship’, 528-529.
96
Farrant, McPhail, Berger, ‘Transitional Dictatorship’, 533.
97
Ebenstein, Hayek, 300.
94
230
In fact Chile did not prove to be an ‘economic miracle’. In 1982-3 severe recession
returned.98 Although in the longer term Chile has performed relatively well
economically, its exposure to international trends has always been the decisive factor,
a situation made more pronounced by the reforms carried out under Pinochet, for
good or ill.
Despite the recession in Chile, Hayek had been impressed by developments there to
such an extent that he may have gone further than simply regarding his model
constitution as a proper fit for Britain. It is quite possible he also come to regard its
authoritarian imposition, in the manner he had endorsed elsewhere, as also necessary:
what was good for Chile might also be good for Britain. In 1982 he wrote to Margaret
Thatcher with some advice. The letter is missing from the archives but her reply is
not. While she agreed that Chile,
offered many lessons…However I am sure you will agree that, in Britain with
our democratic institutions and the need for a high degree of consent, some of
the measures adopted in Chile are quite unacceptable. Our reform must be in
line with our traditions and our Constitution. At times the process may seem
painfully slow. But I am certain we shall achieve our reforms in our own way
and in our own time. Then they will endure.99
98
Gabriel Salazar and Julio Pinto, Historia Contemporánea de Chile III. La Economía: Mercados
Empresarios y Trabajadores (Santiago, 2004), 49-62.
99
Letter from Margaret Thatcher to Friedrich Hayek (1982) Hayek Archive Box 101, Folder 26. It
could reasonably be asked to what extent the government did remain within the constitution and the
rule of law, as Thatcher insisted it must. She has been accused of a presidential style premiership and
the conduct of the police during her time in office remains highly questionable. For example, at the
time of writing there are at the present time growing calls for a public inquiry into the conduct of West
Yorkshire police during the miner’s strike. The conduct of the police, pa See for example, David Conn,
‘Orgreave Inquiry Calls Grow After Damning Hillsborough Verdict for Police’. Accessed at
231
What Hayek suggested is unclear. Farrant, Berger and McPhail suggest that he may
have been suggesting severe anti-union legislation. He had however already written
to her on the subject previously, even suggesting a referendum to attempt to gain
public assent, but his advice had been politely declined.100 Given this, and all that he
had said recently about the need for a radically different form of democracy, it is not
unimaginable Hayek was suggesting that the government acquire emergency powers
allowing it to reshape the British constitution in a much more fundamental way.
Charlotte Cubitt wrote that she thought Thatcher’s rebuff must have been painful for
Hayek, as he did not show her the letter for at least two weeks ‘and even asked me
whether he needed to reply to it. I said I thought not because I could not imagine what
he could possibly say to her.’ 101
In advocating a form of transitional dictatorship Hayek comes into agreement once
more with Schmitt.102 Not however the mature Schmitt of The Guardian of The
Constitution, but the younger Schmitt of Die Diktatur, published in 1921. 103 In that
earlier work Schmitt had described, ‘the classical Roman institution of dictatorship as
a theoretical-historical standard for emergency measures that preserve a constitutional
http://www.theguardian.com/politics/2016/may/16/orgreave-inquiry-calls-grow-after-damninghillsborough-verdict-for-south-yorkshire-police 25.06.16.
100
Ebenstein, Hayek, 292.
101
Cubitt, A Life of Friedrich August von Hayek, 19.
102
Neo-republicans might point out that the notion liberty and dictatorship can coexist accords with
Berlin’s concept of non-interference. One remains free so long as one is not interfered with even under
dictatorship, as Berlin himself observed. See Philip Pettit ‘The Instability of Freedom as
Noninterference: The Case of Isaiah Berlin’, Ethics 121:4 (2011), 714. It is the very essence of
republicanism, they argue, that it rejects the potential for arbitrary power that accompanies such
dictatorship. Hayek however felt dictatorship could be consistent with liberty not simply if it did not
result in interference. For him it was a bulwark against arbitrary power, and even the potential for
interference, which he perceived as emanating from unlimited democracy.
103
Carl Schmitt, Dictatorship (Cambridge, 2013).
232
order in a time of dire crisis.’104 A legally constituted dictatorship was how the office
was originally understood during the Roman republic, and Hayek viewed it in a
similar manner.105 However, rather than preserving the existing constitutional order,
he hoped that the dictator would, like the law-givers of old, introduce a new ‘model
constitution’.106
Hayek’s support for authoritarian regimes must be considered in light of his partial
neo-roman understanding of liberty and the way in which he used his reading of the
past for contemporary political purposes. It was democracy that had resulted in
government exercising arbitrary power and undermining liberty in its attempts to
shape the economy. In order to counter this Hayek was counter intuitively willing to
place even greater power in the hands of government actors, whether that be in the
form of the transitional dictator or one of his nomothetae. All Hayek’s claims about
the importance of liberty, understood as the absence of arbitrary government power,
are compromised. In this however he is not alone in the neo-roman tradition. What
was fundamental for Hayek was free market action. He had developed his concept of
liberty in order to defend free market action from those on the left who might use
government power. In a changed context, with that power in the hands of those
primarily concerned to encourage free market action, his insistence on liberty, as the
absence of arbitrary government power, became superfluous. While Hayek retained
the hope that free market dictators would eventually introduce his model constitution,
104
John McCormick, ‘The Dilemmas of Dictatorship: Carl Schmitt and Constitutional Emergency
Powers’ Canadian Journal of Law and Jurisprudence 10:1 (1997) 163. McCormick goes on to show
how, even by the following year, in Political Theology Schmitt was advocating ‘a potentially allpowerful sovereign who not only must rescue a constitutional order from a particular political crisis but
also must charismatically deliver it from its own constitutional procedures.’
105
. See Andreas Kalyvas, ‘The Tyranny of Dictatorship: When the Greek Tyrant met the Roman
Dictator’, Political Theory 35:4 (2007), 412-442.
106
Hayek makes favourable reference to Solon at various stages in Hayek, The Constitution of Liberty,
164; 166; 460.
233
dethroning politics de jure rather than simply de facto, his sustained support for such
rulers indicates where his priorities lay.
234
Conclusion
This thesis has shown how Hayek’s initial concern with free market action led him to
adopt a neo-roman concept of liberty and it has traced how this development informed
his writing about the relationship between government, democracy and the economy.
An awareness of how Hayek’s definition of liberty developed enables us to structure
his intellectual career and leaves us more informed about the type of political
philosophy that underpinned his political interventions. It helps to explain how
Hayek’s thought culminated in the proposal of his intellectual emergency equipment
and why it took the form it did. Above all it was designed to end arbitrary
government power by removing its control of the money supply while limiting the
extent of democratic influence. Hayek’s defence of dictatorship however shows that
he was willing to abandon his concept of liberty when he felt his more fundamental
concern, free market action, was being promoted. Second, the thesis has contributed
to the significant, on-going debate about the relationship between liberalism and
republicanism. Third, it has thrown new light on Hayek’s relationship with the work
of Carl Schmitt and the Ordoliberal School by reading their influence alongside the
development of Whiggism and the neo-roman concept in his thought.
Before arriving at his neo-roman definition of liberty, Hayek had sought to defend
free market action from two potential threats: government and its growing desire to
intervene and shape the economic order; and democracy’s tendency to undermine
liberal government, encouraging those interventionist tendencies. Chapter one
explored how liberalism as a political and intellectual movement had, by the 1920s,
progressed from a focus on economic freedom to a concern for self-development and
235
how, for Hayek, this had resulted in a move away from liberalism’s proper core
concern, economic freedom. It also explored his early work and how, while in the
U.S., he had first developed his arguments against financial management of the
market by central banks. It went on to explore how these ideas appealed to Lionel
Robbins at the L.S.E. who invited Hayek to lecture there. This period was marked by
Hayek’s dispute with Keynes and the new ideas coming out of Cambridge about how
best to deal with the global economic crisis. For Hayek, who retained an idealised
view of the economy as self-correcting and tending towards equilibrium, the best
thing to do was to allow market actors to pursue their ends in the absence of
government action. From the mid-‘30s onwards Hayek also became engaged on
another front, confronting the much more radical ideas of those who wished to plan
the economy more comprehensively. This work led Hayek towards his
epistemological conception of the market in ‘Economics and Knowledge’. The
chapter considers how the lecture served as a catalyst to Hayek’s more expansive
considerations of the rule of law and the liberal tradition and ultimately, his concept
of liberty.
Chapter two turned to the related danger of ‘unlimited democracy’. It explored how
many politicians in Britain were promising the electorate a middle way between
laissez faire and full scale planning on the Soviet model, and how, for Hayek, this
was dangerous nonsense. It also set out the development of Hayek’s analysis of
Nazism, which culminated in The Road to Serfdom. The influence of Carl Schmitt on
Hayek’s own distinction between liberalism and democracy as separate traditions
received particular attention. It showed how Hayek sought to resolve the ‘Schmittian
dilemma’ of how the two might coexist by turning to the work of the Ordoliberals.
