Friedrich von Hayek Economic Hokum

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The ideas of Laissez-faire economic theory can be found everywhere: on the internet blogs, on television news programs, on radio, from think tank public position papers, university channels, and political campaigns like the present Obama/Romney 2012 presidential race. Laissez-faire economic policies were key to Reagan’s administration as became stock Republican Trickle Down economic propaganda ever since. Laissez-faire theory even made major inroads into Democratic political platforms; however, this economic school of thought can be traced back to the early 1800s. The actual term “Laissez-faire” was first used in France during the 1600s, but didn’t become a creed until the 1830s when British manufacturing leaders urged passing of the Poor Laws (Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press. Kindle Edition. p. 141-142). Sometimes Laissez-faire economic notions are explicitly presented, but most often they are assumptions underlying political memes which make them easier to accept without critical examination. These background assumptions are difficult to identify and counter-argue even for those familiar with Laissez-faire economic doctrine because these beliefs are so well embedded in public discourse.

Laissez-faire economic doctrine can appear in many forms and contexts: Malthusian natural selection, Edmond Burke Conservatism, Herbert Spencer Social Darwinism, Neo-liberal economics, Austrian Carl Menger, Ludwig von Mises’ Austrian school Capital Theory, Friedrich von Hayek’s Austrian Capital Theory, Ayn Randian nihilistic individualism, Milton Friedman Monetarism, Lew Rockwell Libertarianism, and Globalist Thomas Friedman. There are of course many others apologists for Laissez-faire theory, but I want to exam Austrian economist Friedrich von Hayek because he debated John Maynard Keynes directly and left an extensive record of arguments and counter arguments at the critical time Keynesianism became the dominate economic school of thought during the 1930s. The two economists knew each other personally. The obituary for the son of Friedrich von Hayek, Laurence Hayek, recounted that both Keynes and Hayek took fire watch shifts on the roof of the King’s Chapel during German bombing raids.

Friedrich von Hayek began his economic studies as a Fabian socialist, but never was attracted to Marxism. After the WWI armistice of November 11, 1918, he returned to Vienna in defeated German-Austria intending to study economics. The former Austrian-Hungarian Empire was reduced to a lesser state of German-Austria that suffered from economic depression as the allies extracted postwar reparations. During this difficult time in post WWI German-Austria, the nineteen years old Hayek read John Maynard Keynes’ book “Economic Consequences of the Peace” that was critical of the victorious Allied leaders’ desire to punish Germany with harsh reparation agreements, and warned of revolution in the chaotic defeated states. Because of Keynes’ concern for these suffering countries from extreme hardship, hyper-inflation being one, Hayek said Keynes was “something of a hero to us Central Europeans.” (Wapshott, Nicholas, Keynes Hayek: The Clash that Defined Modern Economics, Norton. Kindle Edition. p.4.). So one can say Hayek was a Keynesian on this issue of the post war Treaty of Saint-Germain-en-Laye that placed economic hardship on Germany and Austria. Hayek was also impressed and agreed with Keynes’ solutions for the government to stabilize Austrian prices and currency as proposed in Keynes’ article “A Tract on Monetary Reform.”

As a law student at the University of Vienna Law School Hayek read Austrian economist Carl Menger on price theory. After Hayek graduated in 1921, a lecturer from the University of Vienna named Ludwig von Mises hired him. With the help of Mises, Hayek worked in the United States as an economic researcher in 1923. Hayek also started work on an economics Ph.D at New York University, and once worked with an economics advisor to President Wilson. Hayek returned to Austria in 1924 and continued studying under Mises as his mentor. In 1927 Mises appointed Hayek as director to the Austrian Institute for Business Cycle Research. Hayek was determined to met Keynes and took the opportunity when invited to a meeting of the London and Cambridge Economic Service in 1928 where the two first met face to face. This organization was founded by Keynes and was composed of the London School of Economics (LSE) and Cambridge University to provide new kinds of statistical data for stock share prices, wages, and production.

At this first meeting Hayek and Keynes got into a fierce debate concerning economic theory that would continue in academia for years. Hayek met two important allies at LSE who would help him publicly confront Keynes ideas. Lionel Robbins was director of the LSE, and William Beveridge who did not like Keynes held the chair of political economy at LSE. As a free-marketer Robbins believed that the London School should oppose the Cambridge school of economic theory characterized by classical economist Alfred Marshall and Keynes. Robbins helped Hayek with writing his papers and speeches in English including strategic advise on how to attack Keynes. In 1931 Robbins invited Hayek to give four lectures arguing against Keynesian economic theories.

However, before giving the four LSE lectures, Hayek’s made a first appearance to the mostly Keynesian Marshall Society in London, Cambridge. Richard F. Kahn, a physicist turned economist and then professor at King’s College in Cambridge, attended this first public lecture. Kahn is credited for the discovery of the “ratio” effect which Keynes renamed “the multiplier” effect as money is repeatedly spent working its way through the economy. Kahn wrote of this first lecture by Hayek.

“The members of the audience—to a man—were completely bewildered,” wrote Kahn. “Usually a Marshall Society talk is followed by a lively and protracted barrage of discussions and questions. On this occasion there was complete silence. I felt that I had to break the ice. So I got up and asked, ‘Is it your view that if I went out tomorrow and bought a new overcoat, that would increase unemployment?’ ‘Yes,’ said Hayek. ‘But,’ pointing to his triangles on the board, ‘it would take a very long mathematical argument to explain why.’”

Joan Robinson, who had a reputation for ruthlessly dispatching her opponents, was less forgiving. “I very well remember Hayek’s visit to Cambridge on his way to the London School,” she recalled nearly forty years later. “He expounded his theory and covered the blackboard with his triangles. The whole argument, as we could see later, consisted in confusing the current rate of investment with the total stock of capital goods, but we could not make it out at the time. The general tendency seemed to be to show that the Slump was caused by inflation.” She cruelly summed up Hayek’s unfortunate debut on the British stage as a “pitiful state of confusion.” (Ibid., pp. 71-72).

In spite of this bad start, Hayek still wanted to give the four lectures to the London School of economics to show Keynes’ theories were wrongheaded by presenting Austrian Capital Theory. British author Nicholas Wapshott has an excellent historical record in his book, Keynes Hayek: The Clash that Defined Modern Economics, (2011) about the debates between Keynes and Hayek that is well worth reading. Currently there is a massive amount of propaganda constructed around Hayek and the Austrian School of Economics to hide the many flaws of this Laissez-faire school of economics.

Hayek urgently sought fame in his new land and was convinced, as was Robbins, that a gently expressed, well-mannered, totally reasonable appraisal of Keynes would not do the trick. His contribution had to be a sharp assault written for maximum effect. Hayek often told colleagues that he liked in particular those thinkers, like Schumpeter and Keynes, who tweaked the noses of the great and the good and liked to shock respectable opinion. Now he was about to offer Keynes a dose of his own medicine. (Ibid., pp. 87-88).

Hayek’s four lectures were about prices, the natural equilibrium of production, interest rates, credit, and monetary theory. These lectures would eventually be published in a book entitled “Prices and Production (1935).” These lectures secured Hayek’s position at LSE, but did not catch Keynes’ immediate attention. Then in August 1931 Hayek attacked Keynes’ recent publication, “Treatise on Money” in the LSE’s journal named, Economica, with Robbins as the journal’s editor. Hayek’s diatribe entitled, “Reflections on the Pure Theory of Money of Mr. J. M. Keynes,” was essentially an ad hominem attack on Keynes. Hayek could only show contempt for Keynes writing in the review that, 

Keynes’s theories may seem to be plausible, even convincing, to the ignorant, but they were little more than mumbo-jumbo to anyone who knew anything about economics. The work was “so highly technical and complicated that it must forever remain entirely unintelligible to those who are not experts.”27 Hayek made little attempt to disguise his contempt for the key terms and equations on which Keynes built his theory. Keynes’s exposition was so “difficult, unsystematic, and obscure” and “extremely difficult,” with “a degree of obscurity which . . . is almost unbelievable,” that “one can never be sure whether one has understood Mr. Keynes aright.”28

Having in his opening remarks excoriated Keynes for his intellectual inadequacies and his lack of knowledge of basic Austrian economic theories, Hayek sets off on a long, complex, and often barely comprehensible explanation for why Keynes’s ignorance of Austrian capital theory, including Hayek’s own contribution, which had not yet been published in English and therefore Keynes could not have read, ensured that A Treatise [on Money] was of little use in explaining the fluctuations of the business cycle. Throughout, Hayek adopted an ill-tempered tone of indignation, as if Keynes had deliberately set out to offend him personally. “I have no fundamental objection to this somewhat irritating distinction [between entrepreneurs’ profits and money income],”29 he writes, before listing what he seems to imagine are a succession of personal slights. “I cannot agree with his explanation of why profits arise,”30 he writes. “I must confess that I am absolutely unable to attach any useful meaning to his concept.”31 And “I shall repeatedly have occasion to point out”32 another of Keynes’s perceived misapprehensions. While Keynes, who was not without a large ego himself, was so confident he often changed his mind and admitted his faults, Hayek’s stance was based on absolute certainty that he was right in every particular. Keynes reveled in controversy and debate and welcomed those who disagreed with him, while Hayek, in Robbins’s assessment, “was no proselytizer. He had strong convictions himself. But in discussion his focus was always directed not to persuade but rather to pursue implications.”33 Rather than confine himself to explaining his differences with Keynes’s reasoning and conclusions, Hayek’s tetchy remarks are littered with ad hominem snipes, such as “he seems to think . . .” and “in spite of some clearly contradictory statements of Mr. Keynes,” whom he accuses of “very mischievous peculiarities.” He condemns Keynes’s obscurity of language while compounding his rival’s error, as in: “Most of the difficulties which arise here are a consequence of the peculiar method of approach adopted by Mr. Keynes, who, from the outset, analyses complex dynamic processes without laying the necessary foundations by adequate static analysis of the fundamental process.”34 (Ibid,. pp. 90-91).

Director Lionel Robbins of the London School of Economics used Hayek to counter Keynesian economics based in Cambridge by helping Hayek with his English writings and lectures. Some believe Robbins was key in getting Hayek hired at the London School of Economics to hold the Tooke Chair in Economic Science and Statistics in 1931. Robbins also wrote on economics from a Hayekian analytical model for years, but eventually became a full-fledged Keynesian economist while publicly voicing his regret for adhering to Austrian capital theory. Hayek moved back to Austria in 1969.

But Robbins was inextricably implicated in the attack. As the editor of Economica, he not only assigned Hayek to the task but also approved and amended the text. Indeed, it is almost certain that Robbins helped Hayek write the assault, for the use of English throughout “Reflections on the Pure Theory of Money of Mr. J. M. Keynes” is without fault, even though Hayek at the time struggled with written English. When Hayek’s four lectures to the LSE were published in book form as Prices and Production, Hayek acknowledged the contribution Robbins made to cleaning up his English, or, as he put it, “the considerable labour of putting the manuscript into a form fit for publication.”40 At the very least, Robbins did nothing to help Hayek avoid the offensive tone and language that he used throughout the Keynes review. (Ibid., pp. 93-94).

Lionel Robbins, Director of the London School of Economics, and others at the school attempted to bring Keynes and his stimulus policy down to discourage the British government from engaging in deficit spending. Ironically, all of these economists later became Keynesians and abandoned Hayek.

While Robbins and Hayek may have been anxious not to appear to be waging a campaign against The General Theory [of Employment, Interest and Money], it is plain from Hayek’s letter that there was indeed a plot afoot involving Hayek, Robbins, Pigou, John Hicks, and others, to deflate the soaring Keynes. “The chance exists just now to isolate Keynes and to bring to a stand a common front of other Cambridge and London [economists],” Hayek confided to Haberler. (Ibid., p. 177).

After the four Hayekian lectures Keynes responded and eventually won the day and Hayek was all but forgotten for a time.

As Hayek biographer Alan Ebenstein testified, “After Keynes published The General Theory . . . Hayek was virtually forgotten as a technical economist. . . . By the end of the decade, there was little interest in him.”23 (Ibid., p. 181).

What brought Hayek down was his inability to respond to the counter arguments presented in Keynes’ Magnus opus, The General Theory of Employment, Interest and Money.

[to continue...]


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Keynes’ First response to

Keynes’ First response to Hayek’s diatribe against “A Treatise on Money, (1929).”

Hayek had wrote in the journal Economica, an article entitled, “Reflections on the Pure Theory of Money of Mr. J. M. Keynes (1931),” critiquing Keynes “A Treatise on Money,(1929).” Keynes was very busy traveling to from Britain, Europe, and America giving economic advise of how to deal with economic depression. After recovering from illness, Keynes responded to Hayek’s critique to the glee of Robbins who wanted a bitter debate to get wide attention.

Keynes read Hayek’s twenty-six-page review, the first of two parts, with pencil in hand and became increasingly furious, scribbling thirty-four rejoinders in the margin. By the end he was exasperated by Hayek’s approach not only to A Treatise but to academic debate in general. “Hayek has not read my book with that measure of ‘good will’ which an author is entitled to expect of a reader,” he wrote. “Until he can do so, he will not see what I mean or know whether I am right. He evidently has a passion which leads him to pick on me, but I am left wondering what this passion is.”9 Keynes conceded in his “Reply to Dr. Hayek” that Hayek’s contributions to the current economic debate had aroused his curiosity. He began by brutally assessing the arguments Hayek had presented in Prices and Production. “The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45,” he wrote, “and yet it remains a book of some interest, which is likely to leave its mark on the mind of the reader.” In the next sentence he granted that the book had some virtue. “It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam,” he wrote. “Yet Dr. Hayek has seen a vision, and though when he woke up he has made nonsense of his story by giving the wrong names to the objects which occur in it, his Khubla Khan is not without inspiration and must set the reader thinking with the germs of an idea in his head.”10

... “Dr. Hayek has invited me to clear up some ambiguities of terminology which he finds in my Treatise on Money, and also other matters. As he frankly says, he has found his difference with me difficult to explain. He is sure that my conclusions are wrong (though he does not clearly state which conclusions), but he finds it ‘extremely difficult to demonstrate the exact point of disagreement and to state his objections.’ He feels that my analysis leaves out essential things, but he declares that ‘it is not at all easy to detect the flaw in the argument.’ What he has done, therefore, is to pick over the precise words I have used with a view to discovering some verbal contradiction or insidious ambiguity.”12 ... He was not willing to accept that Hayek’s reluctance to confront the novelty of his ideas was merely a matter of obtuseness.

...“Dr. Hayek has seriously misapprehended the character of my conclusions,” he wrote. “He thinks that my central contention is something different from what it really is.” He accused Hayek not only of misrepresenting his views but of putting words into his mouth. “No wonder that he finds many of my conclusions inconsistent,” he wrote. He accused Hayek of hiding behind an argument over terminology when in fact he was simply “looking for trouble” and, to that end, had represented “molehills in the pathway as mountains.”

... “Those who are sufficiently steeped in the old point of view simply cannot bring themselves to believe that I am asking them to step into a new pair of trousers, and will insist on regarding it as nothing but an embroidered version of the old pair which they have been wearing for years.”14

...Keynes doubted that “a competent economist” could misunderstand and misstate his point of view, but he suggested Hayek was incapable of seeing beyond the notions he had learned in Vienna. “Any denial of his own doctrine has seemed to him so unthinkable, that even thousands of words of mine directed to its refutation have been water off a duck’s back, and whilst he notices that I hold conclusions inconsistent with it, he seems still unaware that I have disputed it from the outset.”15 (Ibid., pp. 97-100).

Hayek and Keynes continued their contentious correspondence for a few months which was mainly about definitions of terms such as “velocity,” “effective circulation,” “voluntary savings,” and “forced savings.”  Finally, Keynes concluded that Hayek was stuck in the Austrian economic model and was unwilling to acknowledge a different point of view. Keynes believed that debate had its limitations because, “In economics you cannot convict your opponent of error; you can only convince him of it. And, even if you are right, you cannot convince him, if there is a defect in your own powers of persuasion and exposition or if his head is already so filled with contrary notions that he cannot catch the clues to your thought which you are trying to throw to him.”39 (Ibid., p. 107). But Hayek’s followers kept agitating for further debate. Keynes was annoyed by Hayek’s attacks and had the idea of setting economist Piero Straffa to review Hayek’s Prices and Production in the “Economic Journal.” The Italian Sraffa possessed a massive intellect and could be brutal in debate.

John Maynard Keynes, Piero Sraffa, and Ludwig Wittgenstein were friends at England’s University of Cambridge. From his own finances, Keynes helped the needy Wittgenstein with board and tuition at Cambridge. In 1919 Wittgenstein had given away his inherited fortune to his sister so that persons would not befriend him for his wealth. When the Nazis overtook Austria in March 1938 they taxed the Wittgenstein family because of their Jewish heritage. It is reported the Nazis seized 1.7 tons of gold from the Wittgenstein fortune.

However, it was Sraffa who was the most important intellectual influence on Wittgenstein’s thinking and his late theory of language, which says a lot about Sraffa’s intellectual ability. Wittgenstein credits Sraffa for steering him to an “anthropological” approach to language, which completed the break from the Tractatus’ emphasis on logical form and shifted instead to the “practice” of language. Wittgenstein began to think of the use and rules of language as like playing a game instead of having the structure of a hidden logical calculus. Partly because of Sraffa’s influence, Wittgenstein arrived at a new view of language that did not have a single essence as the Tractatus assumed, but rather words have various related meanings like members of a family having “family resemblances.” This new post-Tractarian language game paradigm is best expressed from a line quoted by Wittgenstein in Goethe’s play Faust. “ the beginning was the deed.”

