A Michael Kinsley article on how American's reacted to losing one of their basic freedoms in the 1970's has inspired a discussion of price controls and the modern history of the freedom movement over at The Volokh Conspiracy. Worth quoting:
Nixon's [price control] edict was the precipitating event for the founding of the Libertarian Party by a group of activists who thought the Republican Party had finally become entirely hopeless. Whatever has become of the LP since then, I think that fact was and is important. Largely under Nozick's influence, academics often talk as if the defining issue for libertarians is opposition to welfare or poverty relief by the state. (Not that Nozick himself thought this; he talked about it more because it was an interestingly hard case.) But Republicans had been administering and expanding the welfare state for years; and Friedman and Hayek and their followers had been arguing about extent and incentives, but didn't believe that state-directed poverty relief was wrong per se and both Hayek and Friedman advocated a particular form of it. It was the assertion of control over the price system that broke the activists' back.
The discussion was started by this quotation from Kinsley:
The notion that the government could tell everyone from General Motors to a baby-sitting teenager what they could charge�and did so�seems shocking in retrospect, at least to me. There was no real national emergency. It was part of a cynical re-election strategy to gun the economy while holding inflation temporarily in check. But at the time, controls were not just accepted but popular. When they disappeared, even those (like me) who had opposed them found it strange and, at first, unnatural. You mean, anyone can just charge whatever they want? How does that work? The analogy isn't perfect. The right to set your own price isn't as profound as the right to express your own political opinion. But it is, if anything, even more a part of every citizen's daily life. And yet when they took it away, we freedom-loving Americans didn't even miss it.
Over time it's simply not true that the right to set your own price is not as profound as your right to express your own opinion -- and this is what folks quickly were learning in the early 1970s. It was a lesson learned not in the least instance by the economists and bureaucrats around Nixon. After having taken a crash-course in the significance of prices to the functioning of an economy - and the hopelessness and destructiveness and blocking this function from occuring -- many of these folks found their thinking changing decisively. Among these you might include George Schultz. Schultz not only played a key role the administration of prices control -- he also helps bring them to an end. As Schultz puts it, "A line of talented people were involved, and even with all that talent we couldn't make wage and price controls work. They're terrible. So at least maybe we proved the negative." Only a few years later, Schultz was supporting Ronald Reagan -- who ran on a plank promising to end the last vestiges of Nixon's failed price control program -- controls on energy prices. The move which finally ended the "energy crisis". Another lesson learned by economist aligned with both major parties. A lesson, by the way, which Hayek had been teaching since his first successful conference paper on housing price controls. And it was no accident that Hayek's work on the coordinating role of prices was rediscovered to wide acclaim during the 1970s. Without the failed monetary policies of stagflation and the failed microeconomic policies of wage and price controls, one wonders whether Hayek would have won the Nobel Prize.
Friedrich Hayek's important essay "Competition as a Discovery Procedure" is now available on the web (pdf). This version of the essay is a translation from a lecture given in 1968 at the U. of Kiel. It differs in several small ways from the essay published in Hayek's New Studies.
Roger Garrison explains it all for you -- an outline of his current LSE lecture series on Hayek, Keynes, Friedman and a macroecon which takes capital goods seriously.