236
The chapter ended with a consideration of how many British readers of The Road to
Serfdom struggled to recognise the very German analysis of the British political
scene. Nonetheless, what Hayek’s work over the 1930s had impressed on him was
that free market action was at risk of being undermined by the possibility contained
within the democratic system of government power being used to shape the economy
for political ends.
The content of chapter three provided the crux of the thesis. Having established the
importance of free market action Hayek sought to establish what, in the face of
ambitious governments and unlimited democracies, would be needed to preserve it.
This also involved an historical task, establishing how and why free market action had
come to be undermined by those who claimed to be liberals. Hayek identified a ‘true’
and ‘false’ liberalism. The first, which had promoted economic freedom, he traced
back to the Whigs. The second, which had worked to undermine it, he associated
with French rationalism, and he set out how it had entered into British liberal thought.
The chapter charted how Hayek conducted a campaign of decontestation, in an
attempt to win the language of liberalism for his own true tradition. It continued with
a demonstration of how, while exploring the work of Whig authors, Hayek
encountered the neo-roman concept of liberty. He hoped that by defining and
popularising this understanding of liberty it would be possible to preserve free market
action. Hayek was however concerned only with the threat of government power. So
long as ‘the Whig doctrine of the rule of law’ existed, he believed, private actors
could not undermine economic freedom. In this he was supported by the wealthy and
well educated Whig authors on whose work he drew. As a result he developed a
version of the neo-roman concept that was partial. In Pettit’s terms he recognised
237
only public power or imperium, and not private power, dominium. This interpretation
confirmed Hayek’s mistrust of government and lent it some historical and intellectual
legitimacy. With this definition of liberty in place he continued to assertively critique
what he regarded as a relationship between government, democracy and the economy
that was too close, and offered some radical proposals to break those links.
The initial spur that would lead to Hayek’s intellectual emergency equipment was his
critique of social justice, as was explored at the outset of chapter four. For Hayek this
was an empty creed that allowed socialists and trade unions to make a supposedly
moral case for their redistributive plans. Social justice was, he argued, the opposite of
real justice, or equality before the law, as it required that different groups be treated in
different ways. It also gave legitimacy to arbitrary government power and was thus
inimical to his neo-roman definition of liberty. Moreover, the economic effect of
social justice was a rise in inflation and this further frustrated free market action by
disturbing the economic order. By the early 1970s, an inflationary crisis had
developed. The chapter outlines how in this context, and motivated by a belief that
inflation threated not just liberty but civilisation, Hayek proposed his first piece of
intellectual emergency equipment: the denationalisation of money. The chapter
concludes by considering how this radical, even utopian scheme was received coolly
even by Hayek’s new allies in the Conservative Party who had no desire to give up
power over money.
Chapter five addressed Hayek’s second piece of intellectual emergency equipment,
his model constitution. Initially Hayek had proposed that his ideas only be applied to
‘new nations’, yet his warnings of the dangers of democratic government to liberty
238
and to the economy were based upon an analysis of Britain and the particular
problems posed by parliamentary sovereignty. Eventually, having been radicalised by
the enduring appeal of social justice, trade union militancy and the inflationary crisis,
Hayek came to the position that even in Britain a radically new constitutional
arrangement was required: one that limited ‘unlimited’ democracy and achieved the
‘dethronement of politics’. In this way he hoped to end the arbitrary power of
government and thus entrench a regime of liberty, preserving free market action.
Consideration was also given to how Hayek gave no clear outline of how this new
arrangement was to be achieved. However, in his support for dictatorships and
‘liberal authoritarianism’ we can surmise it was by some extraordinary measures that
most, including Margaret Thatcher, were unwilling to countenance. When those who
wished to promote free market action wielded arbitrary government power, his neoroman concept of liberty became less important even if his longer term, utopian,
vision remained one of the weak state and the free market.
An understanding of Hayek’s concept of liberty allows us to better appreciate the
nature of the ideological closures in his work and, consequently, to open them up.
Integrating a fully developed neo-roman concept into his thought is fruitful both from
the perspective of Hayek studies and for those who seek to demonstrate the
application of the concept to matters of contemporary political theory. In particular,
there has been significant engagement with Hayek from theorists on the left who have
recognised the radical potential of his epistemology.1 Indeed, Andrew Gamble has
written that Hayek’s epistemological view of the market lends itself to a renewal of
socialism and that, though he himself resisted them, ‘the implications of his theories
1
This has recently been detailed in Simon Griffiths, Engaging Enemies: Hayek and the Left (London,
2014).
239
are towards decentralized, local forms of governance and the need to reinforce (if not
create) institutions which can coordinate the information and decisions of individual
agents and lead to outcomes that benefit the whole society.’2 Understanding the neoroman nature of Hayek’s definition of liberty can guide us in building these
institutions. Rather than seeking only to learn from Hayek’s insights about the nature
of knowledge, but discarding his concept of liberty as inappropriate to a redistribution
of wealth and power, we should develop that concept to its fullest and consider his
work as an intellectual vehicle for such an endeavour, even if Hayek himself would
have been an unwilling driver.
Considering Hayek’s epistemological insights can radicalise our interpretation of the
neo-roman concept. Most neo-republicans, led by Pettit, are concerned with
government and have focussed on establishing a constitutional and legal framework
that protects against both dominium and imperium. No doubt this is necessary for
liberty to flourish. Hayek’s fundamental concern however was not with constitutional
arrangements, but with the economy. He only turned to such broader analysis in
order to secure his fundamental concern, free market action. His is ultimately a
theory of freedom in the market. If we are to accept Hayek’s epistemological insight
while developing his neo-roman concept to the full then we must be concerned not
merely with liberty in a socio-political context, in the manner of neo-republicans, but
also in an economic and productive context. If we are to take Hayek’s epistemology
seriously, then individuals must be free from arbitrary power when engaging in
economic processes, in the market and, ultimately, at work. If liberty is really to exist
in the economy then individuals must be safeguarded against arbitrary power on this
2
Andrew Gamble, Hayek: The Iron Cage of Liberty (Cambridge, 1996), 192.
240
more intimate scale on a daily basis. This leads us to the more radical iteration of the
neo-roman concept associated with labour republicanism. Government will remain
important here, in establishing legal norms and providing support for those who fall
out of work. But what is fundamentally important for labour republicans is that the
absence of arbitrary power can only become a reality when there is a system of coownership of the enterprise and an element of workplace democracy.3 A full
development of Hayek’s neo-roman concept of liberty results then in a very different
understanding of the proper relationship between government, democracy and the
economy to Hayek’s own.
Despite Thatcher being in power Hayek did not feel entirely comfortable that the slide
towards ‘increasingly totalitarian’ government, had been arrested. 4 It was not that he
doubted Thatcher’s good faith, but he was concerned that without a radical redrawing
of the constitution, trade unions would again be able to use their influence to install a
left-wing government and the electorate would once more be seduced by the appeal of
social justice. Hayek had viewed parliamentary sovereignty as a threat to free market
action and his idealised conception of the economy. Instead the Thatcher government
used it to liberalise the market, through the privatisation of government industries,
and to confront the trade unions in a manner he had not thought possible. From 1980
to 1993, six pieces of legislation were passed that made secondary picketing illegal,
put an end to ‘closed shop’ practices, and required ballots for strikes. The High Court
was also given the power to stop unions striking if there were any doubts surrounding
legality. Perhaps most important was the 1982 Act which removed trade union
3
See Alex Gourevtich, From Slavery to the Cooperative Commonwealth: labor and republican Liberty
in the Nineteenth Century (Cambridge, 2015).
4
As late as 1981 he envisaged the possible need, due to economic crisis, for a re-introduction of
rationing. See Alan Ebenstein, Friedrich Hayek, A Biography (New York, 2001), 280.
241
immunity for damages where it could be shown that strike action was not fully within
the law.5 While this may seem a relatively minor issue, given that it did not grant the
government new powers directly, those who had read Hayek were well aware of its
true significance.6 Its effect was to undo the central plank of the 1906 Trade Union
Disputes Act that Hayek had long argued placed unions outside the law. Bringing
union action back within the legal framework ended the potential for dominium. The
powers granted to the courts enabled the Thatcher government to confront and defeat
the National Union of Miners when it began its ill-timed strike in 1984.7 Arbitrary
government power, which had functioned as such an affront to Hayek’s definition of
liberty, was in the end the thing that reconfigured the relationship between
democracy, government and the economy in a way that ultimately promoted his
vision of free market action.
5
The Institute of Employment Rights ‘Chronology of Labour Law, 1978-2008’. Accessed at
http://www.ier.org.uk/resources/chronology-labour-law-1979-2008 02.07.16.
6
Richard Vinen regards it as a minor development. See Richard Vinen, Thatcher’s Britain (London,
2009), 121. Charles Hanson at the Institute for Economic Affairs observed its importance. See Charles
Hanson ‘Postscript’ in Unemployment and the Unions Hobart Paper 87 (London, 1984), 74.