This practice paradigm is a powerful conceptual tool for the study of economics as David Graeber’s anthropological approach to economics demonstrates in his book, Debt: The First 5,000 Years.

Upon bring introduced by Keynes, he [Sraffa] and Wittgenstein became close friends, and Wittgenstein would arrange to meet him at least once a week for discussions...In the preface of the [Philosophical] Investigations he says of Sraffa’s criticism: ‘I am indebted to this stimulus for the most consequential ideas of this book.’.... Sraffa had the power to force Wittgenstein to revise, not this or that point, but his whole perspective...One anecdote...concerns a conversation in which Wittgenstein insisted that a proposition and that which it describes must have the same ‘logical form’.... To this idea Sraffa made a Neapolitan gesture of brushing his chin with his fingertips, asking: ‘What is the logical form of that?’ This, according to the story, broke the hold Wittgenstein of the Tractarian idea that a proposition must be a ‘picture’ of the reality it describes.... Wittgenstein told many of his friends that his discussions with Sraffa made him feel like a tree from which all branches had been cut. (Ludwig Wittgenstein: The Duty of Genius, by Ray Monk, The Free Press, 1990, p. 260-261.).

Wittgenstein's mother was Leopoldine Kalmus and was an aunt of Friedrich Hayek making him a cousin of Wittgenstein. Unfortunately, we shall see that Hayek was not as open to Sraffa’s criticism as Wittgenstein. Sraffa began his critique of Hayek’s four London School of Economics lectures given in 1931 which were later published as Prices and Production.

Sraffa’s approach to his task was clear. He had been commissioned to assess Prices and Production and to direct attention to Hayek’s errors. He was not concerned with defending Keynes’s theories. Sraffa first takes Hayek to task for considering that money could ever be neutral, “that is to say, a kind of money which leaves production and the relative prices of goods, including the rate of interest, ‘undisturbed,’ exactly as they would be if there were no money at all.” Sraffa accuses Hayek of a rudimentary error by reminding him that his notion of neutral money is confounded by “the beginning of every textbook on money. That is to say, that money is not only the medium of exchange, but also a store of value.” Sraffa describes Hayek’s theories as “a maze of contradictions [that] makes the reader so completely dizzy that when he reaches the discussion of money he may out of despair be prepared to believe anything.” As for the elaborate theory of the stages of productions that Hayek liked to explain with triangular diagrams, Sraffa dismisses it as “a terrific steamhammer in order to crack a nut—and then he does not crack it. Since we are primarily concerned in this review with the nut that is not cracked, we need not spend time criticising the hammer.” As for Hayek’s central contention, that “there can be no doubt” that, if producers employ credit that is larger than the amount of saving, that inflation and collapse will ensue, Sraffa throws Hayek’s words back at him. “As a moment’s reflection will show, ‘there can be no doubt’ that nothing of the sort will happen. One class has, for a time, robbed another class of part of their incomes; and has saved the plunder. When the robbery comes to an end, it is clear that the victim cannot possibly consume the capital which is now well out of their reach.” While Hayek contended that when easy credit was cut off manufacturers were left with redundant machinery, Sraffa suggests that the factory owners got to keep their plant, which could be brought into use when the market picked up. All this was paid for by their customers. Hayek predicted disaster for factory owners if banks lent at too low a rate. Sraffa counter argued that during the period when additional capital unbacked by savings was available, manufacturers would earn enough to put aside cash to pay the interest on the additional capital when its provision came to an end. In the meantime, producers would have gained the means to make a greater number of goods at a lower price. Thus, far from being inflationary, reducing interest rates to bolster production tended in the long run to reduce prices. (Keynes vs. Hayek, pp. 116-118).

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Austrian Macroeconomic

Austrian Macroeconomic Agnosticism

Keynes and Sraffa were not the only ones unable to make sense of Hayek’s Prices and Production.

As Milton Friedman,28 a disciple of Hayekian thinking, put it, “I am an enormous admirer of Hayek, but not for his economics. I think Prices and Production was a very flawed book. I think his capital theory book is unreadable.” (Ibid., p. 29.).

One problem of Hayek’s Prices and Production was the thesis that markets were fundamentally unknowable and then presents theories of how the market functioned. This is one of the contradictions Keynes had in mind when reviewing Hayek’s work. Hayek, and von Mises were inconsistent economic agnostics. Their assumption of the unknowably of markets had the disastrous consequence of Hayek being slow to embracing new statistical methods of measuring aggregate demand and other macroeconomic metrics. In 1927 Mises appointed Hayek as director to the Austrian Institute for Business Cycle Research yet Austrian ideology denied meaningful statistical research could be done. Ironically, Hayek’s first personal introduction to Keynes in 1928 was at a meeting of the London and Cambridge Economic Service organization created by Keynes to provide for businesses useable economic measurements complied by new modern statistical methods. Economic statistical data would help analysts anticipate business cycles.

Hayek’s epistemological agnosticism of market metrics provided ideological justification for not interfering with “natural” business cycles. Keynes’ talk of aggregate demand, price prediction, production, and unemployment trends were nonsensical according to Hayek’s economic fatalism for the laws of economics were like the laws of nature. And yet Mises, “did not believe economics could be treated as a natural science, and he thought that attempts to record the elements of a business cycle would be misleading and pointless.” (Ibid., p. 31). So the Austrian duo believed in contradiction that economics was not natural science, but at the same time economic “laws” were immutable natural forces. 

The battle lines between Keynes and Hayek were thus drawn. Keynes believed it was a government’s duty to do what it could to make life easier, particularly for the unemployed. Hayek believed it was futile for governments to interfere with forces that were, in their own way, as immutable as natural forces. Keynes rejected adherence to the free market as an inappropriate application of Darwinism to economic activities and argued that a better understanding of the workings of an economy would allow responsible governments to make decisions that could iron out the worst effects of the bottom of the business cycle. Hayek eventually came to the conclusion that knowledge about how exactly an economy worked was difficult if not impossible to discover and that attempts to form economic policy based on such evidence were, like a barber practicing primitive surgery, likely to do more harm than good. Keynes believed that man had been placed in charge of his own destiny, while Hayek, with some reluctance, believed that man was destined to live by the natural laws of economics as he was obliged to live by all other natural laws. (pp. 43-44).

As an economist Hayek was a Luddite when ideologically convenient in advocating Laissez-faire non-intervention policies.  However, he was a price mystic in regard to how price transactions made up the economy, but then insisted that prices levels could not be aggregated into measured price levels.

He [Hayek] insisted that measuring elements of the economy was no substitute for understanding how an economy worked. He derided attempts “to establish direct causal connections between the total quantity of money, the general level of all prices and, perhaps, also the total amount of production”28 in mathematical equations as if economics were a science no different from physics or chemistry. The true key to understanding economic activity, he argued, was the choices individuals made, which were so many and diverse they could not be easily measured. By the same token, he dismissed assumptions based on general price levels. Far more telling, he argued, were the myriad different prices agreed in the countless individual transactions that together made up the economy.(Ibid., p. 73).

Hayek’s economic agnosticism caused him to misunderstand everything Keynes was trying to explain concerning macroeconomic trends. Hayek could not see the macro forest for the micro trees. Yet Hayek attempted to speak in macroeconomic terms regarding savings, interest rates, and investment interaction. Hayek’s purely theoretical understanding of the mechanical Austrian paradigm allowed recognition of economic particulars, but not their abstract aggregated universals. Keynes took into account both micro and macro economic structures although those terms were not used at the time of Keynes’ authorship of The General Theory. Keynes experiences in post war European reconstruction give him a practical understanding of economics.

Hayek was convinced that the economy as a whole was an elusive subject that could only be understood, and even then only partially, by considering the interaction of individuals in the marketplace. Keynes, however, was in the process of making a breakthrough in thinking that would emerge only on publication of The General Theory. He believed an economy could best be understood by grasping the big picture, looking from the top down at aggregates of such elements of the economy as supply, demand, and interest rates. Hayek was stuck in what came to be known as “microeconomic” thinking, looking at the different elements such as costs and value that made up an economy, while Keynes was making the leap to a new way of considering the working of the economy: macroeconomics, which appraised the economy as a whole. It is little wonder that the arguments between Keynes and Hayek before The General Theory was published settled so little, for they were attempting to explore by wholly microeconomic means the profound difference that was emerging between Hayek’s microeconomic approach and Keynes’s nascent macroeconomic notions. (Ibid., p. 121).

Keynes, in contradiction to Hayek, created a new field called macroeconomics and “econometrics” to measure economic activity that Hayek as an economic agnostic said was impossible and unreliable. The Hayekian notion of the unknowably of the market was a key reason that he disparaged government’s role in establishing economic justice, and even altruism, calling such efforts socialism.

”...production for use is only possible in a society where we know all the facts, but to achieve the situation where we are all working for people we do not know and are being supported by the work of people we do not know is made possible because we produce for profit. Profit is the signal, which tells us what we must do in order to serve people we do not know.” Friedrich A. Hayek interviewed by John O'Sullivan in 1985. (10:36 minutes)

“...once you accept the socialist values that you must be guided by the conception of a just distribution all the factual arguments are irrelevant. Well, of course the factual arguments prove that the just distribution is impossible and that the distributor knows all the facts.” (11:30)

“Altruism is an instinct we have inherited from the small society where we know for whom we work, whom we serve. When you pass from this what I like to call it the ‘concrete society’ where we are guided by what we see to the abstract society, which far transcends our range of vision, it becomes necessary that we are guided not by the knowledge of the effect of what we do, but by some abstract symbols. Now this only symbol which takes us where we can make the best contribution is profit. And in fact by pursuing profit you are the most altruistic you can possibly be because we extend our concern to people who are beyond our range of personal conception. This is the condition, which makes it possible to even to produce what I call an extended order, and order which is not determined by our aim, by our knowing, but as an most urgent means, but by an impersonal mechanism who by a system of communication puts a label on certain things which is wholly impersonal.” (16:00)

Finally, Hayek contradicts himself again by admitting that state economic planning could prevent a crisis by admitting that “if administered with extraordinary caution and superhuman ability,” the plan to have a government infuse money into the system to provoke demand “could . . . perhaps, be made to prevent crises.”16 (Hayek vs. Keynes, p. 50).

16 Original Source: Hayek, “The ‘Paradox’ of Saving,” translated by Nicholas Kaldor and George Tugendhat, was published in Economica, vol. 11, May 1931, and reproduced in Collected Works, vol. 9: Contra Keynes and Cambridge, p. 118-119.

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The Self-Regulating Market

The Self-Regulating Market Equilibrium Paradigm

Initially both Hayek and Keynes believed that an economy has a natural state of equilibrium at full employment. Even after dis-equilibrium in production and consumption, it was believed by classical economists that an economy would automatically reestablish a balance of equilibrium between employment, production, and consumption. However, Keynes was the first to question the notion of full employment equilibrium assumed by all classical Marshallian economists.

In fact the ideas Keynes advanced in A Treatise [on Money] were not too distant from the notions Hayek had expressed in Prices and Production. What was to be an important similarity, but not for long, was that both assumed that in a closed economy total output was fixed and an equilibrium would arise where everyone was employed. The main difference was that in establishing the reasons for—and the results of—savings and investment being unequal, Hayek, unlike Keynes, resorted to the Austrian School theory of capital and concluded that during such times the level of credit in an economy was out of kilter with true demand. (Ibid., pp. 97-98).

He had seen in 1923 unemployment at 11.4 percent, or 1.1 million out of work. Even in 1929 Britain’s unemployment rate continued to 1.34 million, or one in ten workers jobless for more than eight years. His experience had shown him that unemployment could be persistent.

Keynes’s wholesale contradiction of the claim of classical economists like Hayek that an economy, left to its own devices, in the long run inevitably came to rest at a state of equilibrium where there was full employment. Keynes was to argue in The General Theory that in the short and medium terms an economy could reach equilibrium with considerable unemployment and that the full employment equilibrium predicted by classical economists too often proved to be elusive. Keynes believed that the chronic unemployment endured in Britain and America in the 1920s and 1930s was evidence that the full employment equilibrium was a fallacy. (Ibid., p. 128).

Keynes observed, “The more troublesome the times, the worse does a laissez-faire system work.” (Ibid., p. 32). Keynes learned from classical economist Alfred Marshall the classical concept of Say’s Law of markets, savings, and investment. John Kenneth Galbraith explains Say’s Law that was first presented in 1803 as the following:

Well over a century earlier Jean Baptiste Say, the great French economist, had formulated Say’s Law of Markets, which established that all production created the purchasing power by which it could be bought. All of the income from the sale of a product accrued to someone, somewhere, in wages, payments for raw materials, interest or profits. And in doing so, it provided the purchasing power to buy what was produced. Were some of these receipts saved, it made no difference: someone else would borrow and spend the savings, and if they didn’t, the price of the product would automatically adjust itself downward so the reduced expenditure would still be sufficient to clear the market. In 1936, it was not only wrong but professionally unwise to reject Say’s Law. It was a litmus by which the reputable economist was separated from the crackpot. John Kenneth Galbraith,A Life In Our Times, Houghton Mifflin, 1981, p.65.

In denying Say’s law, Keynes was risking being categorized as a crackpot, but his observation of Britain’s decade long chronic unemployment convinced him that a new understanding of market business cycles was needed.

Keynes denied one of the most commonly accepted laws governing economics, Say’s Law, which says that supply creates its own demand.29 The notion “still underlies the whole classical theory, which would collapse without it. . . . Contemporary thought is still deeply steeped in the notion that if people do not spend their money in one way they will spend it in another,”30 which leads, he suggested, to another misconception of the classical school, that “an act of individual saving inevitably leads to a parallel act of investment.”31 Denying Say’s Law was central to the fresh thinking in The General Theory, leading to the notion of “liquidity preference,” Keynes’s explanation for why savings did not automatically translate into investment. (Ibid., p. 148).

Hayek’s first argument for Laissez-faire quietism is that markets are fundamentally unknowable making any state government corrective action damaging, or counter productive. His second ideological justification for Lassie-faire is that any interruption of this self-correcting mechanism seeking a natural balance between production and consumption will delay the market’s eventual full employment equilibrium. After reexamination, Hayek finally recognized that Keynes was right instead. Hayek changed his mind and gave up his belief in the classical market equilibrium paradigm making this the first time he contradicted a central doctrine of the Classical and Austrian economic schools of thought.

The notion of an economy reaching a state of equilibrium is commonplace in economic theory, the best-known example in the debate between Hayek and Keynes being the assumption, held by classical economists, that over time, when savings and investment became perfectly aligned, an economy would come to rest at a state of full employment. Keynes challenged the existence of such an equilibrium because the facts of the real economy in Britain and America during the 1920s and 1930s were demonstrably at odds with the notion. In as much as the economy in either America or Britain had come to rest, it was at a state of mass unemployment, not full employment. The cries of classical economists that the equilibrium had not yet been reached sounded unconvincing when the economy was stuck in a prolonged slump. Hayek looked afresh at the notion of an equilibrium and, contrary to his former belief, became convinced that there is rarely if ever a time when an economy comes to rest. (Ibid., p. 178.)

If an equilibrium was invariably elusive in the real world, Hayek argued, then the a priori assumptions that theoretical economists make about the operation of an economy, or a market, tending toward an equilibrium would always fall short. An equilibrium can be predicted only if the intentions of each of the participants is known, and that is impossible both in theory and in practice. This may seem a slight point, as he readily admitted, but by denying the existence of a predictable equilibrium and denying the validity of a priori assumptions about the many accurate and inaccurate human choices that make up even the simplest decisions in a market, Hayek broke new ground. In the process he distanced himself from Mises and his Viennese colleagues, as well as other gods of the Austrian School universe for whom equilibrium was a central assumption.

Although Hayek did not at this time quite make the final leap of logic by which he was to become famous, in “Economics and Knowledge” he reached the threshold of an important breakthrough. A priori assumptions about mass economic behavior depend on an ideal set of conditions in which each individual possesses perfect knowledge of both existing and future conditions needed to make a decision in a perfect market. But, Hayek reminded his audience, the perfect market does not exist. Economic decisions in real life are made by individuals based on partial knowledge of current conditions coupled with their best guess of what may happen. Each individual comes to a different (and often contrary) judgment about what those conditions might be. (Ibid., pp. 179-180).

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Keynes’ response to Hayek:

Keynes’ response to Hayek: The General Theory of Employment, Interest and Money.

After more than fives years of research, Keynes published, The General Theory of Employment, Interest and Money on February 4, 1936. It was Keynes’ most important work directed mostly at convincing economists of the need to increase aggregate demand as the method of increasing employment. Paul Samuelson, known as the father of modern economics, described the text with these words.

...“It is a badly written book, poorly organized,” he wrote. “It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares’ nests and confusions. . . . Flashes of insight and intuition intersperse tedious algebra. An awkward definition suddenly gives way to an unforgettable cadenza. When it is finally mastered, we find its analysis to be obvious and at the same time new. In short, it is a work of genius.”22 (Ibid., pp. 146-147).

Just as importantly, The General Theory was also Keynes’ counter response to all of Hayek’s objections to Keynes’ theories since their first meeting. Keynes directly challenged Hayek to identify any flaws with the economic theses presented in The General Theory.

Keynes’ magnum opus questioned all of Hayek’s assumptions of Austrian capital economic theory: “It may well be that the classical theory represents the way in which we should like our Economy to behave,”...“But to assume that it actually does so is to assume our difficulties away.”26 (Ibid., p. 148). With Hayek in mind, Keynes wrote in summary:

“It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the Principles of Economics that enlightened self interest always operates in the public interest. Nor is it true that self interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear sighted than when they act separately.”20 (Ibid., p. 35).