Roger Garrison explains why the false Krugman/Phelps "overinvestment" account of the Mises-Hayek boom-bust cycle gets everything wrong in the sense that it leaves out everthing which is important in the theory, including its central causal mechanism -- sort of like a criticism of the Darwinian theory of evolution which betrays a complete lack of awareness of the causal mechanism of natural selection (Hayek-L posting):
Fiona writes: >>But, on another issue, I wonder why the great aversion to the term "overinvestment" if Austrians regard I/GDP increasing out of sync with consumers' preferences as a part of their story?<<The aversion stems from the popular misinterpretation of the Austrian theory as a theory that's all about overinvestment, a characterization that overlooks the malinvestment emphasized by the Austrians. The malinvestment is the first phase of the self-reversing process. In my own view, the Austians need not deny--and in fact should affirm--that there is overinvestment during the boom. What they should deny is that overinvestment is the whole story .. As understood in the context of a macroeconomy, it would seem that while malinvestment is unique to the Austrian theory, both malinvestment and overinvestment (along with overconsumption) are essential to it. Malinvestment without overinvestment would allow the counter-movements to set in early, nipping the boom in the bud. Overinvestment (along with overconsumption) without malinvestment would allow the economy to experience a temporarily high growth rate, moving first beyond and then back to the PPF but without there being any intertemporal misallocations requiring painful adjustments that can send the economy inside the frontier. Only with both prefixes (mal- and over-) in play do we have (1) a problem of intertemporal misallocation and (2) time for that problem to fester before the internal conflict of market forces eventually turns boom into bust.
Roger Garrison has an important new paper on Overconsumption and Forced Saving
in the Mises-Hayek Theory of the Business Cycle. His abstract includes the following teaser:
unperceived-or only dimly perceived-shortcomings in F. A. Hayek's theorizing may help explain why Hayek was largely ineffective in responding to his critics and why he failed to produce a timely and effective critique of Keynes's General Theory.
Hayek and the Flat Tax. Hayek has a note on the history of the case against progressive taxation on p. 516 of The Constitution of Liberty. He notes that by 1950 there were hardly any economists still around who stood against progressive taxation "on principle" (Hayek lists only Mises & Lutz). The original "scientific" case for progressive taxation using the logic of marginal valuaion was made by Hayek's teacher, Friedrich Weiser. The arguments of Weiser, those also of Edgeworth, and additional political considerations all but swept the field among professional economists.
Hayek suggests that the (intellectual) tide against the case for progressive taxation began to turn only with the work of D. Wright in 1948 and most especially with that of W. Blum and H. Kalven, Jr. in a 1952 U. of Chicago Law Review article. Hayek's own case against progressive taxation comes down to three principle considerations: 1) progressive taxation is an arbitrary abridgement of an individual's right to equality before the law -- individuals are victimized by the political process without any boundary in justice upon confiscation, such as would be provided by the usual standard of equality before the law. 2) Progressive taxation "creates a state of things in which one class imposes on another burdens which it is not asked to share, and impels the State into vast schemes of extravagance, under the belief that the whole costs will be thrown upon others" (Hayek quoting W. Lecky) 3) progressive taxation leads to a violation of the principle of "equal pay for equal work" for non-salaried individuals, resulting in the perversity across the tax year that "the more the consumers value a man's services, the less worthwhile will it be for him to exert himself" (F. Hayek, 1960, p. 317).
Comments from folk familiar with the work of Wright, Democracy and Progress and Blum and Kalven, The Uneasy Case for Progressive Taxation, would be most welcome. More later.
Donald Devine, the vice-chair of the ACU is in the midst of a dustup with Rush Limbaugh and National Review. Devine seeks to pin his foes by claiming the mantle of Hayek:
National Review could not comprehend the most important modern insight about government, made by modern conservatism's icon and Nobel laureate, F.A. Hayek. He recognized that the principle reason for the ultimate failure of national central planning was the inability of the government to process widely disbursed, localized and situation-specific information effectively in complex social settings. The magazine could not understand why that limitation would also apply to the U.S. trying to administer a world empire.
The neo-cons are pseudo-cons, according to Jim Pinkerton. A snippet:
Once upon a time, conservatives opposed God-playing hubris. The Austrian-born economist Friedrich Hayek, for example, wrote a book titled "The Fatal Conceit." And what was that "fatal conceit"? It was the idea that "man is able to shape the world around him according to his wishes." Hayek was no enemy of progress - which is achieved, he argued, through the trial-and-error experiments of the marketplace. His criticism was aimed at central planning, which sought progress instead by overturning the hard-learned lessons of human nature.To Hayek, the idea that experts in a marbled ministry could gather the information necessary to make good decisions was the most lethal of follies. And the same centralization that strangles economic growth, he maintained, also strangles free expression, eventually turning technocrats into tyrants.