7
Threats of an earlier strike, in 1981, had forced the government to make concessions due to their lack
of preparedness. The ‘84 strike began in spring allowing the government to further strengthen
preparations that had already been made for a strike. See Vinen, Thatcher’s Britian, 154-177. Also
David Howell, ‘Defiant Dominoes: Working Miners and the 1984-85 Strike’ in Making Thatcher’s
Britain (ed.), Ben Jackson and Robert Saunders (Cambridge, 2012), 148-164; Francis Beckett and
David Hencke, Marching to the Fault Line: The Miners' Strike and the Death of Industrial England
(London, 2009).
242
Bibliography
Primary Sources
1. Archive
1.1 Friedrich Hayek Papers, Hoover Institution, Stanford University, CA, USA.
2. Works by Friedrich Hayek
2.1 Books and Pamphlets by Hayek
Prices and Production (London, 1931).
The Pure Theory of Capital [1941] in The Pure Theory of Capital: The Collected
Works of F.A. Hayek, Vol. 12 (ed.), Lawrence H. White (London, 2014).
The Road to Serfdom [1944] (London, 2001).
John Stuart Mill and Harriet Taylor: Their Friendship and Subsequent Marriage
[1951] in The Mill Taylor Friendship and Other Writings: The Collected Works of
F.A. Hayek, Vol. 16 (ed.), Sandra J. Peart (Chicago, 2014).
The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology
(London, 1952).
Capitalism and the Historians (Chicago, 1954).
The Political Ideal of the Rule of Law (Cairo, 1955).
The Constitution of Liberty (Chicago, 1960).
Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice
and Political Economy, [3 Volume edition] (London, 1982).
- Vol. 1 Rules and Order [1973]
- Vol. 2 The Mirage of Social Justice [1976]
- Vol. 3 The Political Order of a Free People [1979]
The Fatal Conceit, The Errors of Socialism in The Fatal Conceit: The Collected
Works of F.A. Hayek, Vol. 1 (ed.), William Warren Bartley III (London, 1988).
Hayek on Hayek: An Autobiographical Dialogue (eds.), Stephen Kresge and Leif
Warner (London, 1994).
243
2.2 Lectures, Articles, Reviews, Book Chapters and Pamphlets by Hayek in
Edited Collections
‘A Survey of Recent American Writing: Stabilisation Problems in Gold Exchange
Standard Countries’ [1924] in Good Money Part One: The Collected Works of FA
Hayek, Vol.5 (ed.), Stephen Kresge (Chicago, 1999), 39-66.
‘Monetary Policy in The United States after the Recovery from the Crisis of 1920’
[1925] in Good Money Part One: The Collected Works of FA Hayek, Vol.5 (ed.),
Stephen Kresge (Chicago, 1999), 145-146.
‘The Paradox of Saving’ [1929] in Contra Keynes and Cambridge: The Collected
Works of F.A. Hayek, Vol. 6 (ed.) Bruce Caldwell (Chicago, 1995), 74-120.
‘The Fate of the Gold Standard’ [1932] in Good Money Part One: The Collected
Works of FA Hayek, Vol. 5 (ed.) Stephen Kresge (Chicago, 1999), 153-168.
‘Reflections on the Pure Theory of Money of Mr JM Keynes’ [1932] in Contra
Keynes and Cambridge: The Collected Works of FA Hayek, Vol. 9 (ed.), Bruce
Caldwell (Chicago, 19995), 121-146.
‘The Trend of Economic Thinking’ [1933] in The Trend of Economic Thinking: The
Collected Works of FA Hayek, Vol. 3 (eds.), W.W. Bartley III and Stephen Kresge
(London, 1991), 13-30.
‘Nazi-Socialism’ [1933] in The Collected Works of FA Hayek, Vol.2: The Road to
Serfdom: Text and Documents (ed.) Bruce Caldwell (Chicago, 2007), 245-248.
‘The Nature and History of the Problem’ [1935] in Collectivist Economic Planning
(ed.), Friedrich Hayek (London, 1935), 1-40.
‘The Present State of the Debate’ [1935] in Collectivist Economic Planning (ed.),
Friedrich Hayek (London, 1935) 201-243.
‘Economics and Knowledge’ [1936] in Individualism and Economic Order (Chicago,
1948), 33-56
‘The Gold Problem’ [1937] in Good Money Part One: The Collected Works of FA
Hayek, Vol.5 (ed.) Stephen Kresge (Chicago, 1999), 169-185.
Friedrich Hayek ‘Monetary Nationalism and International Stability’ [1937] in Good
Money Part Two, The Collected Works of FA Hayek, Vol. 6 (ed.), Stephen Kresge
(London, 1999), 37-105.
‘Freedom and the Economic System’ [1938] in Socialism and War: The Collected
Works of FA Hayek, Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 189-212.
‘Freedom and the economic System [1939] in Socialism and War: The Collected
Works of FA Hayek, Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 213-220
244
‘Socialist Calculation: The Competitive “Solution”’ [1940] in Socialism and War:
The Collected Works of FA Hayek Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997),
117-140.
‘The Counter Revolution of Science’ [1941] in Studies on The Abuse and Decline of
Reason: The Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell (Chicago,
2010), 167-282.
‘Scientism and The Study of Society’ [1942/43/44] in Studies on The Abuse and
Decline of Reason: The Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell
(Chicago, 2010), 77-168.
‘A Commodity Reserve Currency’ [1943] in Good Money Part Two: The Collected
Works of FA Hayek, vol. 6 (ed.) Stephen Kresge (Chicago, 1999), 106-114.
‘Historians and the Future of Europe’ [1944] in Studies on The Abuse and Decline of
Reason: The Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell (Chicago,
2010), 135-147.
‘The Use of Knowledge in Society’ [1945] in Individualism and Economic Order,
(Chicago, 1948), 77-91.
‘Individualism: True and False’ [1945] in Individualism and Economic Order
(Chicago, 1948), 1-33.
‘The Intellectuals and Socialism’ [1949] in Socialism and War: The Collected Works
of FA Hayek Vol. 10 (ed.), Bruce Caldwell (Chicago, 1997), 220-238.
‘Full Employment, Planning and Inflation’ [1950] in Studies in Philosophy, Politics
and Economics (London, 1967), 270-279.
‘Ludwig von Mises’ [composed of several essays 1951/73/78] in The Fortunes of
Liberalism: The Collected works of F.A. Hayek, Vol.4 (ed.), Peter Klein (Chicago,
1992), 126-159.
‘Comte and Hegel’ [1952] in Studies on The Abuse and Decline of Reason: The
Collected Works of FA Hayek Vol. 13 (ed.), Bruce Caldwell (Chicago, 2010), 283-304.
Friedrich Hayek, ‘History and Politics’ [1954] in Capitalism and the Historians (ed.),
Friedrich Hayek (London, 1954). 3-32.
‘Degrees of Explanation’ [1955] in Studies in Philosophy, Politics and Economics
(London, 1967), 3-21.
‘The Road to Serfdom after Twelve Years’ [preface to American paperback edition,
1956] in Studies In Philosophy, Politics and Economics, (London, 1967), 216-228.
‘What is “Social”?-What Does it Mean?’ [1957] in Studies In Philosophy, Politics
and Economics, (London, 1967), 237-247.
245
‘Inflation Resulting from the Downward Inflexibility of Wages’ [1958] in Studies In
Philosophy, Politics And Economics Philosophy (Chicago, 1967), 295-299.
‘Unions, Inflation and Profits’ [1959] in Studies In Philosophy, Politics And
Economics Philosophy (Chicago, 1967), 280-294.
‘The Corporation in Democratic Society In Whose Interest Ought It To And Will It
Be Run?’ [1960] in Studies In Philosophy, Politics And Economics Philosophy
(Chicago, 1967), 300-312.
‘The Economy, Science and Politics’ [1962] in Studies in Studies In Philosophy,
Politics and Economics, (London, 1967), 251-269.
‘The Moral Element in Free Enterprise’ [1962] in Studies In Philosophy, Politics and
Economics, (London, 1967), 229-236.
Friedrich Hayek ‘The Legal and Political Philosophy of David Hume’ [1963] in
Studies In Philosophy, Politics and Economics, (London, 1967), 106-121.
‘Kinds of Rationalism’ [1964] in Studies in Philosophy, Politics and Economics
(London, 1967), 82-95.
‘The Theory of Complex Phenomena’ [1964] in Studies In Philosophy, Politics And
Economics Philosophy (London, 1967), 22-42.
‘Dr Bernard Mandeville’ [1967] in New Studies in Philosophy, Politics and the
History of Ideas (London, 1978), 249-266.
‘The Confusion of Language in Political Thought’ [1967] in New Studies in
Philosophy, Politics, Economics and the History of Ideas (London, 1978), 71-97.
‘Competition as a Discovery Procedure’ [1968] in New Studies in Philosophy,
Politics, Economics and the History of Ideas (London, 1978), 179-190.
‘The Place of Menger’s Grundsätze in the History of Economic Thought’ [1973] in
New Studies in Philosophy, Politics, Economics, and the History of Ideas (London,
1978), 270-284.
‘Economic Freedom and Representative Government’ [1973] in New Studies in
Philosophy, Politics, Economics, and the History of Ideas (London, 1978) 105-118.
‘Liberalism’ [1973] in New Studies in Philosophy, Politics, Economics and the
History of Ideas (London, 1978), 119-151.