Keynes had help from his academic colleagues with formulating the arguments in The General Theory. The Marshall Society, named after the Cambridge economics professor Alfred Marshall, was a group made up of Keynesians with a smaller informal group who called themselves the “Cambridge Circus.” One of the most important members of the Circus was economist Richard Kahn. Kahn helped Keynes understand that inflation accompanied any increase of aggregate demand irrespective of its cause so there was nothing particularly unique with an artificial increase in aggregate consumer demand created by government spending. Keynes knew about the hazards of excessive monetary printing from his examination of the collapsing currencies after WWI, which was caused by governments breaking away from the gold standard and printing money to pay for war. Keynes saw a close connection between debased currencies and revolutions. Also, Keynes was not unaware of the ineffectiveness of only using monetary policy to increase aggregate demand and employment. In a letter to FDR, Keynes warned that increasing money supply was “like trying to get fat by buying a larger belt. In the United States today your belt is plenty big enough for your belly.” 

Keynes argued in The General Theory that there is no practical difference between increasing national income that is needed to balance the fiscal Budget, and increasing employment.

Keynes asserted that “it is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the Budget—that we must go slowly and cautiously with the former for fear of injuring the latter. Quite the contrary. There is no possibility of balancing the Budget except by increasing the national income, which is much the same thing as increasing employment.”36 (Ibid., p. 135).

Keynes saw the politicians’ contradictory willingness to spend for war, but cautious for spending to reduce unemployment. The use of capital in both war and peace involved the same economic principles of production and consumption. Governments have always fought foreign wars and engaged in massive deficit spending for armaments so Keynes asked why not use the same economic principles constructively to fight domestic unemployment and depression. Keynes wrote,

“For hitherto war has been the only object of governmental loan-expenditure on a large scale which governments have considered respectable. In all the issues of peace they are timid, over-cautious, half-hearted, without perseverance or determination, thinking of a loan as a liability and not as a link in the transformation of the community’s surplus resources, which will otherwise be wasted, into useful capital assets. I hope that our Government will show that this country can be energetic even in the tasks of peace.”43  (Ibid., p. 137).

Keynes explained that capital expenditures for war, or to reduce unemployment function according to the same neutral universal economic laws regardless of whether the ends are constructive or destructive. Keynes famously wrote,

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again,” he wrote, “there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”34 To emphasize how a commonsense grasp of economics differed from how economics worked in real life, he repeated his ominous conclusion that “just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance.”35  (Ibid., pp. 149-150).

One section of this quote by Keynes, “It would, indeed, be more sensible to build houses and the like...” is often left out by Laissez-faire apologists to render Keynes’ statement absurd. All free societies must make the political distinction between existing economic principles and specific national policies. These economic principles can be applied to any set of policies depending on the moral, or immoral, aims of a given community. Keynes clearly pointed out; historically these universal economic principles have been enthusiastically directed toward war.

After the publication of The General Theory, economists all over the world expected an outraged response from Keynes’ loud and indignant nemesis. But for some reason Hayek was unable, or unwilling to respond with any counter arguments whatsoever. There was simply no response, only a deafening silence.

Hayek, who had set himself the formidable task of contradicting the steady stream of arguments emanating from Keynes’s prodigious pen, now seemed honor bound to respond. Why was the raising of aggregate demand an inappropriate way to increase employment? In what way did the multiplier not operate as Keynes and Kahn suggested? Why did the notion of liquidity preference not undermine the classical explanation of how interest rates were set? If The General Theory was riven from top to bottom with misapprehensions, misleading assumptions, false logic, and inappropriate and deluded leaps of imagination, this was surely the time for Hayek to dismantle Keynes’s arguments before they took hold. But answer came there none. Hayek remained hushed. Faced with confronting Keynes at full flow, Hayek blinked. Weeks passed, but his expected counter-blast was not forthcoming. Hayek’s life purpose, the very reason Robbins summoned him from Vienna to the LSE, a key reason Beveridge had leapt at the chance to appoint him to the LSE staff, appeared to have come to nothing. Keynes’s great work was met with neither a bang nor a whimper. Hayek’s response, so keenly awaited by classical economists throughout Britain and the continent, was a yawning silence.(Ibid., pp. 152-153).

After all of Hayek’s insults directed at Keynes, especially in the review of The Treatise on Money, calling his work stupid, ideological, uninformed, a failure, half baked ideas, crackpot, mumbo jumbo, incomprehensible, unintelligible, unsystematic, obscure, unbelievable, weak, megalomaniacal, over confident, contradictory, proselytizing, mischievous, ambiguous, unconventional—after all these attacks, Hayek could not back up his past criticisms. Have you ever noticed that the accusations, and characterizations that extremist hurl at their opponents often describe their own behavior? They project on to others the very motivations, qualities, and actions that they themselves eventually display.

Why did Friedrich Hayek not instantly confront what he believed to be the missteps of logic in Keynes’s General Theory? Had he volunteered his counterarguments at the time of publication, he might have nipped the Keynesian Revolution in the bud. For the remainder of his life, Hayek was coy about the missed opportunity. As he confessed nearly forty years later, “I have to the present day not quite got over a feeling that I had then shirked what should have been a plain duty.”1 Keynes went out of his way to invite Hayek’s criticism. He sent Hayek advance copies so that his nemesis could compile his critique in time for publication day. Among his talents, Keynes was a master publicist and knew the value of courting controversy. A heated debate with Hayek would have boosted sales. It was not just a keen commercial sense that drove Keynes. He had long targeted Hayek and his classical school colleagues and genuinely wanted to debate them. His ambition was not merely to out-argue his opponents but to supercede them. And that could be achieved only if they were willing to engage in argument. He was limbered up, ready for a fight. Indeed, he must have been disappointed that Hayek declined to enter the ring. To drown the classical economists in the rip tide of enthusiasm that accompanied The General Theory’s debut was not enough. The book repeatedly challenged Hayek and his colleagues to defend their position. Hayek, however, was a no-show. He thought Keynes was taking economics in a dangerous direction, but he remained a reluctant combatant. (Ibid., p. 172).

Hayek had colleagues at The London School of Economics that could of helped him. Lionel Robbins, the director of LSE helped Hayek write his polemics against Keynes. Hayek was a student of Ludwig von Mises and held the position of director to the Austrian Institute for Business Cycle Research. Hayek had the entire Austrian School of Economics to help with a counter response. Hayek wrote over forty years later,

“I ought to explain why I failed to return to the charge after I had devoted much time to a careful analysis of his writings—a failure for which I have reproached myself ever since,”9 he wrote in a 1983 piece to mark the centenary of Keynes’s birth. “It was not merely . . . the inevitable disappointment of a young man when told by the famous author that his objections did not matter since Keynes no longer believed in his own arguments. Nor was it really that I became aware that an effective refutation of Keynes’s conclusions would have to deal with the whole macroeconomic approach. It was rather that his disregard of what seemed to me the crucial problems made me recognize that a proper critique would have to deal more with what Keynes had not gone into than with what he had discussed, and that in consequence an elaboration of the still inadequately developed theory of capital was a prerequisite for a thorough disposal of Keynes’s argument.”10 (Ibid., p. 175).

Later, Hayek attempted to write his own book in response to Keynes’ The General Theory entitled The Theory of Capital published in 1941. However, Hayek wrote about his own book, “it very gradually dawned on me”32 that “the thing’s become so damned complicated it’s almost impossible to follow it.”33 (Ibid., p. 183). Milton Friedman agreed and wrote, “I think his capital theory book is unreadable.” (Ibid., p. 29.)

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“The Road to Serfdom” by

The Road to Serfdom” by Hayek

Keynes’ General Theory revolutionized the field of economics. Keynesian “econometrics” became a set of modern statistical tools in a new field named only after his death, as “macroeconomics.” Hayek had no use for scientific statistical macro tools since Austrian economists did not even view economics as a scientific discipline. Hayek was still stuck at the “microeconomic” level of economic activity and theorizing.

Austrian economics is vehemently opposed to market interventionist policies. Hayek’s polemics turned from economics to the socio-political consequences of Keynesian management. Hayek’s agnosticism of market forces remained a foundational concept for his 1944 book, The Road to Serfdom. He originally entitled this book, “The Nemesis of the Planned Society.” He wrote Road to Serfdom to “make my ‘progressive’ friends here understand that democracy is possible only under capitalism and that collectivist experiments lead inevitably to fascism.” (Ibid., p. 193). Hayek believed Keynesian planned interventionist economic policies threaten personal freedom, and would lead to fascism as happened in Germany.  Hayek believed, “Once the free working of the market is impeded beyond a certain degree,” ... “the planner will be forced to extend his controls until they become all-comprehensive.”32 (Ibid., p. 193). Once on this slippery slope of interventionism, fascism would be the final result. Keynes believed that Nazism arose from the failure of capitalism, and not from big government.

The Road to Serfdom is Hayek’s most famous book and its thesis is most quoted by anti-Keynesians, anti-government Libertarians, Libertarian Theocrats , and Fiscally Conservatives Deficit Hawks. Some Libertarians base their entire political identification on this single anti-interventionist thesis. And yet Hayek has contradicted himself even on his most popular anti-government argument.

“It has frequently been alleged that I have contended that any movement in the direction of socialism is bound to lead to totalitarianism,” he wrote in 1976. “Even though this danger exists, this is not what [The Road to Serfdom] says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.”40 (Ibid., p. 196). Footnote 40: Hayek, Preface to the 1976 edition of The Road to Serfdom, in Collected Works, vol. 2: Road to Serfdom, p. 55.

Keynes criticized “The Road to Serfdom” for confusing economic policies with the deeper source of totalitarianism since any social mechanism can be utilized for immoral ends such as markets whether planned, or unregulated if a community chooses oppression over liberty. For Keynes “good” is not a thing, but a conceptual criteria by which some-“thing” is judged. Hayek seemed to be saying that planned market intervention is by definition totalitarian and therefore, evil. 

Keynes’ moral argument has a history at Cambridge University. Philosopher G.E. Moore taught both Keynes and Wittgenstein at Cambridge. Moore is best known in ethical theory for defining the “naturalistic fallacy.” This fallacy is based on the argument that value cannot be derived from fact. This is to say “Ought” cannot be derived from “Is.” We cannot appeal to facts to define values. Philosopher G.E. Moore called this the “naturalistic fallacy.” This fallacy originates from construing the “is” of attribution as an “is” of identity. Take the example of a person saying, “Pleasure ‘is’ good” [‘is’ of attribution], then that same person states “Good is identical [‘is’ of identity] to pleasure or, “The Good is pleasure.” This is the naturalistic fallacy. If we equate the meaning of “good” with some determinate characteristic, we make it impossible to discuss whether that characteristic is good because if these characteristics are what “good” means, there can be no point in asking whether they are good. Ethical concepts cannot be defined in terms of non-ethical things.

Hayek believed there are situations in which government market intervention is justified as in the case for social welfare programs. Hayek contradictorily argues that government intervention is bad by definition and then offered exceptions. The “slippery slope” argument is also the name for another logical fallacy named, “The Slippery Slope Fallacy.”

“No,” Keynes continued, “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 look or feel quite so much like Don Quixote. I accuse you of perhaps confusing a little bit the moral and the material issues. Dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly.”45 This was an acute observation: that Hayek’s analysis rested on an understanding of economics or sociology rather than of people. While Hayek was wary of the relationship between government intervention and tyranny, Keynes believed that the tendency toward totalitarianism stemmed from individual moral choices. Hayek conceded in The Road to Serfdom that in the case of tackling chronic unemployment, planning might play its part and that the right form of planning might not lead to oppression. As he later expressed it, “So far as government plans for competition or steps in where competition cannot possibly do the job, there is no objection.”46 He also believed that the state may have a moral duty to step in and that was admissible so long as the spirit of free enterprise was not compromised. “There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody,” he wrote. “Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance—where, in short, we deal with genuinely insurable risks—the case for the state’s helping to organize a comprehensive system of social insurance is very strong.”47 Keynes pounced on this rare glimmer of moderation. There may be a slippery slope from planning to totalitarianism, but Hayek was on a slippery slope too. “I come to what is really my only serious criticism,” Keynes wrote. “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; and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.”48 (Ibid., pp. 199-200).

George Orwell critiqued Hayek’s, “The Road to Serfdom” for ignoring the dangers of capitalistic monopolies.

Typical was a review by the author of Nineteen Eighty-Four, George Orwell,55 no slouch when it came to recognizing creeping authoritarianism. “In the negative part of Professor Hayek’s thesis there is a great deal of truth,” he wrote. “Collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of.” But he added, “Professor Hayek . . . does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.”56 (Ibid., p. 202).

Professor T. V. Smith critiqued Hayek’s Road to Serfdom thesis as undemocratic.

Professor T. V. Smith69 of the University of Chicago turned up the heat, calling Hayek’s argument “hysterical,” “alarmist,” and “overstrident.” “No country has yet wittingly or . . . unwittingly slipped into serfdom whose presuppositions are democratic,”70 he wrote. The point, wrote Smith, was “to distinguish harmful from helpful planning rather than to damn all planning. . . . The author is not opposed to planning. Like the rest of us, he is opposed only to planning which subverts freedom.”71 “The preparation for an electrocution and for an electrocardiograph is the same, up to a point,”72 Smith suggested. The difficulty was telling one from the other. Smith discerned a further flaw in Hayek’s reasoning: that it was hardly undemocratic to plan if democratically elected governments followed the electorate’s wishes that planning occur. “The greatest success of the Constitution . . . is that in a century and a half it has won the people from an ancient distrust of government to an acceptance of it as their friend,” wrote Smith. “A democratic government is the people themselves incorporated.”73 (Ibid., p. 204).

Professor Herman Finer interpreted “The Road to Serfdom” as fundamentally authoritarian.

...University of Chicago professor, Herman Finer,74 responded with The Road to Reaction, in which he dismissed Hayek’s “jungle of fallacies.” He went on, “Hayek’s apparatus of learning is deficient, his reading incomplete, . . . his understanding of the economic process is bigoted, his account of history false, . . . his political science is almost nonexistent, his terminology misleading, his comprehension of British and American political procedure and mentality gravely defective; and . . . his attitude to average men and women is truculently authoritarian.”75 He described the work as “the most sinister offensive against democracy to emerge from a democratic country for many decades.”76 (Ibid., pp. 204-205).

Famous Libertarian, Ayn Rand, rejected Hayek’s Road to Serfdom completely.

The quarrelsome libertarian Ayn Rand,77 who rarely met Hayek in person, and when she did dismissed him as a “compromiser,”78 was enraged by the book. In the margins of her copy she scribbled abusive comments, calling Hayek a “God damn fool,” an “abysmal fool,” an “ass,” and a “total, complete, vicious bastard.”79 (Ibid., p. 205).

Neo-Liberals often argue, “Big government is bad.” Notice the ambiguity in that statement: they are never clear if the statement “Big government is bad” is true by definition, or true as a fact. Prima facie they appear to be making a factual statement, but they really mean it as a definition— big government is bad by definition. However, when they are challenged on a factual level—the need for regulation to prevent financial fraud, for example—they then argue in a circle: “We don’t need government to regulate and harm efficiency in the markets because government is...bad.” The opening remark, “Big Government is bad” is stated as a matter of fact, and when that fact cannot be supported, they return to arguing big government is bad by definition.

The second linguistic trick often encountered when debating the role of planning in markets is that governments “interfere” with a natural equilibrium of production and consumptions. Hayek later abandoned this theory of market equilibrium, but still held to the non-interventionist thesis on which it is based. The word “interference” conceptually implies a balanced state of market forces into which government planning “interfere” with natural economic laws. The negation of “interference,” or “non-interference” means allowing a natural stasis. These two terms set up a false dilemma between natural market equilibrium, and an unnatural government caused dis-equilibrium.

Yet in another contradiction to his belief in unalterable “natural economic laws,” Hayek argued that the field of economics was unlike the natural “sciences” such as chemistry.

Anthropologist David Graeber discovered in his historical research of cultures that markets and currencies do not spontaneously exist, but are brought into existence as a side effect of emerging States. Government is always a dynamic component active within markets, “despite the dogged liberal assumption—again, coming from Smith’s legacy—that the existence of states and markets are somehow opposed, the historical record implies that exactly the opposite is the case. Stateless societies tend also to be without markets.”(Graeber, David, Debt: The First 5,000 Years, Kindle Loc: 1014-1016.).

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  James Dines is a Security


James Dines is a Security Investment Analysts addressing the San Francisco Hard Assets Conference last Friday November 16, 2012. Dines is one of many financial investment superstars who are well known on the elite investment lecture circuit. In this address Dines is discussing the wisdom of buying hard assets like precious metals. However, what stands out in this address, and many other similar talks that I have heard, is the radical ideological nature of these speakers in which they couch their financial analysis. It seems all of these popular investment advisors are Neo-Liberal free marketers of the Friedrick von Mises, and Friedrich von Hayek Austrian School of Economics. This uniformity of ideological belief is evidence of the suppression of other schools of economic thought which really get weeded out at the university level long before a nonconformist analysis makes it to Wall Street.

I have heard numerous well known investment analysts pledge allegiance to the Austrian School of Economics just as James Dines does in the first 10 minutes of lecture,  Part II video. Like Dines, they give a false cartoon history of the Austrian and Keynesian debate in economics during 1920s and 30s. It is really very bad scholarship of this particular economic history between Hayek and Keynes and shakes my confident in the advisor when they give an uninformed and biased summary of Keynes’ economic theory. It is as if just mentioning Friedrich von Mises’ name is code for cut taxes, breakup unions, drive wages down with foreign imports, and cut earned benefits. “Mises” is the password for a click of ideological financial professionals.

