Let's recall first the context of the debate. Farrant initially argued that the Road to Serfdom was wrong and insulting: for the mechanism to work, would-be planners in England would have had to have preferred totalitarianism to liberalism. Otherwise, they would have retreated from planning before the Rise of the Demagogue. Further, since none of the European welfare states that started on the road to planning wound up at Serfdom, Hayek was wrong.
When Glen Beck started selling Hayek as a tome for our times against Obama, Farrant & McPhail wrote a piece arguing that Beck's interpretation of Hayek was correct but that Hayek was wrong.
Bruce Caldwell, probably the world's leading Hayek scholar, has replied. He notes the differences between Hayek's critique of the welfare state and his critique of planning and says Farrant & McPhail conflate the two. Hayek said that welfareism would kill liberty through many small cuts intended to patch up the flaws of the welfare system; planning would lead more quickly to jackboots.
Farrant & McPhail argue that Hayek intended his critique to apply to planning in Britain at the time of writing, and that "planning" in Britian at the time referred to the mix of interventionism, planning and welfarism.
Farrant points to a somewhat obscure 1945 Hayek article, "Genius for Compromise", written in response to a Harold Nicholson piece arguing that one can stop on the road to serfdom. Hayek's response there makes very clear that Hayek had in mind the partial planning undertaken under Attlee:
Signs are not wanting that some of those who are largely responsible for the present craze for planning are beginning to be uneasy about the forces they have loosened, and to feel a little like the sorcerer's apprentice who cannot lay the ghosts he has raised. Once prices or incomes are guaranteed to some producers, there is little ground left for refusing the same to any others. If the supply of pig iron or coal cannot be left to the unregulated forces of competition there is no reason why that of tobacco should. If you argue for a particular purpose that "individuals have no machinery for limiting imports to the level of exports" you must not be surprised if your disciples insist that the government should individually match each item of imports with a corresponding item of exports. And if you generally denounce the "humbug of finance" you must not expect the people to respect the particular piece of financial machinery of your own design.All three of Farrant, McPhail, and Caldwell know far more about the Hayek literature than I do. My assessment is that Hayek meant Road to Serfdom to apply to Britain in 1945. The planning he then referred to was mostly industrial policy and nationalization. If Beck and Limbaugh hold up American nationalization of car companies as setting us on the road to serfdom, they're not out of line with what Hayek was saying. And while Hayek's mechanism for the welfare state differs a bit from that in RTS, I don't think it would be wrong to say that Hayek's mechanism there leads us to the kind of planning that's consistent with the RTS mechanism: maybe it's the driveway that leads to the Road.
Our planners are likely to be equally mistaken when they think they can stop the movement long before any of the horrors are reached which most of the more sensible among them admit that a completely planned society would involve. It takes a long time before such a tendency can be stopped, once the intellectual forces driving it on have got well under way. What I am pleading for is that it is time to stop and reflect if the momentum of the movement is not to produce very unpleasant results.
Do hit the Hayek tag below for the previous posts in this series. While I think the mechanism in RTS is wrong, I'm a fan of Hayek overall. The Use of Knowledge in Society is probably the most important piece of economic writing in the 20th Century. What should we take from Hayek today, as far as welfare and planning are concerned?
First, you can't do full scale planning without totalitarianism. Yeah yeah, you tell me - we all know that. Really? How many on the left cheered the rise of Chavez, thinking it would all work out just swell?
Second, a broad welfare state and social insurance system beget regulations that work to the detriment of liberty. Private actions that otherwise might well be thought left private become regulated, taxed or prohibited because of the socialization of downside costs. I have a hard time believing that regulation of demerit goods like smoking, drinking and "bad" eating would be anywhere near as popular absent the fiscal externality argument. This doesn't lead us to serfdom but to nannydom.
I don't much disagree with Caldwell's assessment of what we should today take from Hayek even if, following Farrant and McPhail, that isn't quite what Hayek had in mind when he was writing.