‘The Pretence of Knowledge’ [1974] in New Studies in Philosophy, Politics,
Economics and the History of Ideas (London, 1978), 23-34.
‘The Campaign Against Keynesian Inflation’ [a collection of articles
from1974/75/75/76] in New Studies in Philosophy, Politics, Economics and the
History of Ideas (London, 1978), 191-231.
246
‘The Atavism of Social Justice’ [1976] in New Studies in Philosophy, Politics,
Economics and the History of Ideas (London, 1978), 57-70.
‘Adam Smith’s Message in Today’s Language’ [1976] in New Studies in Philosophy,
Politics, Economics and the History of Ideas (London, 1978), 267-269.
‘Choice in Currency’ [1976] in Good Money Part Two: The Collected Works of F.A.
Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 115-128.
‘The Denationalisation of Money’ [1976] in Good Money Part Two: The Collected
Works of F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 128-229.
‘Remembering my Cousin Ludwig Wittgenstein’ [1977] in The Fortunes of
Liberalism: The Collected works of F.A. Hayek, Vol.4 (ed.), Peter Klein (Chicago,
1992), 176-181.
‘Towards a Free Market Monetary System’ [1977] in Good Money Part Two: The
Collected Works of F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 230237.
‘The Future Unit of Value’ [1981] in Good Money Part Two: The Collected Works of
F.A. Hayek, Vol. 6, (ed.), Stephen Kresge (Chicago, 1999), 238-252.
‘The Rediscovery of Freedom: Personal Recollections’ [1983] in The Fortunes of
Liberalism: The Collected Works of F.A. Hayek, Vol. 4 (ed.), Peter Klein (Chicago,
1992), 185-199
‘The Distortion of Relative Prices by Monopoly in the Labour Market’ in Hobart
Paper 87:Unemployment and the Unions (London, 1984).
‘Introduction’ in Money, Capital and Fluctuations: Early Essays (ed.), Roy
McCloughrey (London, 1984), 1-5.
2.3 Speeches, interviews and articles by Hayek
‘The Genius for Compromise’, The Spectator (25th Jan, 1945), 7-8.
‘Rebirth of Liberalism’, The Freeman (28th July, 1952), 729-731
‘The Decline of the Rule of Law’, The Freeman (20th April 1953), 518-520.
‘The Case Against Progressive Income Taxes’, The Freeman (28th December, 1953),
229-232.
‘New Nations and the Problem of Power’ The Listener, (November 1960), 819-821.
‘The Generals’, letter to The Sunday Times (5th November 1967). 10.
247
‘Can We Still Avoid Inflation’ given before the Trustees and guests of the Foundation
for Economic Education at Tarrytown, New York on (18th May, 1970) Accessed at
http://www.hayekcenter.org/friedrichhayek/hayekonweb.html 04.07.16
‘Meet the Press’ transcript (22nd June 1975). Accessed at
https://mises.org/library/hayek-meets-press-1975 04.07.16.
‘La inflacion es la mayor amenaza contra la liberdad’ [Inflation is the Biggest Threat
to Liberty], Somos (25th November 1977), 32–36.
‘Internationaler Rumford’, Politische Studien 1 (1978), 44-45.
‘The Dangers to Personal Liberty’ letter to The Times (11th July 1978), 15.
‘Freedom of Choice’ letter to The Times (3rd August 1978), 15.
‘Nobel Prize Winning Economist’ interview with Alchian, Armen (11th November,
1978). Accessed at
http://www.hayek.ufm.edu/index.php?title=Category:Armen_Alchian 17.12.15.
248
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3.1 Books and Pamphlets
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Belloc, Hillaire, The Servile State (London, 1912).
Beveridge, William, Full Employment in A free Society (London, 1944).
Buchanan, James and Gordon Tullock, The Calculus of Consent: Logical
Foundations of Constitutional Democracy (Michigan, 1962).
Buchanan, James, The Managerial Revolution: What is Happening in the World?
(New York, 1941).
Buchanan, James, The Limits of Liberty (Chicago, 1975).
Buchanan, James, The Logical Foundations of Constitutional Liberty: The Collected
Works of James M. Buchanan, Vol. 1 (Indianapolis, 1999).
Burke, Edmund, ‘An Appeal from the New Whigs to the Old’ in Further Reflections
on the French Revolution in France (ed.), Daniel Ritchie (Indianapolis, 1992).
Comte, Auguste, Early Political Writing (ed.), H.S. Jones (Cambridge, 1998).
Dicey, Albert Venn, Lectures on the Relation between Law and Public Opinion in
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Ferguson, Adam. An Essay on the History of Civil Society (ed.), Fania Oz-Salzberger
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Finer, Herman, The Road to Reaction (Boston, 1945).
Foucault, Michel, The Birth of Biopolitics, Lectures at the College de France 19781979 (ed.), Michel Senellart (London, 2008).
Friedman, Milton, Capitalism and Freedom (Chicago, 1962).
Friedman, Milton, Essays in Positive Economics (Chicago, 1963).
Friedman, Milton and Anna Schwarz, A Monetary History of the United States, 1867–
1960 (Princeton, 1963).
Halévy, Élie, The Era of Tyrannies (London, 1967).
Hewer, Lord Gordon, The New Despotism (London, 1929).
Hobbes, Thomas, Leviathan (ed.), Richard Tuck, (Cambridge, 1991).
249
Hobhouse, Leonard Trelawny, Liberalism (London, 1911).
Hobson, John Atkinson, The Crisis of Liberalism: New Issues of Democracy (London,
1909).
Hogg, Baron Quintin, The Dilemma of Democracy (London, 1978).
Hume, David, A Treatise of Human Nature (Oxford, 1978).
Hume, David, Essays Moral Political and Literary 2 vols. (eds.) TH Green and TH
Grose. (London, 1875).
Kant, Emmanuel, Political Writings (ed,), H.S. Reiss (Cambridge, 1991).
Keynes, John, Maynard, The End of Laissez Faire (London, 1926).
Keynes, John, Maynard, A Treatise on Money: The Collected Writings of John
Maynard Keynes vol.6, (eds.), Elizabeth Johnson and Donald Moggridge (London,
1978).
Keynes, John, Maynard, The General Theory of Employment, Interest and Money,
The Collected Writings of John Maynard Keynes, vol. 7 (eds.), Elizabeth Johnson and
Donald Moggridge (Cambridge, 1978).
Laski, Harold, Studies in Law and Politics (London, 1932).
Lenin, Vladimir Ilyich, Die nächsten Aufgaben der Sowjetmacht [The Immediate
Tasks of Soviet Power] (Berlin, 1918).
Lippmann, Walter, The Good Society (Boston, 1937).
Macmillan, Harold, The Middle Way (London, 1938).
Macmillan, Harold, Tides of Fortune (London, 1969).
Marx, Karl and Friedrich Engels, The Communist Manifesto (London, 2002).
Mill, John Stuart, On Liberty and Other Writings (ed.) Collini, Sefan. (Cambridge,
1989).
Mill, John Stuart, Autobiography (London, 1990).
Mises, Ludwig von, Socialism: An Economic and Sociological Analysis (Indianapolis,
1981).
Mises, Ludwig von, Bureaucracy (Indianapolis, 1962).
Mises, Ludwig von, Liberalism (Kansas, 1962).
Mises, Ludwig von, Human Action (Indianapolis, 1996).
250
Mises, Ludwig von, Planning for Freedom: Let the Market Work (Indianapolis,
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Mitchell, Wesley Claire, Business Cycles (Berkeley, 1913).
Mitchell, Wesley Claire, The Backward Art of Spending Money (New York, 1937).
Nef, John, The Rise of the British Coal industry (London, 1966).
Neurath, Otto, Durch die Kriegwirtschaft zur Naturalwirtschaft [Through War
Economy to Natural Economy] (Munich, 1919).
Nozick, Robert, Anarchy State and Utopia (Oxford, 1974).
Oakeshott, Michael, Rationalism in Politics (London, 1962).
Oakeshott, Michael, On Human Conduct (Oxford, 1975)
Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our
Time (New York, 1944).
Polanyi, Michael, The Logic of Liberty (Chicago, 1951).
Popper, Karl, The Logic of Scientific Discovery (London, 2002).
Popper, Karl, The Open Society and Its Enemies, Vol. 1: The Spirit of Plato, Vol. II:
Hegel and Marx (London, 1945).
Popper, Karl, The Unended Quest (London, 1992).
Raz, Joseph, The Authority of Law: Essays on Law and Morality (Oxford, 1983).
Robbins, Lionel, An Essay on the Nature and Significance of Economic Science
(London, 1946).
Rothbard, Murray, Man, Economy and State (Princeton, 1962).
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Ruggiero, Guido de, History of European Liberalism (Oxford, 1927)
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251
Schmitt, Carl, The Crisis of Parliamentary Democracy (Cambridge, MA 1988).
Schmitt, Carl, Constitutional Theory (Durham, NC, 2008).
Schmitt, Carl, The Guardian of the Constitution (Cambridge, 2015).
Schmitt, Carl, Legality and Legitimacy (Durham, NC, 2004).
Schumpeter, Joseph, Capitalism, Socialism and Democracy (London, 1994).