In the first ten minutes of part II of Dines lecture, he expresses admiration for Reaganite Republican Jack Kemp and Kemp’s student, Paul Ryan, whose main campaign plank is to cut national debt regardless of the hardship on the lower and middle class. The old saw that these circuit superstars throw out in every speak is to blame Keynesians for the monetarist policy of “printing money” and devaluing the currency as if Keynes was completely unaware of the ineffectiveness of using only monetary policy in a depression. Keynes was not unaware of the ineffectiveness of only using monetary policy to increase aggregate demand and employment. In a letter to FDR, Keynes warned that increasing money supply was “like trying to get fat by buying a larger belt. In the United States today your belt is plenty big enough for your belly.” This isn’t the only instance that Austrian ideologues take Keynes warnings and then use the very same advice to criticize Keynes as if he was the incognizant economist.

Dines, the Hayekian student, used many statistical charts and graphs in his lecture; however, if Mr. Dines was a true Austrian economist, he should not use any of those tools. Keynes’ General Theory revolutionized the field of economics. Keynesian “econometrics” became a set of modern statistical tools in a new field named only after his death, as “macroeconomics.” The London and Cambridge Economic Service was founded by Keynes and was composed of the London School of Economics (LSE) and Cambridge University to provide new kinds of statistical data for stock share prices, wages, and production. Hayek had no use for scientific statistical macro tools since Austrian economists did not even view economics as a scientific discipline. Hayek was still stuck at the “microeconomic” level of economic activity and theorizing.

One problem of Hayek’s Prices and Production was the thesis that markets were fundamentally unknowable and then presents theories of how the market functioned. This is one of the contradictions Keynes had in mind when reviewing Hayek’s work. Hayek, and von Mises were inconsistent economic agnostics. Their assumption of the unknowably of markets had the disastrous consequence of Hayek being slow to embracing new statistical methods of measuring aggregate demand and other macroeconomic metrics. In 1927 Mises appointed Hayek as director to the Austrian Institute for Business Cycle Research yet Austrian ideology denied meaningful statistical research could be done. Ironically, Hayek’s first personal introduction to Keynes in 1928 was at a meeting of the London and Cambridge Economic Service organization, which was created by Keynes himself.

Hayek’s epistemological agnosticism of market metrics provided ideological justification for not interfering with “natural” business cycles. Keynes’ talk of aggregate demand, price prediction, production, and unemployment trends were nonsensical according to Hayek’s economic fatalism for the laws of economics were like the laws of nature. And yet Mises, “did not believe economics could be treated as a natural science, and he thought that attempts to record the elements of a business cycle would be misleading and pointless.” So the Austrian duo believed contradictorily that economics was not natural science, but at the same time economic “laws” were immutable natural forces. So once again the Austrian economists use Keynesian theory and analytical tools to critique Keynes with methodologies they once rejected as impossible.

Mr. Dines reaches all the way back to the 1920s to blame Keynesian economics for America’s debt problem. He seems to have forgotten recent history is which the United States was well on the way to balance the national debt but a certain Republicon President has other ideas.

Thanks to his predecessor’s caution, Bush inherited a budget surplus of $128 billion in tax year 2000–1 that was due to reach $280 billion the following year. The Congressional Budget Office reckoned the surplus would amount to $5.6 trillion over the ensuing decade, of which $3.1 trillion was already allocated to cover Social Security and Medicare obligations. By 2006 the Office expected the $3.4 trillion national debt to be paid off completely, with a $500 billion surplus due in each subsequent year. Bush did not think long about how to spend this rare legacy: he wanted to blow the whole of the surplus—and more—on cutting personal taxation. With a Republican majority in both Houses, he was free to announce $1.35 trillion in tax cuts, stretching to the end of 2010, with an instant rebate of $400 billion, or $600 per American household....

Bush continued pressing the case for tax cuts and increased defense spending, and added a costly extension of prescription drug benefits for those on Medicare.45 “These goals had not been unrealistic in the light of large and projected surpluses,” recalled Greenspan. “But the surpluses were gone six to nine months after George W. Bush took office.”46 After Republican victories in the 2002 midterms, Bush cut taxes on dividends from stocks by 50 percent, a move his Treasury secretary, Paul O’Neill, resisted. At a meeting in December 2002, when Vice President Dick Cheney pushed for the dividend tax breaks and a further cash stimulus to the economy, O’Neill said the deficit was already too large and that the country was “moving toward a fiscal crisis.” “Reagan proved deficits don’t matter,” Cheney interrupted. “We won the mid-terms. This is our due.”47 Shortly after, O’Neill resigned.

Wapshott, Nicholas, Keynes Hayek: The Clash that Defined Modern Economics (Kindle Loc: p. 276-277).

All the Austrians’ perceived sins of Keynesianism could have been avoided in 2001 if Bush had not of pissed away billion of dollars with corporate tax breaks and wars of choice. Now Mr. Dines and other fiscal conservatives are advocating Milton Freidman’s sado-monetarism in which corporate taxes are cut, money supply is constricted, and the social safety nets are cut right when they are needed most.

Antifascist's picture
Libertarians like the

Libertarians like the Director of Production, Freedomworks, Austin Petersen (32:14 minutes), and other fundamentalist free marketers of the von Mises economic cult have engineered a handy dandy strawman argument against John Maynard Keynes’ concept of the multiplier effect of investment. This dishonest strawman argument simply says Keynes advocated a national policy of burying banknotes in abandoned coalmines and allowing the unemployed to dig the notes up thereby reducing unemployment. And then from this grossly distorted version of Keynes’ economic parable they derive “The Keynesianism Fallacy” which they claim leads to the financing and building of unproductive infrastructure projects since “demand must proceed investment” (33 minutes) otherwise government is just constructing “highways to nowhere.”  

Keynes was explaining with the buried banknote example that capital expenditures for war, or infrastructure projects designed to reduce unemployment, function according to the same neutral universal economic laws regardless of whether the ends are constructive or destructive as in a war economy. Keynes famously wrote,

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again,” he wrote, “there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”34 To emphasize how a commonsense grasp of economics differed from how economics worked in real life, he repeated his ominous conclusion that “just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance.”35  (Wapshott, Nicholas, Keynes Hayek: The Clash that Defined Modern Economics, Norton. Kindle Edition. pp. 149-150).

One section of this quote by Keynes, “It would, indeed, be more sensible to build houses and the like...” is deliberately left out by Laissez-faire apologists to present an absurd misinterpretation of Keynes’ hypothetical example explaining the multiplier effect of simulative spending. All free societies must make the political distinction between existing economic principles and specific national means-ends policies. These economic principles can be applied to any set of national policies depending on the moral, or immoral, aims of a given community. Keynes clearly pointed out; historically these universal economic principles have been enthusiastically directed toward war. Keynes’ critical point is that if government expenditures can be used in the destructive ends of war, they can also be used constructively to reduce unemployment with infrastructure investment. This Keynesian message is censored by propagandists like Petersen, and is replaced by the boneheaded reading of Keynes’ illustration.

.ren's picture
Just to let you know someone

Just to let you know someone actually reads your efforts...

Well reasoned, articulate, scholarly analysis as usual.  It's not entirely new to me, but I suspect there are many who haven't tread these paths of thought.  Of the insights, I find the distinction between big government is bad by definition and bad by fact of some significance in making sense of how propaganda can be so effective, especially with large groups of people who are managed by a political system.   It's these insights into how people think things out that we can actually observe in our every day dealings with each other:

Antifascist wrote:

Neo-Liberals often argue, “Big government is bad.” Notice the ambiguity in that statement: they are never clear if the statement “Big government is bad” is true by definition, or true as a fact. Prima facie they appear to be making a factual statement, but they really mean it as a definition— big government is bad by definition.

I often mistakenly imagine that these simple differences in attitude towards an idea would be obvious to anyone, no matter their degree of education.  But in real life, it's not so.  Plenty of people with graduate degrees make those errors of mistaking definition for fact.  But it's impossible for me to ignore my neighbors here in my sparsely populated county who are fervent Ron Paul and Ayn Rand idea followers.  For the most part they have not gone far in their pursuit of a higher education.  They parrot those libertarian ideas which also are presented in those same fallacious ways. And they do not seem troubled by the many contradictions you've pointed out. It makes critical discussion nearly impossible, and since few of them have anything to do with the management class in this country, what they become is that class's willing, malleable followers when it proposes gutting their safety net.

I can't help thinking of all this in terms of that PBS documentary you introduced on that other thread about the Dust Bowl.  We have this notion of Big Government involved all the way through. 

First, as empire, Big Government exterminates the native population of the Great Plains.  Then it opens up the now "free" land to its subjects, who are then defined as "settlers" who emigrate from one part of the empire to another to fulfill their version of the American Dream.  The documentary did a fine job using primary source research to illustrate how these individuals perceived their circumstances.  With no guidance, no concern whatsoever for ecosystems in place, the settlers begin tilling the soil to plant their wheat, kind of a ten thousand year ongoing process that keeps failing over and over when introduced into the wrong environment.  Humans can be stubborn, but for some odd reason it's seen as a form of progress.  After all these are independent, self sufficient by definition, pioneering cusses. 

A world war comes and goes, economic circumstances arise that impel the farmers to turn over more and more of this ancient protective complex eco system and bare the ever moist soil underneath to the elements so that their monocultures of wheat can thrive without competition.  Which happens for awhile, until the inevitable dry spell, then the soil blows, and the dry spell is exacerbated until great clouds of dirt displace all efforts to farm. 

Then we get all those pictures, the sad tales of woe, the accolades for the pioneering spirits who held out through it all, buried their dead in sand covered cemeteries and so forth. 

Then comes Big Government, which some of the independent settlers -- who got their free land in the first place because Big Government exterminated or otherwise herded the natives who were living there pretty much in synch with the existing eco systems onto their reservations -- hate by definition, some change and accept, become FDR supporting Democrats by necessity because they are starving. 

Eventually Big Government institutionalism during the Keynesian inspired FDR period, along with the contrarian Hayek-Von Mises-Rands always ready to jump on a failure, figure out some macro agricultural methods to make what sorts itself out to become the more "efficient" industrial farming of the region possible, while many of the not so well funded settlers move on to find their dreams in California.  Well, at least for awhile.

This combined managed institutionalism with the lucky placement of a few insightful Big Government managers is especially good at figuring out how to use the miraculously available "infinite" cheap energy blowing out of the ground all over the place to create new technologies to pump water out of underground aquifers, as well as to provide the nutrients for the ever-depleting soil that is otherwise nothing more than sand in a primary succession eco system -- an ecology no different than being one step from a lava flow. 

In addition this centrally managed system, through a combination of state funded educational systems and privately managed corporations like Mansanto, Cargill, Dupont (you know the list), solves problems like curtailing the various natural forces that want to feed off this plant life otherwise aimed at feeding humans, and being as the human population is skyrocketing thanks to all this energy driven technology this miraculous industrial agricultural invention spreads far and wide.  Then eventually someone has to come up with a solution for the death of other ecosystems all over the planet due to things like DDT, and so we get the conservative and libertarian reviled (complete with bad by definition) macro Big Government management institution, the EPA.  And we are now in the phase of the next cliff where industrial processes once again facing a problem for Big Government to solve.

Meanwhile we are trying to make sense of this conundrum with people who vote for their representatives based on arguing truth by definition or fact.



Originally Posted by GoodA$Gold

What will Ron Paul try to do with the Environmental Protection Agency and what are his reasonings. Thank you. 

As with any federal agency, it is not authorized by the Constitution and is therefore not to be funded by your money. If you wish to fund a private organization, then that is your prerogative.

His way of dealing with pollution is to examine and respect property rights within the courts. That means that if someone pollutes on your property, you sue them. Private property ownership is always better maintained then public ownership. By recognizing in the courts that you can sue the government or a company that pollutes on your land will cause the polluters to be hurt by pollution instead of taxpayers. This will create incentive to eliminate pollution instead of just creating rhetoric and doing nothing about the problem.

The EPA stands to lose their jobs if they solve this problem so they are on a tight wire of having to make it seem like they are working to fight pollution but having every motivation for pollution to continue to be a problem.


Anti, once again many stand

Anti, once again many stand in humble gratitude to you for doing the reading and providing the cogency and wit to parse the nonsense and document the ideological construct.  What Keynes says is so obvious that Ike got it.  When you spend on weapons you rob civil society of schools, hospitals, roads, bridges, and the people who make these institutions work by being motivated and paid decently for their value added work.  Duh.

Universal healthcare and education are bridges to somewhere and a great stimulus and security investment to boot.  Visionary infrastructure projects in American history have always had a practical social and economic motivation.  The fact that they have been market driven has been something of a drawback to the goal of an efficient and sufficient system, as in the history of railroads.  Integrated planning could easily have figured in the economic benefits and satisfied the clientele without duplicating so many lines or leaving out the less profitable areas.  When we start thinking about investments and returns of value, nobody is going to bury money to have it dug up in order to keep the economy going.  

A lack of sense of humor is clearly present in those Libertarians who try to poke fun at the suggestion.  Keynes was obviously giving a morally empty example of what would help the economy to make the point about government spending per se.  The Libertarians cannot answer the fact that burying money in abandoned mines would be better than the nothing or the austerity they are for as deficit warriors.  They cannot take the joke seriously and answer the challenge it presents; and they cannot get in on the joke because it exposes their ideology.  Being in on the joke is always where we ought to be.

Antifascist's picture
Thank you Ren for your

Thank you Ren for your insightful comments. I am always glad to see your and drc2’s take on these economic arguments. The slight of hand move of switching back and forth between the meaning of ‘Big Government is bad...” as fact and as definition is always present in this debate. I am convinced that many of the free market apologists are unaware of this ambiguity. There is an anti-intellectual character to conservatism that prevents critical analysis from going too far into parroted arguments and assumptions—especially historical analysis regarding the role of government in the dust bowl catastrophe. Even planting wheat needed an infrastructure of agricultural knowledge and planning to avoid ecological disaster.

drc2 wrote, “Keynes was obviously giving a morally empty example of what would help the economy to make the point about government spending per se.” I like the characterization “morally empty example” of Keynes’ buried banknotes illustration. The lost context of Keynes’ comparison of government spending for increasing employment and for war is what propagandists like Petersen try to exploit. Petersen used for his example of the “Keynesian fallacy” North Korea’s empty ten-lane 50-mile highway. He says building large highways does not bring about commerce. Petersen is assuming that the highways were build with commerce in mind and not for the purpose of moving troops and military hardware around North Korea. It is precisely this kind of spending that has a low economic multiplier effect because the entire Korean infrastructure is built around military warfare and not satisfying basic human needs. 

Antifascist's picture
  “The Japan national


“The Japan national railways were privatized in 1987. They were able to pay back their construction debt, and make capital improvements to their networks Thom! Listen! They reversed their stagnation and decline.” Austin Petersen 21:27 minutes.

Libertarian Austin Petersen lied when he said the Japan railways are privately owned. When the facts contradict ideology, they lie—to themselves more than anyone. We could give an even better explanation to Petersen’s false characterization of the Japan railway—a very important explanation that signifies a dangerous trend in American society. Petersen is a Libertarian ideologue that believes government owned infrastructure are by definition failures or bad. He reasons that if the Japanese magnetically levitated train is successful, then it must of been privately owned and developed. Libertarians are masters of this kind of ideological circular reasoning. Extreme ideologues cannot tolerate any reality that contradicts their beliefs.

Before mass leaders seize the power to fit reality to their lies, their propaganda is marked by its extreme contempt for facts as such,27 for in their opinion fact depends entirely on the power of man who can fabricate it. The assertion that the Moscow subway is the only one in the world is a lie only so long as the Bolsheviks have not the power to destroy all the others. In other words, the method of infallible prediction, more than any other totalitarian propaganda device, betrays its ultimate goal of world conquest, since only in a world completely under his control could the totalitarian ruler possibly realize all his lies and make true all his prophecies. Arendt, Hannah, The Origins of Totalitarianism (Harvest Book, Hb244) (Kindle Locations 7252-7257). Houghton Mifflin Harcourt. Kindle Edition.

...they know that when they are told that only Moscow has a subway, the real meaning of the statement is that all subways should be destroyed, and are not unduly surprised when they discover the subway in Paris... Without the elite and its artificially induced inability to understand facts as facts, to distinguish between truth and falsehood, the movement could never move in the direction of realizing its fiction. The outstanding negative quality of the totalitarian elite is that it never stops to think about the world as it really is and never compares the lies with reality. Its most cherished virtue, correspondingly, is loyalty to the Leader, who, like a talisman, assures the ultimate victory of lie and fiction over truth and reality. (Ibid., Kindle Loc: 7868-7880).

What makes a truly totalitarian device out of the Bolshevik claim that the present Russian system is superior to all others is the fact that the totalitarian ruler draws from this claim the logically impeccable conclusion that without this system people never could have built such a wonderful thing as, let us say, a subway; from this, he again draws the logical conclusion that anyone who knows of the existence of the Paris subway is a suspect because he may cause people to doubt that one can do things only in the Bolshevik way. This leads to the final conclusion that in order to remain a loyal Bolshevik, you have to destroy the Paris subway. Nothing matters but consistency. (Ibid., Kindle Loc: 9199-9203).

Eamonn Fingleton author of “In The Jaws Of The Dragon” says

-The Maglev Railway system (trains that ride on a magnetic field) was first developed in the 1970s by state owned Japan Airlines and the Japan National Railway Corporation. Both were nominally privatized in 1987, but are effectively regulated by the Japanese government.