Hayek's conservatism was based on caution and prudence. The new conservatism, often called "neoconservatism," is radically different; it should be called pseudo-conservatism. It's based on the profoundly hubristic unconservative idea of creating heaven on earth, of playing God. To be sure, the pseudocons proclaim the purest of motives, but they should be judged on their results, not their rhetoric.
Jason Soon has blogged some notes on liberalism and utilitarianism, Hayek and Rawls.
Major Hayek News. Edelman, Damasio, Searle, Margolis, Pickering, Posner, North, Searle, Caldwell, Feser, Hodgson, Witt, etc. all together, all discussing Dewey, Hayek and Embodied Cognition. WOW. Go here for the details.
"The implications of his thesis are hideous" and his book is "filled with every fallacy known to the study of logic" ... Herman Finer, visiting professor of Government at Harvard on Hayek's The Road to Serfdom, June 5, 1945 in the Harvard Crimson. Over 100 years of the Crimson are now available on line. (Tip via Brad DeLong).
Dennett was recently interviewed by Reason magazine. Here he dances around a discussion of Hayek's notion of cultural filtering intermediated by group success:
Reason: One of the arguments the social theorist Friedrich Hayek made is that cultures that have better rules tend to spread while cultures that have worse rules don�t, and one of the ways you find out whether something is good or bad is, pretty crudely, which cultures are winning over other cultures.Dennett: This is a claim that I�m cautiously skeptical of. But if you couch it very carefully, I think there is something to it. Change the topic from moralities to, say, scientific theory. There�s no question, contrary to some of the blather you see, that good, coherent, true scientific theories in general tend to win out over second-rate, formless, incoherent theories. We�ve improved our understanding of the world over the years. The good theories spread. Bad theories don�t. Well, not always. Sometimes they get a foothold, and they�re sort of like diseases and they�re hard to eradicate, but those are the exceptions. I think it�s an uphill battle for falsehoods to get established.
Dennett's new book is Freedom Evolves.
Some sound reflections from Peter Roff on the transition to a sustainable liberal order in Iraq;
Those who will be dispensing advice to the post-war government must not repeat the mistakes U.S. advisers made in the late 1980s and early 1990s. Assisting the transitions as Soviet-style systems collapsed throughout Eastern Europe and Russia, they emphasized the need for expanding and securing political rights over the need to codify economic rights.Friedrich Hayek, the Nobel Prize-winning Austrian economist, correctly recognized that the free-market capitalist system is the only one through which individuals can intelligently coordinate a society. The sudden appearance or even the imposition of political rights is not sufficient to guarantee peace, liberty or democracy.
"We have seen millions voting themselves into complete dependence on a tyrant," Hayek once wrote, adding that this led many of his generation to understand "that to choose one's government is not necessarily to secure freedom."
"The ideal of democracy rests on the belief that the view which will direct government emerges from an independent and spontaneous process. It requires, therefore, the existence of a large sphere independent of majority control in which the opinions of the individuals are formed," Hayek said.
The large independent sphere he describes can only be achieved where the right of citizens to acquire, amass and transfer property exists and is protected, hence the need for an emphasis on economic rights in a reborn Iraq.
As they say, read the whole thing.