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Webb, Sidney and Beatrice Webb, Communism: A New Civilisation? (London, 1936).
Veblen, Thorsten, Theory of The Leisure Class (New York, 1899); Imperial Germany
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252
3.2 Chapters, Articles and Letters in Edited Collections
Berlin, Isaiah, Letter to Elizabeth Morrow, (4th April, 1945) in Isaiah Berlin: Letters
1928-46 (ed.), Henry Hardy (Cambridge, 2004), 540.
Berlin, Isaiah, ‘Two Concepts of Liberty’ in Four Essays on Liberty (Oxford, 1969),
118-172.
Friedman, Milton. ‘The Quantity Theory of Money – a restatement’ in Studies in the
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Hanson, Charles. ‘Postscript’ in Unemployment and the Unions Hobart Paper 87
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Keynes, John Maynard, ‘Tract on Monetary Reform’ in The Collected Writings of
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Keynes, John Maynard, ‘Letter to Hayek’ in The Collected Works of John Maynard
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Laski, Harold, ‘The Meaning of Fascism’ in Reflections on the Revolution of Our
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Mises, Ludwig von, ‘Economic Calculation in the Socialist Commonwealth’ in
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Schmitt, Carl, ‘The Way to the Total State’ in Four Articles, 1931–1938, (ed. and
trans.), Simona Draghici (Washington, D.C, 1999).
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253
3.3 Articles and Reviews in Journals
Altham, J.E.J., ‘The Political Order of a Free People’, Philosophy, 57:220 (1982),
274-278.
Bierstedt, Robert, ‘Review of The Counter Revolution of Science’, American
Sociological Review, 17:5 (1952), 629-630.
Chase, Stuart, ‘Back to Grandfather: Dr Hayek’s Guide to the Pre-War Era’, The
Nation (19th May, 1945), 565.
Fisher, Stanley, ‘Friedman versus Hayek on private money: Review essay’, Journal of
Monetary Economics 17:3 (1986), 433-9.
Friedman, Milton and Anna Schwartz, Anna, ‘Has Government Any Role in Money’,
Money in Historical Perspective (Chicago, 1987) 289-134.
Hamowy, Ronald, ‘Hayek's Concept of Freedom: A Critique’, New Individualist
Review 1:1 (1961) 28-31.
Hamowy, Ronald, ‘Cato’s Letters, John Locke and the Republican Paradigm’, History
of Political Thought 11 (1990), 273-94.
Harberler, Gottfried, ‘Reflections on Hayek’s Business Cycle Theory’, Cato Journal
6:2 (1986), 422-435.
Howard, D.H., ‘Review of Denationalisation of Money’, Journal of Monetary
Economics 8 (1977) 483-5.
Keynes, John Maynard, ‘The Pure Theory of Money. A Reply to Dr. Hayek’,
Economica (1931:34), 387-397.
Klein, Benjamin, ‘Competing Monies: A Comment’, Journal of Money, Credit, and
Banking 8 (Nov. 1976) 513-519.
Knight, Frank, ‘Science, Philosophy, and Social Procedure’, Ethics 52:3 (1942), 253274.
Knight, Frank, ‘Laissez Faire: Pro and Con’ Journal of Political Economy, 75:6
(1967), 782-95.
Robbins, Lionel,‘Hayek on Liberty’, Economica 28 (1961), 66-81.
Meiklejohn, Donald, ‘Review: Democracy and the Rule of Law’, Ethics, 91:1 (1980),
117-124.
Miller, Eugene, ‘David Hume: Whig or Tory?’, New Individualist Review 1:3 (1962),
165-174.
254
Schaefer, David Lewis, ‘Review of Law, Legislation and Liberty, Vol. 3’, The
American Political Science Review, 74:1 (1980), 165-166
Schmitt, Carl, ‘Starker Staat und gesunde Wirtschaft. Ein Vortrag vor
Wirtschaftsführern’ [A Strong State and a Healthy Economy: A Lecture for Business
Leaders], Volk und Reich Politische Monatshefte 81 (Düsseldorf, 1933).
Salkever. Stephen G., ‘Review of Law, legislation and Liberty, Vol. 3’, The Journal
of Politics, 43:1 (1981), 234-236.
Trotsky, Leon, ‘What is National Socialism?’, The Modern Thinker (October, 1933)
Accessed at https://www.marxists.org/archive/trotsky/germany/1933/330610.htm
13.07.16.
Trotsky, Leon, ‘Hitler’s Programme’, Official Organ Of The Communist League Of
Struggle 4: 4-5, (April-May 1934) Accessed at
https://www.marxists.org/archive/trotsky/1934/xx/hitler.htm 13.07.16.
3.4 Articles and Letters in Newspapers and Periodicals
‘Poor Mr Hayek’, New Republic (23rd April 1945), 543.
‘Premio Nobel Friedrich von Hayek’, El Mercurio (November 1977), 27–28.
Kaldor, Nicholas. ‘Chicago Boys in Chile’, The Times. (18 October 1978).
Goodman, Geoffrey. ‘The Priest and the Premier’, Daily Mirror (20th June, 1980).
‘Lider y Maestro del Liberalismo Economico’, El Mercurio (12th April 1981), D9.
3.5 Speeches
Powell, Enoch. ‘Speech at Chippenham’ (11th May, 1968) Accessed at
http://www.enochpowell.net/fr-46.html 06.06.16
Joseph, Keith. ‘Inflation is Caused by Governments’ speech at Preston (5th September
1974) Accessed at http://www.margaretthatcher.org/document/110607 19.03.16
255
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Huneeus, Carlos The Pinochet Regime (London, 2007).
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Jones, H.S, Victorian Political Thought (London, 2000).
Kalyvas, Andreas and Andreas Katznelson, Liberal Beginnings: Making a Republic
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McCormick, Brian, Hayek and the Keynesian Avalanche (New York, 1992).
McCormick, John, Machiavellian Democracy (Cambridge, 2011).
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McLoughlin, Kate, Stephen P. Osborne and Ewen Ferlie,, The New Public
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Mirowski, Philip and Dieter Plehwe, (eds.), The Road from Mont Pelerin: The
Making of the Neoliberal Thought Collective (Cambridge MA, 2015).
Neill, Edmund, Michael Oakseshott (London, 2010).
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Nietzsche, Friedrich, On The Genealogy of Morality (Oxford, 2008).
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State (Columbia, 1972).
Ostrom, Elinor, Governing the Commons: The Evolution of Institutions for Collective
Action (Cambridge, 2011).
Ostrom, Vincent, The Intellectual Crisis in Public Administration (Alabama, 2008).
Ostrom, Vincent, The Political Theory of a Compound Republic (Lanham, 2008).
Peck, Jamie, Constructions of Neoliberal Reason (Oxford, 2010).
Pettit, Philip, Republicanism: A Theory of freedom and Government (Oxford, 1997).
Pettit, Philip, On The people’s Terms (Cambridge, 2012).
Petsoulas, Christina, Hayek’s Liberalism and its Origins: The Idea of Spontaneous
Order and The Scottish Enlightenment (London, 2001).
Piketty, Thomas, Capital in the Twenty-First Century (London, 2014)
Pinto, Pedro, Lisbon Rising: Urban Social Movements in the Portuguese Revolution,
1974–75 (Manchester, 2013).
Pitchford, Mark, The Conservative Party and The Extreme Right 1945-1975
(Manchester, 2011).
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Plant, Raymond, The Neo-liberal State (Oxford, 2009).
Pocock, J.G.A., The Machiavellian Moment: Florentine Political Thought and the
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Sloman, Peter, The Liberal Party and The Economy 1929-1964 (Oxford, 2015).
Smart, Nick, The National Government, 1931-40 (London, 1999).
Stapleton, Julia, Political Intellectuals and Public Identities in Britain Since 1850
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Steele, Gerald, The Economics of Friedrich Hayek (London, 1992).
Stolleis, Michael, Origins of the German Welfare State: Social Policy in Germany to
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Thorpe, Andrew, A History of The British Labour Party (London, 2008).
Thorpe, D.R., Supermac: The Life of Harold MacMillan (London, 2010).
Tomlinson, Jim, Hayek and The Market (London, 1990).
Tomlinson, Jim, Government and The Enterprise Since 1900 (Oxford, 1994).
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Vinen, Richard, Thatcher’s Britain: The Politics and Social Upheaval of the Thatcher
Era (London, 2010).
Viroli, Maurizio, Republicanism, (trans.), Shugaar, Antony (New York, 2002).
Wainright, Hilary, Arguments for a New Left (Oxford, 1994).
Walpen, Bernhard Die Offenen Feinde, und ihre Gesellschaft [The Open Enemies and
their Society] (Hamburg, 2004).
Wapshott, Nicholas, Keynes Hayek: The Clash that Defined Modern Economics (New
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White, Lawrence, Free Banking in Britain: Theory, Experience and Debate 1800–
1845 (London, 2009).
White, Lawrence, The Clash of Economic Ideas (Cambridge, 2012).
Wood, John, A History of Central Banking in Great Britain and the United States
(Cambridge, 2005).