-Government determines train routes.

-Employees are the principle holders not outside share holders.

-Government infrastructure projects upgrades airports and are 100% government owned.

- Dr. Fingleton should have emphasized more that the Maglev train system is a magnetically levitated transportation system. The United States does not have a single levitation transportation system. Welcome to the American Dark Ages.

That the function of ideology

That the function of ideology is to fool oneself only escapes being obvious by being idiotic.  Why anyone would wish to be fooled is not the point.  That implies will and volition.  Finding "the truth" is about the comfort zone with ideology.  St. Paul talked of "the itching of our ears" for "flattering lies" and our favorite myths.  Children learn that deflecting blame onto others works, particularly when you lie earnestly.  Believing these lies is just a step away.  When adults do it, it is only practice and technique that is added to the emotional need to be "correct."

We can explain our sins against others as mistakes or "everyone does it" kind of stuff; but what others do to us rarely gets that context or nuance as they become "bad" and "wrong."  Hagiography is this same impulse applied to our national narratives as "our story" explains why it is good to be us and to be here in the larger picture of the world.  Our tradition is story telling, not historical scholarship, as the way we understand and portray ourselves.  Every "people" has to have some story where they are the focus of the meaning and purpose.  How this helps with the learning of the lessons of history is problematic.

What my function as a historian/commentator on the narrative is, as I think about it, comes down to revealing a better story in reality than the ideology provides.  It is reverse engineering on what Hedges diagnosed as the preference for Magic over grim Reality.  The idea is to turn grim into rebirth and renewal as the burdens of dysfunctional ideological narratives wear heavily.  It is like getting people off crack.

I cannot explain why people believe that government cannot do anything well or why they blame the state for the sins of Commerce and its corruption of the state.  That pansy state keeps having its lunch money stolen by the bullies, so screw the state.  Huh!  I do not get what they don't get about democracy and owning our Commons and State instead of having it used against us.  And above all, how do we get stuck with the Command and Control authoritarian States that are the birth twins of Corporate?  

What I do know is that Reality does get the last laugh.  Ideology and Reality are always at odds, and the illusion that "we can make our own reality" goes back beyond Canute's broom.  Go back to that Reality v. Magic equation, and why "grim" is applied to the enemy of our fantasies where "reality" is otherwise.  It is our fantasies that are "grim" and Reality much more friendly to us, were we open to living.  A major myth of Modernism is that life is only good thanks to all the things we have that earlier ages did not have.  As the bumper sticker I saw yesterday reminds us, "the best things in life are not things."  When you get to the environmental design thinkers and appreciate what we know about getting into harmony and balance with nature, you wonder why we are not embracing the future with all our being.

To fool ourselves is the point of our politics, as Hedges warns.  Of course it is!  What is Good News for the Poor is never all that great for those holding the entitlements and established fortunes.  Do we really want to look at what is wrong with us and America?  Does that sound like fun?  Can we avoid it by believing something else?  Of course we can, for a while.  Is this any fun?  I don't feel much out there other than pain, anger, denial and "acceptance" of 'the responsibilities of history' in endless war.  The narcotics are not working anymore, so the acting out increases as the alternatives have to be shouted down.

Reality is, of course, shrouded in mystery.  Being a "realist" is about allowing it to shape one's philosophy rather than making 'reality' fit one's ideology.  I do not claim to be a "realist" know it all, only an inquirer who tries to keep my story renewed by reality.  It may not always be what I want to swallow, but it sure beats that fast food killer diet of American Exceptionalism.

Privatization of British Rail

Privatization of British Rail was an abject failure. Infrastructure was maintained at minimum levels...accidents rose. Padding the bottom line was more important than safety.

When I rode Amtrak from Calif. to Denver, the train slowed to 5 m.p.h. I was told if it went any faster, the train would derail because of the bad track...privately owned and maintained.

When the profitable rail system in Argentina was privatized, service was cut. Some communities reliant upon it died. Probably turning viable communities into ghost towns wasn't privatization's finest hour. Those communities paid dearly.

Often, private business has a social cost. In economics, the hidden costs are referred to as "externalities"...costs of business born by someone other than the business. It's part and parcel of laissez faire economics.

It's profitable to blow up a mountain to obtain coal. The costs of cleaning polluted water, destroyed agricultural lands  downstream, destruction of water sheds, etc. are paid for outside of the company. They are external. If the  coal companies bore the costs, blowing up mountains would be unprofitable

That sort of thing is part and parcel of laissez faire economics.

Retired Monk - "Ideology is a disease"


douglaslee's picture
Trains really don't have to

Trains really don't have to turn a profit, their value is akin to interstate roadways and deep dredged sea ports or air traffic control. The boost to commerce benefits all, even those not using rail service, or airports, or cargo container ships. a review related to Hayek and Friedman contrasted with Rawls. Racists used to twist logic to rationalize unseemly attitudes. Libertarians work the same way ignoring all reality that conflicts with their flawed ideology.

Hannah Arendt is always relevent.

More Hannah on Pentagon Papers, Violence, Technocratic Minds and more.

Antifascist, I don't  know


I don't  know you very well, and you don't know me very well either.  However, I think I had fallen into the ideological trap of thinking that I can make a better world by how I "invest" and "spend" my money.  However, I have realized that no one can eat money.  I have have never heard of anyone changing a one hundred dollar bill into one hundred one dollar bills, and then eating them.  When I have seen homeless people, I have never seen anyone being able to eat any money given to them.  Money is supposed to "represent" resources, but what is money worth when those resources are wasted or treated like dung on the bottom of a shoe?  I find your posts here a little bit complicated, but what I do get from you is right on!  Keep on strong, Antifascist!

Antifascist's picture
Well, well. Another Reagan

Well, well. Another Reagan Supply-Side rat abandons ship (30 minutes). I guess he can't even stomach his own economic theory any more. His supply side snake oil just left millions of Americans in poverty, sickness, and unendiing debt. What did former Reagan Domestice Policy Advisor Bruce Barlett think would happen? Today's economic conditions are the direct result of the logical concluson of Reaganomics. Now that the damage is done, Barlett is bewildered of how America became unindustrialized, in debt, ruled by Plutocrats, and engaged in unlimited wars. How did he think thirty years of corporate mergers would end--some market ecnomy free of monopolies? Was financial deregulaton to end in law and order? Did he think these new billionaires would invest in American instead of suberting democracy?

Republican "Supply-side economics” ideologues claimed that "getting  gov'mnt off your backs and let you get going" would create fantastic wealth in which the newly collected tax revenue alone would pay of the National Debt (Laffer Curve) which in 1981 was a trillion dollars. That was the Reagan promise of economic growth, but the economic reality was corporate R&D investment during the 1980s went to near ZERO because corporations were more interested in the high finance of mergers, acquisitions, and speculation in commodities and currencies. We saw the Mitt Romney Bain Capital pirate equity asset stripping business model--called “Leveraged Buy Out Companies” (LBO) during the eighties--roll in like a plague on unsuspecting profitable companies. Even dentists were setting up Savings and Loans banks in post offices boxes! It was an era of high finance “smoke and mirrors” never seen before in American history--at least since 1929 stock market.  From the very beginning of Reagan’s administration critics' charged that the Reagan monetarists were building an economy of chronic unemployment, rampant financial fraud, and massive government debt.  Reagan’s economic plan was so laughable that even Reagan’s opponent George H. Bush called it “Voodoo Economics.” Professional economist knew it was a scam.  I lived through Reagan’s two terms and it was an unbelievable disaster that has consequences lasting even to this day.

Reagan’s Supply Side economic theory is an unbelievably stupid economic theory. John Maynard Keynes' economic theory has been described as "Demand economics" since tax money is injected into the economy to increase aggregate demand and add velocity to money. We have historical proof that it worked to bring America out of the 1929 Republican Depression. Contrast Keynesian economic success with the full-blown institution of "Supply-Side Economics" in Chile. see “Milton Friedman and the Economics of Empire: The Road from Serfdom” by Greg Grandin. The Reagan and Bush Sr. reign from 1981 to 1993 resulted in three rolling recessions. I witnessed all three of these recessions.

The Laughable Curve

Even after 12 years of Reaganomics, it was still an economic disaster. The 1981 Reagan tax cuts led to large fiscal deficits and current account deficits, an episode of "twin deficits". By 1986 the budget deficit was as high as 5% of GDP and government revenues had fallen by over 2% of GDP since the introduction of the 1981 tax cuts. The fiscal problem became so bad that Reagan was forced to reverse some of his tax cuts, first in 1982, then in 1984, and then again several times more in his second administration.  Here is a graph of federal expenditures in red and federal receipts in blue from 1980 to 1989.

The economic boom of the 90s could have happened in the 80s, but supply-economics and Milton’s tight monetarist policies made investment difficult—even pro-Reagan auto dealers began to complain of the tight money policies. Bruce Bartlett went to work for U.S. Congressman Jack Kemp (R-New York) in 1977 as staff economist. Bartlett was key in drafting the Kemp-Roth tax bill, which ultimately formed the basis of Ronald Reagan's 1981 tax cut. Bartlett's wrote, "Reaganomics: Supply-Side Economics in Action" in 1981. What little non-military investment that did occur was in car rental businesses because the new capital depreciation tax laws rewritten in the Kemp-Roth new “Ten-Five-Three” depreciation policy allowed vehicles to be depreciated at a faster rate for tax refunds. In some instances the tax credits generated tax subsidies so that sum of credits and allowable depreciation exceeded net income! Many auto rental companies made more money in tax credit than actually renting vehicles. Other investments went to the least useful industries such as equipment leasing, hotels, shopping centers, restaurants, and Amusement parks—industries that paid minimum wage. Much of the tax breaks of the Reagan supply-side era went to takeover efforts thereby reducing competition, or they exported cash flow to foreign ventures, or simply enlarged dividend payments to stockholders. Tax shelters were more attractive than productive investment. The industrial belt ripe for new investment dollars instead became the Rust Belt.

So instead of the tax cuts stimulating investment and creating jobs, it destroyed jobs on a massive scale: Supply-siders were not just wrong, but brought about the very OPPOSITE of what they said their tax cuts would bring about. The federal debt tripled (from $930 billion on December 31, 1981 to $2.6 trillion on September 30, 1988). Here is a graph of gross federal debt going back to 1940, again from the St. Louis Federal Reserve. The U.S. went from being the world's largest creditor nation to becoming the world's largest debtor nation during his second term. And Republicans worked hard to conceal these facts by counting the military as employed and not counting the cost of housing for inflation statistics. The “official” unemployment rate reached a peak of 10.8% in late 1982; however, the actual rate was more like 13%. The Reagan's administration added all the military into the 'employed' category, which drives down the 'unemployed' percentage. This was only one case in numerous attempts to redefine unemployment. Year after year after year the newscasts reported 10,000 laid off: 20,000, 50,000, 25,000, 13,000 as the mergers took their toll. At one point Ford announced a lay off 30,000 employees-- the total number of persons employed by Chrysler at that time!  80% of the tax saving when to the 1,700 largest American corporations that only generated 4% of all new employment opportunities. The Macro-Reaganomics disaster DELAYED the already government financed investment in cybernetics that exploded in the 90s. So we can give credit to Reagan’s policies for LEAVING the economic scene as much as we can credit Clinton’s policies for the 90s boom.

Then came 4 years under Bush Sr's. laissez-faire economics. By 1990-91 the reality of too low tax rates in face of rising spending and painful recession pushed the deficit to an average of 4.2% of GDP in those two years. Voodo economics was such a failure that then President Bush had to reverse his "Read My Lips: No New Taxes" promise and accept a tax increase.

And then there is the 5 years under Bush Jr's. Corporatism. Bush Jr. decided to try again this bankrupt intellectual idea claiming again that tax cuts would be self-financing. In 2000 the budget surplus was $236 b (2.4% of GDP)[/b] while by 2004 we had a budget deficit of $412b or 3.6% of GDP. This was a worsening of the fiscal balance of 6% of GDP in four years. What accounts for this worsening? Government revenues fell in those four years by 4.6% of GDP (from 20.9% in 2000 to 16.3% in 2004). In the same period government spending went up by 1.4% of GDP (from 18.4% to 19.8%). But almost all of the increase in spending is accounted by an increase in defense and homeland security spending.

Investors know the truth about monetarists and supply-siders: salvation for the supply-siders is by recession, unemployment, business bankruptcy, and protracted slow recovery. The investors were right to run for cover as the Bush II economic nightmare was about to begin.

  • During the first three years of the Bush administration, more than 3 million jobs in the U.S. have disappeared. Bush promised 2.2 million jobs created between 2001 and 2004 as a direct consequence of passage of the $2.1 Trillion tax cuts for the rich!
  • With Bush's tax cuts half of all income tax payers had their taxes cut by less than $100. On the other hand, those with annual incomes more than $1 million received an average tax cut of $105,636 from Bush.
  • During 2003 the US economy needed to produce 150,000 jobs a month, or 1.8 million jobs for the period, just to stay even. Instead, it actually lost 360,000. That's in addition to the 1.8 million new workers entering the economy. For a total shortfall of more than 180,000 jobs a month.
  • From 2001 through 2003 a total of 58.6 million workers in the US were laid off at some point and about 55 million rehired or were newly hired somewhere
  • Corporate profits were up by 30% in the July-September 2003 period compared to the same period in 2002—the largest year over year growth in profits in 19 years and reaching an annual rate of more than $1 trillion dollars for the first time in history! Forecasts are for another 15% gain in profits in 2004. That's a 45% pay raise in just 2 years.
  • Officially, the number of unemployed during the current Bush recession and jobless recovery that has followed has remained at any given time chronically at around 8 to 9 million. This does not count the so-called 'discouraged workers' leaving the workforce in hundreds of thousands every month, those 5 million employed involuntarily part-time, those involuntarily forced into retirement or those who have no jobs but claim when interviewed to be employed as 'consultants earning an occasional dollar here or there 'under the table'. All total, that brings the number of those out of work in 2007 to more than 15 million! The true unemployment rate rose to about 13%-14% as of early 2004.

 Two generations of Americans have waited for Supply Side economics, Trickle down economics, Voodoo economics, NeoLiberal economics, free trade econmoics, and Laffer Curve to kick-in. In every case the result has been increased unemployment, increased child and elderly poverty, increased deficits, increased homelessness, increase trade deficits, and increase capital accumulation at the top 5% of the wealthiest Americans.

See Deja Vu Voodoo Economics...or Supply Side Voodoo Black Nouriel Roubini

Antifascist's picture
Great macro-economic insights

Great macro-economic insights by Professor of Geography Dr. Richard Peet who brings together many of the economic arguments in this thread, and Thom's counter arguments in interviews against various Neo-Liberals ideologues.

KPFA radio interview of Dr. Richard Peet by C.S. Soong on "Against the Grain" about Finance Capitalism vs. Industrial Capitalism. (Jan. 1, 2013)

Summary Article:
Contradictions of Finance Capitalism by Richard Peet of Clark University, Worcester, Mass.
-Origins in the Neoliberal Policy Regime
-Exploitation in Consumption
-Crisis 1: Finance
-Crisis 2: Disarticulation
-Crisis 3: Environment

DenisePf's picture
How can what the US is doing

How can what the US is doing be classified as "Laissez-faire" when corporate welfare and bail outs and the illegalization of alternatiives to the standard medical system are routine parts of what they are doing to us?

Seems to me the real rule of the day is that corporations get to do to the common person anything they can fool us into going along with.  That is to say it is a system where one class of "persons" (the corporations) have all the rights and none of the costs and responsibilities while another class of persons (the common people) have no rights and bear all of the costs and the responsibilities.

DenisePf's picture
BTW, does that description

BTW, does that description sound like slavery to anyone?

Antifascist's picture
Thom debated economist Diana

Thom debated economist Diana Furchtgott-Roth on his program about patent laws for immaterial assets such as inventions and innovation. Thom mentioned Microsoft specifically as a welfore queen requiring goverment fiat protection of its wealth by the use of patent laws.

Neo-Liberalism, and Neo-Classical theory believe the purpose of capitalism is production. If production was truly open to all—take for example open source software that is not sold—no profit could be made. The true meaning of private property ownership is “owned against other.” Latin privatus, meaning ‘restricted’, from privare, which literally means ‘to deprive’. So when capital goods generate a profit it is not because the owner is productive, but because capital is owned in the first place.

Quote: can and does ‘propel’ industry. It pushes human beings, organizations and institutions into a state of hyperactivity, constantly shaping and restructuring their interactions. But this propulsion – and here Veblen was right – does not and cannot make industry productive, by definition. If the propulsion resonates with industry – that is, if it serves the inter-subjectively defined ‘good life’ – it becomes part of industry. But then, since industry is open to all and therefore inherently non-profitable, the propulsion ceases to be a business proposition. The only way to make a profit is through dissonance. It is only by propelling industry in ways that interfere with and partly hamper its open integration, coordination and the well-being of its participants that business earnings can be appropriated and capital accumulated. (Capital as Power. A Study of Order and Creorder,Nitzan, Jonathan and Bichler, Shimshon. (2009),page. 226)

Private ownership of capital goods--not private ownership in the sense of ownership of your toothbrush, or ipod--is the steering control mechanism that determines the direction and pace of society’s development. Limitation is the real purpose of business capital, not industrial production per se.