Thomas Pynchon has a new introduction to George Orwell's 1984. A snippet:
What is clear from his letters and articles at the time he was working on 1984 is Orwell's despair over the postwar state of "socialism." .. Orwell seems to have been particularly annoyed with the widespread allegiance to Stalinism to be observed among the Left, in the face of overwhelming evidence of the evil nature of the regime. "For somewhat complex reasons," he wrote in March of 1948, early in the revision of the first draft of 1984 , "nearly the whole of the English left has been driven to accept the Russian regime as 'Socialist,' while silently recognising that its spirit and practice are quite alien to anything that is meant by 'Socialism' in this country. Hence there has arisen a sort of schizophrenic manner of thinking, in which words like 'democracy' can bear two irreconcilable meanings, and such things as concentration camps and mass deportations can be right and wrong simultaneously." We recognise this "sort of schizophrenic manner of thinking" as a source for one of the great achievements of this novel, one which has entered the everyday language of political discourse - the identification and analysis of doublethink.
I've always been convinced that this theme in Orwell was much inspired by his reading of Hayek's chapter eleven, "The End of Truth" in The Road to Serfdom. Orwell read and reviewed Hayek's book in 1944, during during the period in which he was writing 1984. The title of Pynchon's piece in the Guardian is "The Road to 1984". I've never seen a detailed scholarly investigation into this matter -- if only such work had any prospect of being done in our contemporary universities.
UPDATE: Amazingly, the Amazon.com Sales Rank for Hayek's The Road to Serfdom continues strong at # 1249. Even more amazingly, Orwell's 1984 is ranked # 382. And of course, there are other editions of both books which are selling other additional copies.
Richard Epstein has an interesting little piece on Hayek and Orwell. Epstein's bottom line:
In a sense, the contest is between Hayek the tortoise and Orwell the hare. The hare gets most of the publicity; but in the long-run the tortoise supplies us with a more profound appreciation of what makes the commercial marketplace tick.
Also this:
Hayek was not able to offer any coherent theory of what a sensible government should do, or how it might improve the situation.
Unfortunately, Epstein doesn't go beyond a judgment here. My own is that Hayek offers a great deal on how to improve things (e.g. always make sure government programs have room for competitions of various sorts -- an example Hayek jumped on was the school vouchers idea). My guess is that Epstein is not going so much on actual indepth consideration of Hayek's particular ideas and proposals, but is going instead (mostly) on faded memories of the (mostly mistaken) impressions of a hot-in-the-blood rationalistic libertarian.
When Epstein says the following, he is (in my own well considered judgment) completely off-base:
Instead of explaining what sensible rules might determine the proper scope of government activities, Hayek, especially toward the end of his life, often lapsed into a mystical reverence in which he treated �spontaneous order� created by uncoordinated individuals, usually in commercial trades, as a complete alternative to government action.
This is simply the false "Hayek myth" that seems impossible to kill. Yet it's a sure bet that the easy myth will beat hard thinking and onerous research every time. Can you tell I'm a bit tired of the constant repetitions of Hayek myths like these?
An excellent article by Richard Ebeling on Mises and money policy. Once again, it looks like Hayek came to develop an idea whose kernel can be found earlier in Mises:
In essence, Mises was suggesting in 1919 what Friedrich Hayek proposed over fifty years later in the 1970s, that in place of and as an escape from their own government's monetary system and inflationary policies, people should be free to have a "choice in currency" of either gold or the use of any variety of alternative national currencies.
According to Ed Feulner, the internet is taking over the spot once taken by Hayek and friends:
The most exciting development .. has been the proliferation of computer power. In the past, conservatives had to rely on the writings from the great minds - Friedrich von Hayek and Russell Kirk and Milton Friedman - as the primary sources of great argument and solid facts. But for the last five or eight years, the previously restricted access to facts has been pried wide open. Now, most anybody with a personal computer and access to the internet finds cutting-edge theory and rich databases literally at their fingertips. They can personally review not just the arguments, but the actual numbers pertaining to those arguments.
The interviewer is Rush Limbaugh.
John Blundell comes out in favor of a free market in money. Blundell rather likes Hayek's utterly subversive thinking on the issue:
Friedrich Hayek, argued in Denationalise Money that the politicians and their agents, the central banks, should forfeit their monopoly. His assertion is that honesty or reputation would be tested daily on the exchanges.We can see in half the nations of the world the local state monopoly currencies are little more than cruel jokes. People prefer to trade US dollars or possibly gold coins. In some territories the US dollar has displaced the central bank.