4.2 Chapters in Edited Collections
Arena, Richard, ‘Monetary Policy and Business Cycles: Hayek as an opponent of the
Quantity Theory Tradition’ in F.A. Hayek as a Political Economist (eds.), Thierry
Aimar, Jack Birner and Pierre Garrouste (London, 2002), 81-96.
Boyd, Richard and James Ashley Morrison. ‘F. A. Hayek, Michael Oakeshott, and
the Concept of Spontaneous Order’ in Liberalism, Conservatism, and Hayek’s
Idea of Spontaneous Order (eds.), Louise Hunt, and Peter McNamara, (Springer
Online, 2007), 87-105.
Caldwell, Bruce, ‘Introduction’ in Socialism and War: The Collected Works of FA
Hayek, Volume 10 (ed.), Caldwell, Bruce (Chicago, 1997).
Caldwell, Bruce ‘Introduction’ in The Road to Serfdom: The Collected Works of FA
Hayek, Vol.2 (ed.), Bruce Caldwell (Chicago, 2008)1-33.
Carter, Ian in ‘How are Power and Unfreedom Related?’ in Republicanism and
Political Theory (eds.), Cécile Laborde and John Maynor (Oxford, 2008) 52-82.
Champion, Rafe, ‘Hayek Bartley and Popper: Justificationism and the Abuse of
Reason’ in Hayek: A Collaborative Biography, Part 1 Influences from to Bartley
(ed.), Leeson, Robert (London, 2013), 213-225.
Cornish, Selwyn, ‘The Hayek Literature’ in Hayek: A Collaborative Biography,
Part 1 Influences from to Bartley (ed.), Leeson, Robert (London, 2013), 74-89.
262
Erhard, Werner. ‘Bill Bartley: Biographer Extraordinary’ in Hayek: A Collaborative
Biography, Part 1 Influences from to Bartley (ed.), Leeson, Robert (London, 2013),
234-6.
Emmet, Ross, ‘Discussion and the Evolution of Institutions in a Liberal Democracy:
Frank Knight Joins the Debate’ in Hayek, Mill and the Liberal Tradition (ed.),
Farrant, Andrew (London, 2011), 57-78.
Foucault, Michel, ‘What is Enlightenment?’ in The Foucault Reader (ed.), Rabinow,
Paul (London, 1986). 32-50.
Foucault, Michel, ‘Nietzsche, Genealogy, History’ in The Foucault Reader (ed.),
Rabinow, Paul (London, 1986), 76-100.
Goldschmidt, Nils and Jan Otmar Hesse, ‘Hayek, Eucken and The Road to Serfdom’
in Hayek: A Collaborative Biography, Part 1 Influences from to Bartley (ed.),
Leeson, Robert (London, 2013), 123-145.
Hamowy, Ronald, ‘Introductory Essay’ in The Constitution of Liberty, Collected
Works Vol. 12 (ed.), Ronald Hamowy (Chicago, 2011), 17-19.
Higgins, Ian, ‘Remarks on Cato’s Letters’ in Cultures of Whiggism (ed.), David,
Womersley (Newark, 2005), 127-148.
Howell, David, ‘Defiant Dominoes: Working Miners and the 1984-85 Strike’ in
Making Thatcher’s Britain (eds.), Ben Jackson, Ben and Robert Saunders
(Cambridge, 2012), 148-164.
Jackson, Ben and Robert Saunders,‘Introduction: Varieties of Thatcherism’ in Making
Thatcher’s Britain, (eds.), Ben Jackson, Ben and Robert Saunders (Cambridge, 2012),
1-22.
Kramer, Matthew, ‘Liberty and Domination’ in Republicanism and Political Theory
(eds.), Cecile Laborde, and John Maynor (Oxford, 2008), 31-57.
Kresge, Stephen. ‘Introduction’ in Good Money Part One: The Collected Works of FA
Hayek, Vol.1 (ed.), Kresge, Stephen (Chicago, 1999), 1-38.
Laidler, David, ‘The 1974 Hayek-Myrdal Nobel Prize’ in Hayek: A Collaborative
Biography, Part 1 Influences from to Bartley (ed.), Leeson, Robert (London, 2013),
71-73.
Maihofer, Werner, ‘The Ethos of the Republic and the Reality of Politics’ in
Machiavelli and Republicanism (eds.), Gisela Bock, Maurizio Viroli and Quentin
Skinner (Cambridge, 1993), 283-92.
Pettit, Phillip, ‘Republican Liberty: Three Theorems, Four Axioms’ in Republicanism
and Political Theory (eds.), Cécile Laborde and John Maynor (Oxford, 2008), 102-30.
263
Pettit, Phillip, ‘Two Republican Traditions’ in Republican Democracy: Liberty, Law
and Politics (eds.), Andreas Niederberger, and Philip Schink (Edinburgh, 2013), 169204.
Ptak, Ralph, ‘Neoliberalism in Germany: Revisiting the Ordoliberal Foundations of
the Social Market Economy’ in The Road From Mont Pelerin: The Making of The
Neoliberal Thought Collective (eds.), Philip Mirowski and Dieter Plehwe
(Cambridge MA, 2009), 98-138.
Robertson, John, “Hume, David (1711–1776).” John Robertson Oxford Dictionary of
National Biography. (Ed.), H. C. G. Matthew and Brian Harrison. (Oxford: OUP,
2004. Online) ed. Ed. David Cannadine. Jan. 2009. 2 Sept. 2016
<http://www.oxforddnb.com/view/article/14141>.
Saunders, Robert, “‘Crisis? What Crisis?” Thatcherism and the Seventies’ in Making
Thatcher’s Britain (ed.), Ben Jackson and Robert Saunders (Cambridge, 2012), 25-42.
Skinner, Quentin, ‘The Principles and Practice of Opposition: The Case of
Bolingbroke versus Walpole’, in Historical Perspectives: Studies in English Thought
and Society in Honour of J. H. Plumb (ed.), Neil McKendrick, (London: 1974), 93128.
Skinner, Quentin, ‘Machiavelli’s Discorsi and the Pre-Humanist Origins of
Republican Ideas’ in Machiavelli and Republicanism (eds.), Gisela Bock, Maurizio
Viroli, and Quentin Skinner (Cambridge, 1993), 121-142.
Skinner, Quentin, ‘Freedom as the Absence of Arbitrary Power’ in Republicanism
and Political Theory (eds.), Cécile Laborde and John Maynor (Oxford, 2008), 83-101.
Streissler, Erich W., ‘Carl Menger on Economic Policy: The Lectures to Crown
Prince Rudolf’ in Carl Menger and His Legacy in Economics (ed.), Bruce Caldwell
(Durham NC, 1990), 107-132.
Tomlinson, Jim. ‘Thatcher, Monetarism and the Politics of Inflation’ in Making
Thatcher’s Britain (ed.), Ben Jackson and Robert Saunders (Cambridge, 2012), 62-77.
Tooze, Adam, ‘The Economic History of the Nazi Regime’ in Short Oxford History of
Nazi Germany (ed.), Jane Caplan (Oxford, 2008), 168-194.
Tribe, Keith, ‘Liberalism and Neoliberalism in Britain, 1930–1980’ The Road From
Mont Pelerin: The Making of The Neoliberal Thought Collective (eds.), Philip
Mirowski and Dieter Plehwe (Cambridge MA, 2009), 68-97.
Van Horn, Rob, ‘Reinventing Monopoly and the Role of Corporations, the Roots of
Chicago Law and Economics’ The Road From Mont Pelerin: The Making of The
Neoliberal Thought Collective (eds.), Philip Mirowski and Dieter Plehwe
(Cambridge MA, 2009), 204-237.
Vanberg, Viktor, ‘Hayek in Freiburg’ in Hayek: A Collaborative Biography, Part 1
Influences from Mises to Bartley (ed.), Leeson, Robert (London, 2013), 93-122.
264
Winch, Donald. “Smith, Adam (bap. 1723, d. 1790).” Donald Winch Oxford
Dictionary of National Biography. (Ed.), H. C. G. Matthew and Brian Harrison.
(Oxford: OUP, 2004. Online) ed. Ed. David Cannadine. Oct. 2007. 2 Sept. 2016
<http://www.oxforddnb.com/view/article/25767>.
4.3 Articles in Journals
Brebner Bartlet John,‘Laissez Faire and State Intervention in Nineteenth Century
Britain’ The Journal of Economic History 8:1 (1948), 59-73.
Bel, Germà, ‘The Coining of “Privatization” and Germany’s National Socialist Party’,
Journal of Economic Perspectives 20: 3 (2006), 187–194.
Bel, Germà, ‘Against the Mainstream: Nazi privatization in 1930s Germany’,
Economic History Review 63:1 (2010), 34–55.
Bellamy, Richard, ‘Dethroning Politics’: Liberalism, Constitutionalism and
Democracy in the Thought of F. A. Hayek’, Journal of Political Science 24:4 (1994),
419-441.
Beniston, Judith, ’Culture and Politics in Red Vienna’, Austrian Studies 14 (2006), 119.
Bevir, Mark, ‘On Tradition’, Humanitas 13 (2000), 28-53.