The most important feature of private ownership is not that it enables those who own, but that it disables those who do not...The sole purpose of private ownership is to prevent us from doing so. In this sense, private ownership is wholly and only an institution of exclusion, and institutional exclusion is a matter of organized power. Exclusion does not have to be exercised. What matters is the right to exclude and the ability to exact terms for not exercising that right. This right and ability are the foundation of accumulation. Business enterprise thrives on the implicit threat or explicit exercise of power embedded in ownership, with capitalist income being the ‘ransom’ for allowing industry to resonate: Plainly, ownership would be nothing better than an idle gesture without this legal right of sabotage. Without the power of discretionary idleness, without the right to keep the work out of the hands of the workmen and the product out of the market, investment and business enterprise would cease. This is the larger meaning of the Security of Property. (Veblen 1923: 66–67, emphasis added)(Ibid., page. 228)

Production is inherently non-profitable, and only with restriction of innovation and invention (copyright laws in the case of software) will production become profitable. Capitalism uses the power of the state to enforce copyright laws to protect immaterial assets such as software.

Think of a Microsoft software package. This package – essentially a coded set of ideas – could not have been developed without similar codes having been written by others – or indeed without computer languages, the microchip, semi-conductivity, binary logic, mathematical functions or human language for that matter. Such knowledge owes its existence to society at large; much of it was invented for its own sake, often with no immediate ‘applications’; and all of it is available free of charge. In this sense, most of Microsoft’s inventions and innovations are not really Microsoft’s – and this delinking means that the ‘productivity’ of these innovations, whatever it may be, isn’t Microsoft’s either and therefore cannot account for its ‘immaterial assets’. In fact, had Microsoft followed the productivity doctrine of distribution to the letter, paying royalties on the use of such knowledge, it would probably have no ‘immaterial assets’ whatsoever and an infinitely large debt. In practice, though, none of this matters. The real issue is not whether Microsoft’s knowledge ‘originates’ inside or outside the company, but whether that knowledge – whatever its source – can be protected. Note that on its books, Microsoft – like any other corporation – capitalizes not the invention itself, but the patent or copyright that defends it. And by now the reason shouldn’t be surprising: unless the innovation is protected, everyone can use it, and what everyone can use nobody can profit from. Conclusion: a corporation – no matter how ‘innovative’ it claims to be – can only capitalize the protection of knowledge, never the knowledge itself. (Ibid., p. 254)

 And this is exactly the history of Microsoft and Silicon Valley.

Bill Gates’ MS-DOS operating system, for instance, is surprisingly similar to a previous system named QDOS, a system written by one Tim Peterson, to whom Gates paid $50,000 so that he would give up any future claims to it. Likewise, the idea for Gates’ Windows system was reputably taken, this time gratis, from Steven Jobs of Apple, who tried in vain to block it in court, after himself having ‘borrowed’ it, along with the computer mouse, from developers at Xerox. Even Jim Clark, the legendary Silicon Valley innovator, owes almost his entire fortune to simple, back-of-the-envelope ideas – the idea to use the Mosaic browser developed by Marc Andreessen as a basis for Netscape, and the idea to use the internet as a basis for Healtheon’s integration of the US health-care industry. The actual development and implementation of both ideas were done entirely by others. According to Michael Lewis (2000: xvii), many of Silicon Valley’s greatest innovations – including its so-called ‘new-new things’ – are rarely earth shattering or even novel. Rather, they are notions ‘poised to be taken seriously in the marketplace’, ideas that have been worked out almost entirely, and are only ‘a tiny push away from general acceptance’ – that is, a tiny push away from being legally packaged so that others cannot use them unless they pay. (Ibid., p. 254)

msreekan's picture
Quote:"The systematic study

"The systematic study of the forms of legal institutions which will make the competitive system work efficiently has been sadly neglected; and strong arguments can be advanced that serious shortcomings here, particularly with regard to the law of corporations and of patents, not only have made competition work much less effectively than it might have done but have even led to the destruction of competition in many spheres." (Chapter 3 : The Road To Serfdom)

Hayek's prime argument in TRTS was about fostering competition, any govt interevention will lead to unintended consequences and patents seems to be no exception. The "slippery slope" which he himself was on did concern safety nets, regulation which did not hamper competition but was adding enough social value compared to the incurring cost and finally approval of govt interevention for preventing private monopoly. The book overstating its message hardly hampers its rationale, I had a first hand experience of govt taking on planning in a democracy when we waited for years to get a telephone connection. Hayek convincingly expresses the inherent conflict of democracy executing a plan for the electorate with his argument of collectivism v/s individualism. 

“Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” -  Alexis de Tocqueville

TRTS does not take a dogmatic stance but on the contrary it exhibits a balanced consistent approach.

"The liberal argument is in favor of making the best possible use of the forces of competition as a means of coordinating 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 emphasizes, 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." (The Road to Serfdom)

Hayek's expression of Keynes work can be read in Wapshott's book.

 "most fertile mind among living economists" - Hayek on Keynes (Keynes Hayek : The Clash that Defined Modern Economics)

Keynsian economics was proactive and the solutions were reached keeping in mind a premise which was sculpted after studying the economic circumstances prevalent then, Hayek's TRTS was more abstract and sometimes bordering on vague but even that did not stop misrepresentation. In fact the below take by Hayek on Reaganomics can be seen on Wapshott's book

“I’m all for reduction of government expenditures, but to anticipate it by reducing the rate of taxation before you have reduced expenditure is a very risky thing to do.” - Hayek on Reaganomics

Seems like Keynes and Hayek were right and wrong at the same time, undoubtedly great minds but only to be belittled by the shallow inferences of their works.


Antifascist's picture
Quote:Let us clear from the

Let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded. It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no 'compact' conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.

The end of laissez-faire (1926) by John Maynard Keynes

All I had to do was hear

All I had to do was hear Uncle Miltie Friedman, as Reagan's Chief Economic Advisor, tell a Biz School audience that his economics would work perfectly if people made rational decisions.  Theological fundamentalists make better arguments for their theories than this.  

I have to admit that it is nice to know that Hayek himself said some things his followers would never allow to be said in his name.  I try not to blame anyone for his/her followers/disciples.  Nonetheless, those who fudge the lack of knowing into trusting nature to do what they project it will as the reason for not 'interfering' with their metaphysical projections remind me of some of the worst times in theology.

There is also an amazing consistency among the Lords of Finance, Pope of Wall St. and other Financialists, that they are smarter and able to understand how their theories really do work while we who don't get it make all these bad choices.  They don't seem to get their own failure when we show it to them.  They just smile, collect their things and leave us with the bills while they go back to their 'work.'

What is sadder is the bad education Americans have received in corporate propaganda passing as economics and in the Cold War bs about capitalism and freedom and democracy.  Breaking that grip of comfortable mythology requires more than discovering that your heroes don't always agree with the myths made of them.  They can shrug that off.  It is the larger narrative about fearing that our exceptional good will be threatened by "evil ones" that has to go.  On both ends.

msreekan's picture
Quote:Choosing is the

Choosing is the problem. F.A. Hayek famously argued in The Road to Serfdom, that in politics, the worst get on top, and outlined three reasons this is so. First, Hayek makes the point that people of higher intelligence have different tastes and views. So, as Hayek writes, “we have to descend to the regions of lower moral and intellectual standards where the more primitive instincts prevail,” to have uniformity of opinion.

Second, those on top must “gain the support of the docile and gullible,” who are ready to accept whatever values and ideology is drummed into them. Totalitarians depend upon those who are guided by their passions and emotions rather than by critical thinking.

Finally, leaders don’t promote a positive agenda, but a negative one of hating an enemy and envy of the wealthy. To appeal to the masses, leaders preach an “us” against “them” program. 



Perverse.  Ironic would allow

Perverse.  Ironic would allow a perspective bigger than his.  He is an arrogant elitist whose 'despair' of the ordinary human is why this crap is essentially anti-democratic and hopeless.  Instead of being able to love life, respect others and engage in healing, he complains about the boobwahzie just like that Rightwinger, HL Mencken.  They can be witty.  But there is no compassion in their disdain.

.ren's picture
When you can see the outlines

When you can see the outlines of a Machiavellian character emerging from the murk of their ideas then you know that their root concepts have nothing to do with extending liberties to the "docile and gullible" who tautologically must exist or there would be no totalitarian leaders. 

However, talking about people as if they are "docile and gullible" is little more than an act of objectification. Creating such labels are anything but an act of empathy and compassion.

Purist elitists who take off from these ideas, like Ayn Rand (who may in fact harbor deep grudges for the way they perceive that these objectified forces of history have robbed them), raise the act of rationally objectifying this whole collectivist endeavor to a hierarchically elevated level.  Of course they must conceive hierarchy first in order to do that.  Thus in the process they create a rational object of an otherwise natural human process.  In doing so they reveal the pervasive nature of their deeply individualistic elitist concerns, while their philosophizing turns into long and circuitous whining.

What they never clearly acknowledge, whether or not they can actually see it, is the nature of modern industrial society as a monster of its own substantive creation evolving from very normal human characteristics, characteristics involving the simple basics of every day social construction writ large and organized into the form of purposeful institutions. 

Normal, ordinary people join in for wide range of very practical reasons, and that involvement makes the objectified result possible.  

In this case, especially, it might be wise to take care that the objectified map not be mistaken for the territory. This mass creation also becomes its own objectified ontological substance and form, one that conditions nearly everyone -- whether totalitarian leaders, "docile and gullible" followers, or even brainy ivory tower intellectuals -- through natural human enculturation to accept as the way things have to be, even though in the brief lifetime of the average human in industrialized societies much will change. 

An idealistic program of systematized rational economic choice-making at best can only be an intellectual attempt to find an alternative to what may actually become a parasitic and life deadening economic system that at least temporarily feeds most of us.  But that very rational endeavor of proclaiming that property ownership based in individual control is the pure aspect and all the rest can be tossed out the window, since they add nothing to appease the god of efficiency, necessarily abstracts from the whole of those combined human characteristics by selectively choosing only those characteristics which will promote the modern industrial society.

This seems to be human idealism creating ideology at its worst. Rather than recognize that humanity as a whole comes out of ordinary and human everyday passions and emotions, these idealists dismiss these characteristics with disdain while proclaiming, as elitists have historically done, access to a greater idea.  It's truly a very strange and distorted form of philosophy, bereft of existential and phenomenological individual experience.  But one finds again and again that those of this rational bent tend to find the logical positivists to offer the carefully constructed purism of rationality they so desire to protect them from their heathenish selves.

Like the sociopath who preys on others, they admit at least one active sense about humanity to help them to recognize those despised characteristics that the "docile and gullible" live by in their humdrum daily lives.  Those despised characteristics are, after all, the necessary "weaknesses" that any conning economic barterer goes after in a marketplace.  Thus we get from this simple understanding of human "weakness" a technique (or perhaps techne, as the Greeks might call it). We get the rise in the Twentieth Century of vast bureaucratized technologically-based systems of Public Relations (an Eddie Bernays's related term for mass propaganda, such as that employed by Joseph Goebbels to promote Nazi ideas) using tropes and idioms based on these deeply human "weaknesses" discovered by psychological investigators like Sigmund Freud (Eddie Bernays's uncle). 

Meanwhile the managers of the most totalitarian collectives on this planet, the "free enterprise" private tyrannies, purchase as market labor through a now "scientifically" established system of employment, the college trained minds of a few creative individuals (who in another culture might have produced wonderful art and literature) to design symbology, myth, and rituals, which their corporate system of marketing then produces -- and produces as mechanistically as any automobile assembly plant -- to embed in the minds of the docile and gullible. (Go shopping, the great Harvard MBA graduate guru G.W. Bush wisely counseled his nation after the tragedy of 911.)

Like the ever changing models of automobiles (which all look pretty much alike to the non connoisseur), the "advertisements" -- as they are called -- all look pretty much the same.  Thus the upper management elite who have finally found a society with a place for themselves to rein, don't even have to deal with the docile and gullible masses on a daily basis in the turmoil and filth of a face to face bartering marketplace.  They do their free trading with a systemic medium like Walmart.  Meanwhile, with now few other options, with the options of the system so obtainable (for now), and with the systemic programming of the system feeding their ordinary human needs and desires, the "docile and gullible" come in droves to prove the now tautologically objectified point.


tayl44's picture
Antifasist, thanks for all

Antifasist, thanks for all you do and more. Your view of economics give some understanding to the "Dismal science of economics". Knowing the problems of present economic systems(left & right) is there anybody taking Keynesian theory to a higher level of democracy/community replacing the individual ? If there is economic theory that can back "worker-own" systems,shouldn`t we be talking and exposing it? Thom, gave a very good example of the distribution problem of capitalism on his tv show this week,he use "toys". It would be much much better if he(and others) could show an example of  a workers-own  distribution system base on "cooperation vs competition". Is ther economic theory that show "need is better than greed"? The best way to get rid of a bad system is show a better one. I would imagine any economic theory that exclude the human conditions would be doom like the present theories?

msreekan's picture
Distorting Hayekian message

Distorting Hayekian message is quite easy (tea-partiers do it all the time?) If Hayek made little sense then the uniformity of opinion at the helm of totalitarian NSDAP was indeed a testament of their intellectual refinement, the passion driving Auschwitz camp was not propaganda generated but indeed a well thought out rationale signifying the astute emotional strength of all the inspired followers and finally the pan-germanism is a positive agenda? In fact the converse is true!

In the context of 1944 turbulence Hayek was simply being fair to a large part of German populace, they were misinformed about the root cause of German travails, so his statement in fact reflects his opposition to the right wing fundamentals. The Road to Serfdom should be seen in the light of the times when it was concieved, The General Theory is also not an exception here, we tend to formulate dogmas around thinkers after discounting their circumstances.

"Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place.

A conservative movement, by its very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege. The essence of the liberal position, however, is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others." (The Road to Serfdom)

Protecting "too big to fail" was an act of descretion which gave priveliges to a few in the name of general good, clearly Bush is not Hayekian, in fact when push comes to shove politicians rarely stand their ground, hence they need to occupy lower degrees of moral standards? When "ends justify means" then left will meet right and significant power will be in a few hands.

"There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision." - Hayek

Ironic that the TRTS "slippery slope" which Keynes pounced up on does signify some compassion, reasoning and balance. 

“I have been over into the future and it works.” - Lincoln Steffens on Marxist USSR in 1931

Hayekian utopia has never been tried and I might be barking up the wrong tree here. :)



Antifascist's picture
drc2, Ren, and others for

drc2, Ren, and others for your in depth comments.

I had to think carefully about your posts before responding.

drc2 makes a good point about Hayekian followers being more intolerant that Hayek might of been himself, “I have to admit that it is nice to know that Hayek himself said some things his followers would never allow to be said in his name.” I noticed that tendency also. In one video of Friedrich A. Hayek interviewed by John O'Sullivan in 1985 , Hayek contradictorily agreed with unemployment insurance for workers and even state welfare...but called them “individual catastrophes” (19:00 minutes in video) and even agreed to the existence of trade unions, “...for collective contracts for the people that want to accept them, I am all in favor.” (1:15:15). The Austrian ideologues would not accept such policies today. Indeed, their faith in cosmic forces that would keep the price of bread at a beneficial level for humankind is as idealistic as any of Hegel’s teleological theories of Absolute Spirit guiding world History. One should always be suspicious of economic metaphysical theories like “self-regulating markets” that are un-falsifiable. Fred Block wrote in a preface of Polanyi’s work on Neo-Liberalism:

Because societies invariably drawback from the brink of full-scale experimentation with market self-regulation, its theorists can always claim that any failures were not the result of the design but of a lack of political will in its implementation. The creed of market self-regulation thus cannot be discredited by historical experiences; its advocates have an airtight excuse for its failures. (The Great Transformation: The Political and Economic Origins of Our Time, Polanyi, Karl Beacon Press. Kindle Loc: 450.).

Hayekians only see one evil-- regulative government. George Orwell wrote of TRTS,

“Professor Hayek . . . does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.” (George Orwell, “Grounds for Dismay,” Observer, London, April 9, 1944.).

The Hobbesian state is meant to protect the common interest, and freedom from the conflicting private interests of destructive economic competitive struggles of civil society otherwise society becomes an armed camp.

I think ,Ren, you have struck the heart of modern Libertarian ideology: they abstract a part from the whole to represent the totality of human existence. Specifically, Neo-Liberalism that represents this “self-regulating” market ideology reifies—turns it into an isolated external object--human productive processes and elevates it as the sole characteristic of human behavior.

“But that very rational endeavor of proclaiming that property ownership based in individual control is the pure aspect and all the rest can be tossed out the window, since they add nothing to appease the god of efficiency, necessarily abstracts from the whole of those combined human characteristics by selectively choosing only those characteristics which will promote the modern industrial society.”

By the act of static conceptual abstraction a particular single property of the object, in this case the human, is ripped out of context circumscribing any greater significance. The natural human being is distorted by classification, “the act of rationally objectifying” that views human being as “individuals” absent from a greater community and history. All human motivation is reduced to a search for money and profit. Human beings become an contractualist wealth accumulating machine only seeking power over others: she is the individualistic Hobbesian possessive accumulator of wealth so that “ the process they create a rational object of an otherwise natural human process.” Hayekian libertarianism and the other Austrian school variations distort the human face and falsify human history.

Criticism of the individualistic method starts usually from the standpoint of the collectivist tendency. But if individualism understands only a part of man, collectivism understands man only as a part: neither advances to the wholeness of man, of man as a whole. Individualism sees man only in relation to himself, but collectivism does not see man at all, it sees only "society." With the former man's face is distorted, with the latter it is masked....
Modern individualism has essentially an imaginary basis...modern collectivism is essentially illusory....
Life and thought are here placed in the same problematic situation. As life erroneously supposes that it has to choose between individualism and collectivism, so thought erroneously supposes that it has to choose between an individual anthropology and a collectivist sociology. Between Man and Man (1936)by Martin Buber,pp.200-202.