Inflation in the UK - how I wish it was termed "dilution" - is bobbing along just beneath 3 per cent. Far better than Edward Heath's 20 per cent but at our modest rate prices still double every 23 years. So, here is a huge disagreement in the centre of what we might call liberal thinking. Should the state have the power to coerce us and if so should it be forced to obey monetary rules? Gordon Brown's innovation of giving the Bank of England autonomy and inflation targets is something of a mirage.
If he reduces or raises taxes sharply the Bank of England has no levers. Despite the fanfares the euro has been less than a triumph. The quiet success on the Continental monetary scene is the Swiss franc. Opt-outs are important. They are a truth test.
I like and admire Milton Friedman. I hold his scholarship in awe. Yet there is a great curiosity that the leading disciple of the capitalist ideal has built his main reputation in advocating a state monopoly - even if it is urged to be plain-dealing and open in its policies.
Hayek's subversive arguments appear to me to be rather stronger. Professor Lawrence White of New York University and Professor Michael Fry of Brown University have published acute pieces of research which retrieve Scotland's lost memory of how banks can succeed as issuers of notes and coins. I doubt if a single MSP has read these studies or could even articulate the arguments.
I used to imagine private money would emerge as a response to monetary chaos. Now policy makers have recovered their continence inflation has lost much of its bite. Yet can you imagine any of the respectable representatives of the capitalist cause proclaiming they could easily supply a more trustworthy currency than the state? The great intellectual defeat of the socialist ideal is nearly complete but they still hold a few fortresses where alternatives are crushed.
I'm not suggesting central banks be abolished, only that they have to surrender their power to compel. There is a scandal so familiar we no longer see it as a scandal - that the civil service and public sector employees enjoy "index-linked" pensions; that is to say they can opt out of the inflation imposed on the rest of us.
Now the appreciation that inflation is purely a monetary disease is almost universally agreed we might be bold and see companies creating their own monies.
Suzanne Fields has Castro's number, with a little help from Alan Kors & F.A. Hayek:
In a provocative essay building on F.A. Hayek, in the current journal of the Social Philosophy and Policy Foundation, Alan Kors, professor of history at the University of Pennsylvania, compares Marxism and socialism to Nazism and fascism. The concentration of power over all life in a centrally planned society, he writes, always attracts and rewards those who are the "morally worst," the most ruthless and the most submissive. Communist leaders don't come to power as a "necessary evil" in a transitional process toward an ideal goal. They exert absolute power for personal gain. Those who rebel are inevitably treated as Castro treats his dissenters.
"No cause, ever, in the history of all mankind," writes Mr. Kors, "has produced more cold-blooded tyrants, more slaughtered innocents, and more orphans than socialism with power."In a provocative essay building on F.A. Hayek, in the current journal of the Social Philosophy and Policy Foundation, Alan Kors, professor of history at the University of Pennsylvania, compares Marxism and socialism to Nazism and fascism. The concentration of power over all life in a centrally planned society, he writes, always attracts and rewards those who are the "morally worst," the most ruthless and the most submissive. Communist leaders don't come to power as a "necessary evil" in a transitional process toward an ideal goal. They exert absolute power for personal gain. Those who rebel are inevitably treated as Castro treats his dissenters.
"No cause, ever, in the history of all mankind," writes Mr. Kors, "has produced more cold-blooded tyrants, more slaughtered innocents, and more orphans than socialism with power."
I've just ordered The Future of Freedom: Illiberal Democracy by Newsweek International reporter Fareed Zakaria. The book adds lots of contemporary detail from around the world on Friedrich Hayek's theme that there is a world of difference between liberal democracy and, well, illiberal democracy. The book has been reviewed in The Wall Street Journal among others publications. For a list of reviews, click here.