Biagini, E.F., ‘Neo-roman liberalism: ‘‘republican’’ values and British liberalism, ca.
1860–1875’, History of European Ideas 29 (2003), 55–72.
Boettke, Peter J. and Edward J Lopez. ‘Austrian Economics and Public Choice’ The
Review of Austrian Economics 15:2/3 (2002), 111–119.
Boettke, Peter J. and Edward J Lopez ‘Political Economy and the Science of
Association’ in The Review of Austrian Economics 27:1 (2014), 97-110.
Bonefeld, Werner, ‘Freedom and The Strong State: Democracy and Dictatorship’,
Critique 34:3 (2006), 237–52.
Bulpitt, Jim, ‘The Discipline of the New Democracy: Mrs. Thatcher's Domestic
Statecraft’ Political Studies 34 (1986), 19-39.
Burczak, Theodore, ‘Dictating Liberty’, Review of Political Economy 26:3 (2014),
368–371.
Caldwell, Bruce, ‘Hayek’s Transformation’, History of Political Economy 20:4
(1988), 513-548.
Caldwell, Bruce. ‘Hayek on Mill’, History of Political Economy 40:4 (2008), 689704.
265
Caldwell, Bruce. ‘Hayek on Socialism and on the Welfare State: A Comment on
Farrant and McPhail's “Does F.A. Hayek's Road to Serfdom Deserve to Make a
Comeback?”’ (2010) Accessed at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1687109 04.07.15.
Carpenter, L.P., ‘Corporatism in Britain’, Journal of Contemporary History 11:1
(1976), 3-25.
Carter, Ian. ‘Positive and Negative Liberty’ (2003) Accessed at
http://plato.stanford.edu/entries/liberty-positive-negative/ 18.08.16.
Claeys, Gregory, ‘Justice, Independence, and Industrial Democracy: The
Development of John Stuart Mill's Views on Socialism’, The Journal of Politics 49:1
(1987), 122-147.
Cottrell, Allin and Paul Cockshott, ‘Calculation, Complexity and Planning in Review
of Political Economy 5:1 (1993), 73-112.
Cristi, F.R., ‘Hayek and Scmhitt on the Rule of Law’, Canadian Journal of Political
Science / Revue canadienne de science politique 17:3 (1984), 521-535.
Davies, Aled, ‘The Evolution of British Monetarism: 1968 – 1979’ University of
Oxford Discussion Papers in Economic and Social History 104 (2012). Accessed at
http://www.nuff.ox.ac.uk/economics/history/Paper104/davies104.pdf 13.09.15.
Denord, François, ‘Aux origines du neoliberalisme en France: Louis Rougier et le
Colloque Walter Lippmann de 1938’ [The Origins of neoliberalism in France: Louise
Rougier and the colloque Walter Lippmann on 1938], Le Mouvement Social 195
(2001), 20–9.
Ebenstein, Alan, ‘The Fatal Deceit’ Liberty 19:3 (2005) Accessed at
http://web.archive.org/web/20080622201757/http://libertyunbound.com/archive/2005
_03/ebenstein-deceit.html#3 30.09.15.
Eichengreen, Barry and Peter Temin, ‘The Gold Standard and the Great Depression’,
Contemporary European History 9:2 (2000), 183-207
Farrant, Andrew and Edward McPhail, ‘Can a Dictator Turn a Constitution into a
Can-opener? F.A. Hayek and the Alchemy of Transitional Dictatorship in Chile’,
Review of Political Economy 26:3 (2014), 331-348.
Farrant, Andrew, Edward McPhail, Sebastian Berger, ‘Preventing the “Abuses” of
Democracy: Hayek, the “Military Usurper” and Transitional Dictatorship in Chile?’,
American Journal of Economics and Sociology 71:3 (2012), 513-518.
Forsyth, Murray, ‘Hayek’s Bizarre Liberalism: A Critique’, Political Studies 36:2
(1988) 235-250.
Gamble, Andrew, ‘Capitalism or Barbarism: The Austrian Critique of Socialism’,
Socialist Register 22 (1986) 355-72.
266
Gamble, Andrew. ‘Hayek and Liberty’, Critical Review: A Journal of Politics and
Society 25:3–4 (2013), 375-394.
Gallagher, Tom, ‘Controlled Repression in Salazar’s Portugal’, Journal of
Contemporary History 14:3 (1979), 385-402.
Gourevtich, Alex, ‘Republicanism and the Political Economy of Democracy’,
European Journal of Social Theory 19 (2016), 283-300.
James Hale, Oron, ‘Gottfried Feder Calls Hitler to Order: An Unpublished Letter on
Nazi Party Affairs’, The Journal of Modern History 30:4 (1958), 358 -362.
Haller, Markus, ‘Carl Menger’s theory of Invisible Hand explanations’, Social
Science Information 39:4 (2000), 529-565.
Hart, Jennifer, ‘Nineteenth-Century Social Reform: A Tory Interpretation of History’
Past and Present 31(1965), 39-61.
Howells, Peter, ‘The U.S. Fed and the Bank of England, International’, Journal of
Political Economy 42:3 (2013), 44-62.
Howson, Susan, ‘Why Didn’t Hayek review Keynes’s General Theory? A Partial
Answer’, History of Political Economy 33:2 (2001), 369-74.
Howson, Susan,‘Keynes and the LSE Economists’, Journal of the History of
Economic Thought 31:3 (2009), 10.
Jackson, Ben,‘At The Origins of Neoliberalism: The Free economy and The Strong
State, 1930-1947’, The Historical Journal, 53:1 (2010), 129–151.
Jackson, Ben,‘‘Freedom, the Common Good and The Rule of Law: Lippmann and
Hayek on Economic Planning’, Journal of The History of Ideas 73:1 (2012), 47-68.
Jacobs, Struan. ‘Spontaneous Order: Michael Polanyi and Friedrich Hayek’, Critical
Review of International Social and Political Philosophy 3:4 (2000), 49-67.
Jones, H.S, ‘The Era of Tyrannies: Elie Halévy and Friedrich von Hayek on Socialism’
European Journal of Political Theory 1:1 (2002), 53-69.
Kalyvas, Andreas, ‘The Tyranny of Dictatorship: When the Greek Tyrant met the
Roman Dictator’, Political Theory 35:4 (2007), 412-442.
Kapust, Daniel, ‘Skinner Pettit and Livy: The Conflict of the Orders and the
Ambiguity of Republican Liberty’, History of Political Thought 15:3 (2010), 377-401.
Krause, Sharon, ‘Beyond Non-Domination: Agency, Inequality, and the Meaning of
Freedom’, Philosophy and Social Criticism (2013), 1-22.
267
Lane, Melissa, ‘Why History of Ideas at All?’ History of European Ideas 28 (2002),
33–41.
Lane, Melissa, ‘Doing Our Own Thinking for Ourselves: On Quentin Skinner's
Genealogical Turn’, Journal of the History of Ideas 73:1 (2012), 71-82.
Lee, Daniel, ‘Popular Liberty, Princely Government, and the Roman Law in Huge
Grotius’s De Jure Belli Ac Pacis’, Journal of The History of Ideas 72:3 (2011), 37192.
Légé, Philippe, ‘Hayek’s Readings of Mill’, Journal of the History of Economic
Thought 30 (2008), 199–215.
Luther, William, ‘Friedman Versus Hayek on Private Outside Monies: New Evidence
for the Debate’ Economic Affairs 33:1 (2013), 127-135
MacDonagh, Oliver, ‘The Nineteenth-Century Revolution in Government: A
Reappraisal’, The Historical Journal 1 (1958), 52-67
Mitchell, J, S.N. Solomou S.N., and M. Weale, ‘Monthly and quarterly GDP
estimates for interwar Britain’, National Institute of Economic and Social Research
Discussion Paper 348 (2009).
Markell, Patchen, ‘The Insufficiency of Non-Domination’, Political Theory 36:1
(2008), 9-36.
Marwick, Arthur, 'Middle Opinion in the Thirties', English Historical Review
79:311 (1964), 285-298.
McCormick, John, ‘The Dilemmas of Dictatorship: Carl Schmitt and Constitutional
Emergency Powers’ Canadian Journal of Law and Jurisprudence 10:1 (1997), 163187.
McCormick, John, ‘Machiavelli against Republicanism: On the Cambridge School's
"Guicciardinian Moments"’, Political Theory 31:5 (2003), 616-7.
McPhail, Edward and Andrew Farrant, ‘Hayek and the Sorcerer’s Apprentice:
Whither the Hayekian Logic of Intervention?’, American Journal of Economics and
Sociology 72: 4 (2013), 966-982.
Nelson, Eric, ‘Liberty: One Concept Too Many?’, Political Theory 33:1 (2005), 5878.
O' Driscoll, Gerald P., and Sudha Shenoy, ‘Inflation, Recession, and Stagflation’ in
Edwin Dolan (ed.), The Foundations of Modern Austrian Economics. (Kansas, 1976)
Accessed at http://www.econlib.org/library/NPDBooks/Dolan/dlnFMA13.html#Part
3, Essay 7 04.09.15.