Free-Market ideology manufactures a biased conception of human motivation and society to promote the ends-means goals of an industrial society based on instrumental reason.

The goal is not to produce a more exact classification of the object, but to retrace the steps of the extinguishing of contextual meaning that makes the object accessible in the terms of static classification. Hence the sedimented history in the object is the history of what has happened to the object as a result of this process.27 (Roger Foster. Adorno: The Recovery of Experience, Kindle Loc: p. 19).

We have to examine human processes in their greater historical context to truly understand human Life fully—to recover human experience and not accept an ideological characterization.

When Libertarianism proclaims humans a merely Hobbesian wealth accumulating contractualist machines they are not only describing a false philosophical anthropology, but they are also prescribing a set of behavioral goals for society. Society is characterized by them as composing "docile and gullible" followers which means if they encounter critical and skeptical thinkers they must destroy them by dumbing down the public schools by teaching rote memorization for corporate standardized tests, and persecute the skeptical. This is why we see privatization of the schools, surveillance of dissidents, and the inculcation of civil and familial-vocational privatist values, i.e., a passive interest in government administrative performance and a primary orientation toward consumption and leisure. The description of human behavior as egoistic advantage seeking self-interest is self-fulfilling by enforcing the very ethical values that were supposed to be unchanging laws of biologically naturalism—that the economically strong rule. This is how “the ‘docile and gullible’ come in droves to prove the now tautologically objectified point.”

.ren's picture
Excellent insights,

Excellent insights, Anti:

Antifascist wrote:

We have to examine human processes in their greater historical context to truly understand human Life fully—to recover human experience and not accept an ideological characterization.

When Libertarianism proclaims humans a merely Hobbesian wealth accumulating contractualist machines they are not only describing a false philosophical anthropology, but they are also prescribing a set of behavioral goals for society. Society is characterized by them as composing "docile and gullible" followers which means if they encounter critical and skeptical thinkers they must destroy them by dumbing down the public schools by teaching rote memorization for corporate standardized tests, and persecute the skeptical. This is why we see privatization of the schools, surveillance of dissidents, and the inculcation of civil and familial-vocational privatist values, i.e., a passive interest in government administrative performance and a primary orientation toward consumption and leisure. The description of human behavior as egoistic advantage seeking self-interest is self-fulfilling by enforcing the very ethical values that were supposed to be unchanging laws of biologically naturalism—that the economically strong rule. This is how “the ‘docile and gullible’ come in droves to prove the now tautologically objectified point.”

Truths are scattered all over the place. It takes an active mind to put them together into an ongoing and responsive visionary narrative.  That itself takes energy, and people would like to reduce their energy expenditures for much the same reason complex societies are prone to collapsing. That is, the laws of physics demand that where a return on energy expenditure begins to decrease, a potential for collapse (ie, death) increases.  So people will tend to set up energy reducing rational clichés, or what I would call when I was developing strategic plans so that I wouldn't have to keep re-inventing the wheel, "boilerplate" writing (paradigm is also a valid concept in this regard) in order to keep track of the "truth" -- or to be more specific, what worked once.  I think that's essentially what the whole of logical positivism was about, and what we see in these abstracted "tautologically objectified points" that are also deemed to be truths about human nature.

But truth is much more than a rational explanation, which tends to be tautological and static rather than active and life encountering, or to use a philosophical term not everyone likes to hear, existential.

I just put these thoughts on another thread about the dynamics we are trying to grapple with in the global ecology, but I think they apply here as well:

A few of thoughts from a visionary, Gregory Bateson (once married to Margaret Mead and they remained lifelong friends) from one of his last two prophetic writings in the late seventies -- when we as a species may still have had some time to change our cultural approach to living on this planet. Not sure which, but I wrote the quotes in a journal when I was reading both Steps to an Ecology of Mind and Mind and Nature more than thirty years ago:

Gregory Bateson wrote:

"The myth of power, is of course, a very powerful myth; and probably most people in this world more or less believe in it... But it is still epistemological lunacy and leads inevitably to all sorts of disaster... If we continue to operate in terms of a Cartesian dualism of mind versus matter, we shall probably also come to see the world in terms of God versus man;  chosen race versus others; nation versus nation and man versus environment. It is doubtful whether a species having both an advanced technology and this strange way of looking at the world can endure..."


The whole of our thinking about what we are and what other people are has got to be restructured. This is not funny, and I do not know how long we have to do it in.


To want control is the pathology! Not that the person can get control, because of course you never do... Man is only a part of larger systems, and the part can never control the whole...


The problem of how to transmit our ecological reasoning to those whom we wish to influence in what seems to us to be an ecologically good direction is (thus) itself an ecological problem.


How about power as a measure

How about power as a measure of effective relationships, empowering on both ends, instead of one force sitting upon another?  Which makes more sense?

Interactive and interdependent as opposed to the metaphysics of individual v. collective.  Has to be a both/and instead of a battle between two halves of human nature.

A couple of takes on the wonderful material above from all.  

.ren's point about Bernays and pr coming from the new psychology of Freud parallels Jonathan Edwards' famous "spider in the hands of an angry God" introduction of the new psychology/epistemology of his time.  He used it once, was shocked at the response, and never went there again.  But the use of the emotions became the new way to spark a revival service and eventually became a technique to insure that the Holy Spirit would come to the tent at the right time.

The Age of Reason does not integrate reason and the intellect well in the larger sense of knowing.  As it objectifies and separates the observor from the observed, it creates a false sense of external reality management.  The conceit of the Managers was that God had given them the laws of human behavior just as the laws of nature were being revealed to science.  It was now their job to use this knowledge to advance society.  But, what they saw as advance was all top down management of the drones, not the empowerment of local and ground up human communities.  Even if they wished for educated and enlightened participants in this social design, they did not want people designing what they had already deemed scientific and progressive.  (yes Darlin' I know about Progressive's having the top down managerial bug.  Even the Social Gospel.)

The second point is about interactivity as the nature of things, something that logical positivism cannot stand.  Heard an interesting show on how children's language is acquired.  It is always great to go back to the basics to get an idea of where we might have gone wrong.  The point being made was that children are Interactive in language acquisition.  They have an operating system, but they need stimulation and affection and satisfaction do that.  Kids get plurals, but not the odd ones, so they will insist that it is "gooses" rather than geese when they are asked about more than one.  There were many other things which take us back to Chomsky, et. al., but this basic idea that we are always in an active interaction rather than active/passive would relieve many strained relationships and bad attitudes on both sides of the power relationships.

As pointed out, the problem with Hayek even with his concessions to human social spending, is this objectification of the economic world and inability to embrace the tautologies and paradoxes in which we encounter these scattered truths.  The truth of either is not found in any literalism or linear models of reality.  It is found by following their clues as a greater, but deeper mystery.  When do we stop in our learning about love?  Who would declare the bottom of that well?  The same applies to power as the measure of activated and moral relationships.

Finally, .ren talks about the power of the illusion and the structures we must participate in and come to accept.  Think of "the principalities and powers of this world."  Or, Paper Tigers.  Or, the Wizard of Oz.  Reality is a sacred construct in that we are obedient to what we believe to be real.  Power says, this is Reality, or else!  Or, Power is participated in with mutual energization.  Which is real?

I will go with what makes slaves rebel and peasants hear the "Word of God" as their liberation rather than a sentence to servitude.  I will be in community and spiritual union with the human beings who do not worship these false gods and conform themselves to them.  I will stand with the earth, air and water.  I may not understand the mysteries of the cosmos and the final answers on what is and is not, but I will take a strong "leap of faith" on the humanity of others and the harmony of human nature with nature writ large.

It is a very different harmony from those supposed by the Rational Idealists of Economic Romanticism where those "in the know" became the new priests of Reason in the service of Power. A Jealous God gets totally pissed about crap like this.  The Mystery of Reality will not serve Mars or Mammon no matter how "too big" they think they are.

nimblecivet's picture
Thank you antifascist for

Thank you antifascist for this excellent and educational post. I am only commenting right now in hopes that others more familiar with the subject matter will see it and continue the excellent discussion here.

All I can say at the moment is that slavery certainly is an issue, as DenisePf brought up. We are no longer in a world-historical moment though where the "dialectic" is between 'slave-states' and 'free-states'; instead, neoliberal ideology is known to be rhetoric by those in on the its-no-joke. "Rhetoric" is too kind a term really. When your employer puts out a sign advertising your face as a "runaway" (which, according to this article about slavery in the Gulf States, happens quite regularly) you are not going to be fully convinced that you are "free" despite the guarantees of the state of which you are a guest. That is, the existence of slavery depends less upon subverting the interests of one class to another within a nation, but exploiting the lack of social capital of immigrants and guest workers.

I think people are waking up to the fact that there will not be a "disaster" or "collapse." That is, the result of crisis will not be a systemic breakdown. Instead, what we are seeing in the constant state of crisis might be called the inverse of the Marxist "permanent revolution." At each step the democratic process drives toward a certain logical end given the ideology of democracy, but that result is "vetoed" by the greater powers which control the political institutions.

The ideological drive to characterize liberalism as "class war" has led to a general public which to the maximum extent possible will avoid raising taxes on anyone. But when plain logic determines the necessity of raising taxes on a corrupt ruling elite to keep afloat basic social programs and so forth, it is revealed that this simply is not an option. Frankly, if we see that a purported upcoming attempt to amend the Constitution to include a balanced budget provision (similar to the one that has nearly destroyed California) is successful, individual states might be justified in limiting interstate travel to those with the resources to support themselves. But of course, once these desperate folks are further in the clutches of those who wish to "minister to them" (as Sarah Palin's husband once declared in relation to the idea that desperate people might flee to Alaska) the warped historical ideology will only further take root. I really try to be open minded, but when I try to have a rational conversation with someone about things like the subject of this thread and somehow the conversation turns to obscure distinctions between "Scottish rite" and other freemasons, the Knights Templar and the Rosicrucian Society I know I'm in trouble. Holy war is a comin'! And I don't want to wind up as bird food.

nimblecivet's picture

from Wikipedia:


Permanent revolution is a term within Marxist theory...Marx used it to describe the strategy of a revolutionary class to continue to pursue its class interests independently and without compromise, despite overtures for political alliances....

msreekan's picture
Let me give this another

Let me give this another shot:

Seeking liberty while denying the same to others is clearly not a Hayekian view, Road to Serfdom does not indicate an insurrectionist author but on the contrary a tolerant one. It continuously emhasizes an elementary respect for liberty, a person who pursue profit by coercive means simply does not make the cut. Practice of individualism which deny others the same right is simply not Hayek but an individualism reflecting subtle humbleness in front of this complex mosaic of a world defines him. The belief of "Unintended Consequences", the respect of freedom and the fact that even the most naive of coercive decisions can have unexpected consequences, in fact its an an absolute respect for life. An idea that acknowledges the power of choice, pursuit of interests, free will and the belief of general good which results from voluntary cooperation. 

A story might help?

"Power tends to corrupt, and absolute power corrupts absolutely."[2] Lord Acton

Concentration of power is not Hayekian, decentralization and free market is. Govt interventions to bolster competition deterring monopolistc tendencies are all perfectly Hayekian ideals. TRTS abhorred govt guidance, TRTS clearly elaborates on the respect for the "Rule Of Law" for preventing all sorts of tyranny. This uncompromised respect for everyones free will needs humbleness not elitism, uncompromised profit seeking tendencies violate the basic hayekian tenets, the iron clad "Rule Of Law" driven legal system needs to define the framework for reigning in the cannibalistic tendencies. The uncontrolled anarchy of an armed African state cannot bring any economic freedom nor will Hayek or any economist in their right sense preach that.

The end of the law is, not to abolish or restrain, but to preserve and enlarge freedom.  For in all the  states of created beings capable of laws, where there is no law the" is no freedom.  For liberty is to be free  from restraint and violence from others; which cannot  be where there is no law: and is not, as we are told, a  liberty for every man to do what he lists. (For who could be free when every other man's humour might domineer over him?) But a liberty to dispose, and  order as he lists, his person, actions, possessions, and his whole property, within the allowance of those laws  under which he is, and therein not to he the subject of the arbitrary will of another, but freely follow his  own. JOHN LOCKE 

Arguments substituting govt tyranny for the private one needs to revisit history, preferably USSR, Cambodia, China, Nepal, South Africa, Burma, may be German jews can elaborate more on this? Without emphaiszing on Hayek's measures for reigning in the free market tyranny politicians tend to drone about laissez-faire. The idea of individualism is not selfish ruthlessness but a respect that the individuals deserve their right to choose, a voluntary desire to cooperate (or not), a "power as a measure of effective relationships, empowering on both ends"? The tyranny is visible when the american public pay for wall street decisions, consequences of recklessness was solved by "collectivism" and not individualism.

The ideal Hayekian way should not creat "too big to fail" banks in the first place nor this obvious wall steet moral hazard. Endless series of regulations are what we call as "work arounds" in software engineering, the moment government takes a paternal step of macroeconomic guidance then it becomes a moral responsibility to drive the results to completion, this spirals into endless growth of government departments lead by non-elected "public servants". There is no profit seeking but such control can create power adorning tendencies, the Hayekian way is peaceful coexistence without tyranny & not a free market half baked propaganda, definitely not a hokum. The intent is to prevent the tyranny altogether not to solve one and definitely not to substitute one with another.

Antifascist's picture
Quote:The Origins of

The Origins of Neoliberalism, Part I – Hayek’s Delusion

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil

It is not only by dint of lying to others, but also of lying to ourselves, that we cease to notice that we are lying. – Marcel Proust

Friedrich Hayek was an unusual character. Although well known to be a libertarian political philosopher, he is also commonly associated with being an economist. And it’s certainly true that at one time Hayek’s focus was solely on economics. In the 1920s Hayek was still within the fold of pure economics, publishing papers and works that were taken seriously by the discipline. However, by the 1930s Hayek’s theories had started to come apart at the seams. Exchanges between Hayek and John Maynard Keynes and Piero Sraffa show Hayek as confused and even somewhat desperate. It was around this time that Hayek discontinued making any substantial contributions to economics. Not coincidentally this overlapped with the time when most economies, mired as in Great Depression, demonstrated that Hayek’s theories were at best impractical, at worst a complete perversion of facts.

So, Hayek turned instead to constructing political philosophies and honing a metaphysics rather than engaging in any substantial way with the new economics that was emerging. When pure logic and empirical reality ceased to support Hayek’s emotionally charged ideology he turned, to the more malleable sphere of meaning and metaphysics. He became concerned with watery terms like “freedom” and “liberty”, which he then set out to impregnate with a meaning that would support his dreams. The most famous result of this period of conversion, which resembled less St. Paul on the road to Damascus and more so an alcoholic who had hit rock bottom, was Hayek’s 1944 work The Road to Serfdom. In a very real way it was this book that marked the close of Hayek’s career as a serious economic thinker and set him on the path of the political propagandist, agitator and organiser....


The Origins of Neoliberalism, Part II – The Americanisation of Hayek’s Delusion

msreekan's picture
The intense judgement even in

The intense judgement even in the little paragraph quoted here is emphasized by the usage of words like delusion, unusual, confused, desperate, perversion,  emotionally charged,  malleable, watery, impregnate,  dreams, alcoholic,  rock bottom, propagandist etc. So now we have reached a stage where the criticism is directed at Hayek for what he did not accomplish which is "not engaging in any substantial way with the new economics that was emerging", ironically the author's take is catering to someone who fits the description of all the key words he uses here. In fact a review of this rhetoric might contain all these words too?

Finally the author's romanticism reaches a tipping point where towards the end we can see a fusillade of the word "delusion" (actually 8 times in the last 3 paragraphs), which makes the reader wonder whether the romanticism of this kind alludes to the same traits in the author?


Antifascist's picture
Quote:Charles Koch to

Charles Koch to Friedrich Hayek: Use Social Security! by Yasha Levine and Mark Ames

There’s right-wing hypocrisy, and then there’s this: Charles Koch, billionaire patron of free-market libertarianism, privately championed the benefits of Social Security to Friedrich Hayek, the leading laissez-faire economist of the twentieth century. Koch even sent Hayek a government pamphlet to help him take advantage of America’s federal retirement insurance and healthcare programs.

This extraordinary correspondence regarding Social Security began in early June 1973, weeks after Koch was appointed president of the Institute for Humane Studies. Along with his brothers, Koch inherited his father’s privately held oil company in 1967, becoming one of the richest men in America. He used this fortune to help turn the IHS, then based in Menlo Park, California, into one of the world’s foremost libertarian think tanks. Soon after taking over as president, Koch invited Hayek to serve as the institute’s “distinguished senior scholar” in preparation for its first conference on Austrian economics, to be held in June 1974.

Article continues....

LysanderSpooner's picture
Hayek was anti-fascist.  Why

Hayek was anti-fascist.  Why don't you like him?  Keynes economics was more conducive to a fascist system but you seem to like him.

Antifascist's picture
Fake Prize, Fake

Fake Prize, Fake Economist

Hayek’s venture into doomsday prognostication in The Road to Serfdom was also cited as evidence that he lacked the intellectual rigor expected at the Chicago School. According to John Nef, chairman of Chicago’s Committee on Social Thought, some Chicago economists believed The Road to Serfdom “too popular a work for a respectable scholar to perpetrate. It was all right to have him at Chicago so long as he was not associated with the economists.”42 In the fall of 1950, at the suggestion of Nef, Hayek became professor of social and moral science in the Committee on Social Thought, a chair funded in part by the Volcker fund. Despite the rebuff, Hayek accepted the post. (Wapshott, Nicholas, Keynes Hayek: The Clash that Defined Modern Economics (pp. 217-218). Norton. Kindle Edition.)

Hayek won the Nobel Prize in Economics 1974.... sort of. It is the Nobel Prize that a bank created. It is the same prize that was awarded to Milton Friedman.

The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics,[1] [2] but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an award for outstanding contributions to the field of economics, generally regarded as one of the most prestigious awards for that field.[3] While not one of the Prizes established by the will of Alfred Nobel in 1895, it is consistently identified with them. Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy. Among them is the Swedish human rights lawyer Peter Nobel, a great-grandson of Ludvig Nobel.[26] Nobel criticizes the awarding institution of misusing his family's name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.

So why did Hayek get the Sveriges Riksbank counterfeit Nobel Prize in Economics even though the University of Chicago would not hire Hayek as a professor of Economics?

The reasoning behind the Nobel committee’s decision to recognize Hayek’s contribution to “pioneering work in the theory of money and economic fluctuations” was not quite the endorsement it seemed. Hayek had to share the honor with Gunnar Myrdal,30 a Swedish Keynesian economist and social democratic politician. According to Friedman,31 by yoking Myrdal to Hayek the Nobel committee hoped to avoid the charge of sympathizing with the Left. In the event, the double bill provoked substantial controversy, with Hayek declaring that Nobel Prizes for economics were absurd and worth neither giving nor receiving, and Myrdal condemning the Nobel committee for honoring Hayek. (Ibid., p. 256)

msreekan's picture
Koch story was a hilarious

Koch story was a hilarious 'practice what you preach' argument which eventually made 'a mountain out of a molehill'?

May anyone properly seize state wealth in this perspective? No. Only non statists may legitimately do so. Not Halliburton nor Bechtel; not Hillary nor Rudy. They are all supporters of statism. They are all members in good standing in the ruling class (see on this here and here). But Ron, and also the average guy in the street, may do so. They have no blood on their hands. Indeed, it is a positive mitzvah for people of this sort to relieve the government of its stolen property.

More at :

Take Hayek out of that Koch story and we have nothing remotely novel other than a drab dramatized polemic on republicans. We have descended our criticisms to a new level of personal life detail excavation which leaves a big void right at the crux of the rationale behind the arguments. By the way, Hayek has never worked for the private sector!

Finally the significance of the Nobel prize is only matched by the significance of peace established in Afghanistan and Pakistan by President Obama? Fake prize is not required to make a Hayekian argument, rational thinking will suffice!

Antifascist's picture
Quote:“A particularly telling

“A particularly telling example (of Market Fundamentalism) is Margaret Thatcher’s Companion of Honour, Friedrich von Hayek. His mode of arguing is characterized by arbitrary declarations and assumptions – for instance, concerning the ‘impartiality of the state’ – coupled with Nobel Prize-winning tautolgies. Thus we are told in his bestselling ‘Road to Serfdom’ that “It was men’s submission to the impersonal forces of the market that in the past has made possible the growth of a civilization which without this could not have developed. Likewise, Hayek declares that ‘the Rule of Law, in the sense of the rule of formal law’ is the only safeguard against ‘arbitrary government’. Having thus assumed with class-apologetic arbitrariness the necessary relationship between ‘the rule of formal law’ and ‘non-arbitrary government’, thereby aprioristically excluding substantive justice from the domain of legislative reason, Hayek concludes a few lines further on with an equally arbitrary – and utterly tautological – declaration according to which a ‘substantive ideal of distributive justice must lead to the the destruction of the Rule of Law’.

In the same way, Hayek’s apriori ideological preconception produces the unsustained axioms that ‘planning leads to dictatorship” and that ‘the more the state “plans” the more difficult planning becomes for the individual’. However, later in the book he contradicts his own lament about the difficulties of individual planning by happily embracing the idea that ‘A complex civilization like ours is necessarily based on the individual adjusting himself to changes whose cause and nature he cannot understand’. In this way we are left not only with a blatant contradiction between the idealization of ‘individual planning’ under capitalism and its effective denial by the market, but also with a grotesque notion of what the submissive individual is supposed to accept as the ultimate conquest of our ‘complex civilization’. Indeed, we are told – curiously in the name of freedom – that unquestioning submission by all individuals to the tyranny of the market is the ultimate virtue.

Evidently, Hayek cannot admit the possibility and legitimacy of envisaging an alternative to the rule of capital, to which in his view everybody must submit; least of all if it means taking control by the individuals over their own life-activity through consciously organized -i.e. genuinely planned – forms of productive social interchange, managed on the basis of their own decisions as opposed to preexisting ( and in Hayek’s view even in principle incomprehensible) material dictates. What remains a complete mystery in Hayek’s approach is: why should one prefer his kind of uncontrollability and submission to what he quite demagogically projects as the ONLY alternative?"
~István Meszaros, Beyond Capital (1995), p.198.

In other words Von Hayek is committing the Fallacy of False Dilemma.

Wow, this is really dreamy.

Wow, this is really dreamy.  All these things working together because they are rational, so people will see how wonderful it is to care and share in this low structure libertarian pluralism.  Kerry needs to meet the real Kumbaya.

I think Hayek may be a decent critic of authoritarian and totalitarian government, but he is no democracy loving political scientist.  He proposes utopia as the result of a relatively sound sense of "interaction," but he wants it to be too natural and lacking in our political design and craft.  "Let it be" is not the answer to too much control.  More interaction, not less, is how this works.  

msreekan's picture
"Why Nations Fail" is an

"Why Nations Fail" is an excemplary work, the sheer scope of the book pictures how pluralistic institutions lead to prosperity & another and a slightly different book called "Twilight of the Elites" expresses a US specific case study on the governance failure across verticals, but then the two differing books make a common observation on a vicious circle developing between political and economic institutions. Power and money foster and grow among the same elites because power can buy money and vice-versa is also true, latin american and African countries are riddled with arbitrary legislations which subvert the existing laws for consolidating power among few hands. Zimbabwe, Columbia, Argentina, Peru, Sierra Leone are all mentioned in "Why Nations Fail". The flaw in legislative system is exposed when there is a consensus for the wrong reasons, Washington exhibits unanimous agreement when catering to lobbies and especially copyright laws which finally leads us to the need for the "Rule Of Law".

So instead of repealing a law that many people and a majority of senators agreed was ineffective and counter productive to entrepreneurship, the Obama administration continues a bad policy that doesn’t even raise much revenue, but continues to benefit large technology corporations. Again, this is not what Democrats should be doing. They should protect the little guy.

Read more here  :

The above link will suffice for proving the validity of statements like ‘the more the state “plans” the more difficult planning becomes for the individual'. Distributive justice is proactive, it may not enforce equality hence any change in circumstances can make the effect of such laws unnecessary or even injurious. The more pertinent issue is of the tendency to create laws catering to specific interest groups, such force can be exerted for the wrong reasons too, this finally leads us to the issue of arbitrary governance and compared to this the "Rule Of Law" system enforces equality and will stand the test of time.

Hayek's book is called "The Road to Serfdom" and it argues that unless govt planning is kept in check it will lead to totalitarianism, if simple "planning leads to dictatorship" then all the states would be totalitarian by now. An individual adjusting to free market forces will have rational choices at his disposal as opposed to a planned economy, more importantly the choice which he makes will define his future not the choice made by wall street or govt. The statement "A complex civilization like ours is necessarily based on the individual adjusting himself to changes whose cause and nature he cannot understand" defines that only the individual is the best judge for adjusting to what is ideal for him, to ensure there are competing options we need competition not submission to market or govt tyranny. The criticism manages to sound credible only by conveniently avoiding the mention of Hayek's preaching of competition in opposition to the "submission by all individuals to the tyranny of the market"?

Hayekian concept is for fostering a pluralistic society at the most granular level, there is no one supreme power center but instead many big and small ones which keep each other in check. The book "Why Nations Fail" elaborates on "The Irresistible Charm Of Authoritarian Growth" and how "You Can't Engineer Prosperity" and the necessity of "Empowerment" without preaching any political ideologies, it illustrates a strong emphasis on comprehending institutions before attempting to provide economic solutions. There is considerable debate to be done on the feasibility of the "Rule Of Law" and fostering of competition but unfortunately we tend to focus on shallow idelogically driven criticisms.

Antifascist's picture
Today’s Neo-Liberal

Today’s Neo-Liberal macroeconomic mathematical models are builds on a number of assumptions not consistent with the way markets actually function. One such assumption is the first welfare theorem also known as the financial market efficiency hypothesis—that markets cannot be improved by market interventions.There are many other apriori logically consistent market model assumptions: that market are rational, markets seek full employment equilibrium; that markets have a single equilibra; there are unbounded (having unlimited knowledge) rational agents always seeking maximum utility; competitive markets are frictionless; no single agent is large enough to influence prices; and the rational expectations hypothesis which assumes that all agents are free to make trades contingent on any future observable event and are not systemically wrong in their predictions. Although economist John Maynard Keynes led the way in modern statistical analysis of market behavior, he always had a healthy skepticism toward such methodological tools so as not to let logico-mathematical models dictate how markets ought to function rather than describe how markets behaved in their totality.

The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error. It is a great fault of symbolic pseudo-mathematical methods of formalizing a system of economic analysis that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed; whereas, in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep “at the back of our heads” the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials “at the back” of several pages of algebra which assume that they all vanish. Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.(John Maynard Keynes, The General Theory of Employment, Interest and Money. Chapter 21, Part III.)

msreekan's picture
Hayek on Price Signals

Hayek on Price Signals :

Antifascist's picture
Quote: Philip Pilkington:

Philip Pilkington: Purging Economics of Religion – A Rebuttal to Robert Nelson’s Defence of The Great Chain of Being

Market Equilibrium: The Great Chain of Being Versus Intelligent Design

Let us first then examine two very different concepts of equilibrium. One of these is the one favoured by neoclassical economists and will hereafter be referred to as “market equilibrium”. The other is the one favoured by Post-Keynesian economists and will hereafter be referred to as “stock-flow equilibrium”. Let us turn to market equilibrium first.

The reader will probably be quite familiar with this notion of equilibrium as we are bombarded with it every day. Indeed, in a very real way it structures our morality and our thinking about the world around us. It is represented in this familiar form of the supply and demand diagram:

The idea is that equilibrium is determined by the interaction of supply and demand. The view implicit in the diagram is that we are in a marketplace of haggling buyers and sellers where the buyers make bids on goods while the sellers adjust their prices. Eventually when the whole process is finished the market falls into equilibrium which determines that price of the goods and the amount sold.

The economist Paul Samuelson, who will be discussed in detail later on, summed this up quite nicely in his introductory textbook “Economics” as follows:

Supply and demand interact to produce an equilibrium price and quantity, or market equilibrium. The market equilibrium comes at that price and quantity where the forces of supply and demand are in balance. At the equilibrium price, the amount that buyers want to buy is just equal to the amount that sellers want to sell. The reason that we call this equilibrium is that, when supply and demand are in balance, there is no reason for price to rise or fall, as long as other things remain unchanged.

There are many problems with this simple picture. The diagram, for example, assumes that if prices rise less of the good will be demanded. As we have discussed, not the case in many markets,. Think, for example, of the housing market prior to the financial crisis. In that market as price climbed ever higher these price rises themselves generated more demand for houses due to people trying to speculate on rising home values. The same phenomenon takes place across financial and asset markets and in many ways appears fundamental to the structure of markets.

What we are here interested in are only the metaphysical properties of this setup, not so much its inherent truth-value. We are interested in these because neoclassical economics when boiled right down is basically just a big pile of supply and demand graphs thrown one on top of the other. The economy is, in many ways, seen as being a giant supply and demand diagram – a giant marketplace tending toward or even already in market equilibrium.

The clue to the metaphysical properties of this setup is contained in the key concepts that an economy is either “tending toward” or “already in” equilibrium. The neoclassical market equilibrium analysis conceives of the economy in one of these two ways.

The strong or “general” equilibrium assumption is that economies are always already in equilibrium. Supplies and demands of and for everything, from labour to cat food, are always in balance and when a shock causes changes the economy adjusts pretty much instantaneously. The metaphysical kernel in this idea is almost too obvious to point out. The economy, indeed the world around us, is here portrayed as a perfectly harmonious utopia and we are implicitly warned not to mess with the Holy processes of supply and demand lest we fall into sin. Much like the old metaphysical Great Chain of Being the portrayal here is of a static world in which everything is in its right place and we are warned in a strictly moral tone not to question or mess with this structure.

The weaker or “partial” equilibrium assumption is that although the economy is thought to be out of equilibrium as it moves through time it is nevertheless always tending toward equilibrium. Whereas the strong or general equilibrium assumption presents a picture of perfect harmony, the weaker or partial equilibrium assumption presents a picture of a tendency toward perfect harmony. This idea of equilibrium is a teleological rather than a static concept, but the religious overtones are the same (one might compare it to intelligent design).

While the strong assumption of general equilibrium contains the basic message “you live on God’s (the Market’s) earth and it is already perfect therefore you should not step out of line with His rules”, the weaker assumption contains the message “you live on God’s (the Market’s) earth and, although it is not yet perfect, it is always moving toward perfection according to His rules and you should not break these”. It is basically a fight between the medieval Neo-Platonist theologians who posited a Great Chain of Being and the modern day Creationists who attribute teleological direction to the process of development.

tayl44's picture
Antifascist, you have my vote

Antifascist, you have my vote to run the USA educational system. And a few others in this forum. What`s the old saying, "the truth will set you free"!

msreekan's picture
Market equillibrium equated

Market equillibrium equated with religion may be irrelevant here, why?

It is well known that in “Economics and Knowledge,” Hayek explored the assumptions about time and knowledge that must underlie a coherent use of equilibrium, and thereby, perhaps inadvertently, called the whole equilibrium notion into question.

How Hayek differentiated himself is clarified more here >

If this reading of Hayek is correct, we are led to an entirely different picture of a market order than is portrayed by general equilibrium theory. The value of general equilibrium is partly to show the interconnectedness of the market order, but professional focus has been limited to examining equilibrium prices and the welfare consequences that follow therefrom. In Hayek’s implicit economics, these issues are sidelights. What is in full focus is the interconnectedness of the institutional structure with its regular trading relationships and established channels of communication. Within these channels, actors are constantly making all those “small adjustments” incited often, but not always, by price changes that keep goods flowing at costs as low as anyone knows how to make them. Prices, then, are vitally important in communicating information within the web of trading relationships and for facilitating economic calculation, but prices do the job within the context of a relatively stable institutional structure.

Natural disasters and govt intervention are great methods for distorting price signals.

Antifascist's picture
The Self-Regulating Market

The Self-Regulating Market Equilibrium Paradigm (Post #4)

"Initially both Hayek and Keynes believed that an economy has a natural state of equilibrium at full employment. Even after dis-equilibrium in production and consumption, it was believed by classical economists that an economy would automatically reestablish a balance of equilibrium between employment, production, and consumption. However, Keynes was the first to question the notion of full employment equilibrium assumed by all classical Marshallian economists."

msreekan's picture
The below quotes are from an

The below quotes are from an article based on a BBC documentary on chaos theory, quite fascinating to understand how simple rules can lead to immesely complex formations; watch it here :

The programme attempts to reconcile this complexity and unpredictability with the apparent order and regularity described earlier. Of course as we said, there is not total unpredictability in nature.  Everything occurs within definite conditions, so for example the apparently random interaction between each unique grain of sand and gust of wind contributing to the creation of a sand dune, actually occurs within definite limits, each sand grain being necessarily conditioned by the millions of other sand grains around it.

 The tendency to self-organisation in nature is only the basis for consciousness, which can reach perfection only in a liberated, socialist society, conscious of all of society’s needs.

Read more here :

The question is how a self-organized society be conscious of every single person's need? A pluralistic society where everyone comprehends the need of their neighbors can be self-organized too but someone else dictating what is "general good" is hardly self-organizing.

“Since the aim of capital is not to minister to certain wants, but to produce profit, and since it accomplishes this purpose by methods which adapt the mass of production to the scale of production, not vice versa, a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier. Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities. Hence the peculiar phenomenon of economists who deny over-production of commodities, admitting over-production of capital. To say that there is no general over-production, but rather a disproportion within the various branches of production, is no more than to say that under capitalist production the proportionality of the individual branches of production springs as a continual process from disproportionality, because the cohesion of the aggregate production imposes itself as a blind law upon the agents of production, and not as a law which, being understood and hence controlled by their common mind, brings the productive process under their joint control.” (Capital, Volume III, Marx)

Undoubtedly, Marxist dissection of his enemy is staggerring. The insight here is that the dispropotionate production across various branches propagate because of the blind law imposed by the cohesive aggregate forces of production, hence the Hayekian thought of uncorrupted price signals as a medium of communication among the various branches to offset the dispropotionate production is relevant. 

It seems clear, however, that as the details are worked out, conventional notions of equilibrium as some destination of a market process or as a criterion for evaluation will be irrelevant. And, it also seems clear, that this will in no way increase the difficulty of explaining a coherent and wealth creating market order. The worries that many Austrians have expressed—that rejecting equilibrium theory (even as an end-point of a market process) means giving up any explanation of the coherence of markets will hopefully be revealed to have been for nought.

Read the above conclusion here :

Hayek did differentiate himself from Austrian school and eventually from Mises too,  this thread surfs across multiple terms like Reaganomics, Monetarism, neo-liberlism, libertarian, market equillibrium etc, unfortunately none of them completely define Hayek's view. We could have as well discussed Rothbard and attributed that also to Hayek.