O’Neill, John, ‘In Partial Praise of a Positivist: The work of Otto Neurath’, Radical
Philosophy 74 (1995), 29–58.
268
Parris, Henry, ‘The Nineteenth-Century Revolution in Government: A Reappraisal
Reappraised’, Historical Journal 11 (1960), 17-37.
Paul, Ellen Frankel, ‘Laissez Faire in Nineteenth-Century Britain: Fact or Myth?’,
Literature of Liberty 3:4 (1980), 5-38.
Pettit, Philip, ‘Freedom as Antipower’, Ethics 106:3 (1996), 576-604.
Pettit, Philip, ‘Keeping Republicanism Simple: On a Difference with Quentin Skinner’
Political Theory 30:3 (2002), 339-356.
Pettit, Philip, ‘A Republican Right to Basic Income?’, Basic Income Studies: An
International Journal of Basic Income Research 2:2 (2007), 1-7.
Pettit, Philip, ‘The Instability of Freedom as Noninterference: The Case of Isaiah
Berlin’ Ethics 121:4 (2011), 714
Pugh, Martin, ‘The Liberal Party and the Popular Front’, English Historical Review
121:4 (2006), 1327-1350.
Rosanvallon, Pierre, ‘Political Rationalism and Democracy in France in the 18th and
19th centuries’, Philosophy Social Criticism 28:6 (2002), 687-701.
Rothschild, Emma, ‘Adam Smith and The Invisible Hand’, The American Economic
Review 84:2 (1994), 319-322.
Sarvasy, Wendy, ‘A Reconsideration of the Development and Structure of John Stuart
Mill's Socialism’, The Western Political Quarterly 38:2 (1985), 312-333.
Scheuerman, W.E.,‘The Unholy Alliance of Carl Schmitt and Friedrich Hayek’
Constellations 4:2 (1997), 172-188
Shearmur, Jeremy, ‘Hayek, Keynes and the State’, History of Economics Review 26
(1997), 68-82.
Shearmur, Jeremy, ‘Hayek, The Road to Serfdom and the British Conservatives’,
Journal of the History of Economic Thought 28:3 (2006), 309-314.
Skinner, Quentin, ‘Meaning and Understanding in the History of Ideas’, History and
Theory 8:1 (1969), 3-53.
Skinner, Quentin, ‘A Third Concept of Liberty’, Proceedings of the British Academy
117 (2002), 237-268.
Skinner, Quentin, ‘A Genealogy of the Modern State’, Proceedings of The British
Academy 162 (2008), 325-370.
Skinner, Quentin, ‘Rethinking Political Liberty’ History Workshop Journal: 61
(2006), 156-170.
269
Skidelsky, Robert, ‘How Keynes Came to Britain’ Review of Keynesian Economics
Review of Keynesian Economics 4:1 (2016), 4-19.
Spieker, Jörg, ‘Defending the Open Society: Foucault, Hayek, and the
Problem of Biopolitical Order’, Economy and Society 42:2 (2013), 304-321.
Stigler, George J., ‘The Development of Utility Theory 1’, Journal of Political
Economy, 58:4 (1950), 307-327.
Stigler, George J., ‘The Development of Utility Theory 2’Journal of Political
Economy, 58:5 (1950), 373-396.
Taylor, Charles, ‘What’s Wrong with Negative Liberty’, Philosophy and the Human
Sciences Philosophical Papers 2 (1985), 211-229.
Tomlinson, Jim, ‘”A Keynesian Revolution” in economic Policy Making?’ Economic
History Review 37:2 (1984), 258-262.
Tomlinson, Jim, ‘British Government and Popular Understanding of Inflation in the
mid-1970s’, The Economic History Review 67:3 (2014). 750-768.
Tribe, Keith, ‘”Das Adam Smith Problem” and the origins of modern Smith
scholarship’, History of European Ideas 34:4 (2008), 514-525.
Wernhard, Moschel, ‘The Proper Scope of Government Viewed from an Ordoliberal
Perspective’, Journal of Institutional and Theoretical Economics 157 (2001), 3-13.
4.4 Reviews in Journals
Bauchet, Pierre, ‘The Constitution of Liberty’ Revue économique 13 (1962), 143-144.
Hook, Sidney, ‘Of Tradition and Change: The Constitution of Liberty by F. A.
Hayek’, New York Times (21st February, 1960).
Hyneman, Charles S., ‘The Constitution of Liberty,’ Midwest Journal of Political
Science, 5 (1961), 86–87
Mayo, H.B., ‘The Constitution of Liberty’, Canadian Journal of Economics and
Political Science 27 (1961), 115–16.
Pincoffs, Edmund L., ‘The Constitution of Liberty’, Philosophical Review 70 (1961),
433–34.
Vanberg, Viktor, ‘Hayek’s Legacy and the Future of Liberal Thought: Rational
Liberalism vs. Evolutionary Agnosticism’, Journal des Économistes et des Études
Humaines 5 (1994), 451-481.
270
4.5 Articles and Reviews in Newspapers, Periodicals and Websites
Biffen, John, ‘The Power Behind the Throne’ Obituary of Keith Joseph The Guardian
Accessed at http://www.theguardian.com/politics/1994/dec/12/obituaries 10.08.15.
Brunt, Ros, ‘Thatcher Uses her Woman’s Touch’ Marxism Today (June, 1987), 2224.
Cassidy, John, ‘The Hayek Century’ (7th February 2000) New Yorker Accessed at
http://www.hoover.org/research/hayek-century 09.10.15
Clarke, Peter, ‘The Antagoniser’s Agoniser’, London Review of Books 23:14 (19th
July, 2001), 7-8.
Conn, David, ‘Orgreave Inquiry Calls Grow After Damning Hillsborough Verdict for
Police’. Accessed at http://www.theguardian.com/politics/2016/may/16/orgreaveinquiry-calls-grow-after-damning-hillsborough-verdict-for-south-yorkshire-police
25.06.16.
Davies, William, ‘The Difficulties of Neoliberalism’ Accessed at
https://www.opendemocracy.net/will-davies/difficulty-of-neoliberalism 04.11.15.
Gray, John, ‘How Friedrich Hayek became Fascinated with the Romance of Harriet
Taylor and J S Mill’, The New Statesman (28th May, 2015). Accessed at
http://www.newstatesman.com/culture/2015/05/how-friedrich-hayek-becamefascinated-romance-harriet-taylor-and-j-s-mill 05.05.2016.
Robin, Corey, ‘Hayek von Pinochet’ http://coreyrobin.com/2012/07/08/hayek-vonpinochet/ also http://crookedtimber.org/2013/06/25/the-hayek-pinochet-connection-asecond-reply-to-my-critics/
Robin, Corey, ‘Capitalism and Nazism’. Accessed at
https://www.jacobinmag.com/2014/04/capitalism-and-nazism/ 10.19.15.
Selwyn, Benjamin, ‘Friedrich Hayek: in defence of dictatorship’ (9th June, 2015)
Accessed at https://www.opendemocracy.net/benjamin-selwyn/friedrich-hayekdictatorship 04.07.16
Sunstein, Cass, ‘John & Harriet: Still Mysterious’ review of John Stuart Mill and
Harriet Taylor: Their Friendship and Subsequent Marriage, New York Review of
Books (2nd April, 2015). Accessed at
http://www.nybooks.com/articles/2015/04/02/john-stuart-mill-harriet-taylor-hayek/
16.06.2016.
4.6 Other Online Sources
Bank of England Publications Three Centuries of Data. Accessed at
www.bankofengland.co.uk/publications/.../threecenturiesofdata.xls on 05.08.15.
271
Bevir, Mark, interview with Admir Skodo (4th September 2009). Accessed at
http://figureground.org/interview-with-mark-bevir/ 03.03.2014.
Conservative Party General Election Manifesto ‘Putting Britain First: A national
policy’. Accessed at http://www.conservativemanifesto.com/1974/oct/october-1974conservative-manifesto.shtml 11.05.16.
Institute of Employment Rights ‘Chronology of Labour Law, 1978-2008’. Accessed
at http://www.ier.org.uk/resources/chronology-labour-law-1979-2008 02.07.16.
Lloyd George, David, on Adolf Hitler. Accessed at
http://lloydgeorgesociety.org.uk/en/article/2008/0130361/lloyd-george-and-hitler
03.11.15.
Report of the Chilean National Commission on Truth and Reconciliation. Accessed
at
http://www.usip.org/sites/default/files/resources/collections/truth_commissions/Chile
90-Report/Chile90-Report.pdf
Shenoy, Sudha, interview with Mises Daily (2003). Accessed at
http://mises.org/library/global-perspective 27.05.15.
Skidelsky, Robert, ‘Genius, Businessman, Bohemian: The Many Masks of Keynes’
interview (18 July, 2000). Accessed at
https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_robertskidelsky.ht
ml 31.05.16.
Skinner,Quentin, ’How Should we Think about Freedom?’, A Neubauer Collegium
Director's Lecture. Accessed at https://www.youtube.com/watch?v=MvbMR5HB7BI
01.09.16.
Thatcher, Margaret. Annotated copy of 1944 White Paper on Employment.
Accessed at http://www.margaretthatcher.org/document/110368 11.12.15.
272