Caldwell vs Farrant: Round Two

What does "planning" really mean? The latest issue of Challenge has Caldwell again battling with Andrew Farrant and Ed McPhail over whether Hayek intended his argument in Road to Serfdom to apply only to planning in the Soviet/Nazi sense [Caldwell] or to planning as practiced by the Attlee government in Britain [Farrant/McPhail].

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.
...
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.

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.

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.

Cage Match: Caldwell versus Farrant [updated]

Update: text below updated in a couple of spots for accuracy and clarity.

Bruce Caldwell replies to Farrant and McPhail on Hayek's Road to Serfdom; I'm told the reply is coming out in a later issue of Challenge.

For Farrant and McPhail, the resurgent popularity of RTS hinged on a reading of Hayek that, while unpopular among RTS fans, was in fact the right reading of Hayek: any moves towards socialism would lead to serfdom. Consequently, Glenn Beck's using of Road to Serfdom as a rallying call against Obama's policies does no disservice to Hayek. Hayek, however, does disservice to those British socialists who rated liberalism above totalitarianism and who would have stepped back from planning rather than allow the rule of the demagogue.

Caldwell argues that Farrant and McPhail miss essential context. The argument in RTS was addressed only to "hot" socialism: full nationalisation of industries and central command planning. When restricted to that set, Hayek was right: full planning cannot be undertaken without totalitarianism. Caldwell notes that no socialist state achieved totalitarianism through Hayek's mechanism: democratic election leading to failings of planning leading to the rise of the demagogue; he argues that consequently no test of Hayek's mechanism has been undertaken. While the argument in RTS was restricted to "hot socialism", Hayek's later writings provided other warnings of the dangers of the welfare state. The mechanisms and arguments in those later writings were different and oughtn't be conflated with the dangers noted in RTS.

Farrant and McPhail respond to Caldwell [Note: they're there responding to earlier Caldwell arguments, not this particular piece], and others, in the latest issue of Challenge, unfortunately gated. I'll leave to one side F&M's noting that the current talking heads promoting Hayek's argument on Beck's show happily identify Obama's policies as the starting point on the road to serfdom; the more interesting question is whether Hayek meant the argument there to apply.

Intriguingly, Bruce Caldwell — commenting on the Beck-inspired surge in Hayek’s sales—notes that Hayek wrote his “full-fledged attack on socialism and totalitarianism” largely in “response to the British Labour Party platform of the time” (Caldwell, as quoted in Zaitchik 2010, 3). Caldwell’s reference to the policy program of the British Labour Party is particularly noteworthy. Hayek often invoked postwar British experience to illustrate the supposed veracity of The Road to Serfdom. As Hayek explained in 1948, British experience supposedly clearly demonstrates that “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which sooner or later totalitarian forces get the upper hand” (Hayek 1948, as quoted in Farrant and McPhail 2010b). Unsurprisingly, the tenor of Hayek’s remarks is markedly congruent with the logic he laid out in chapter 5 of The Road to Serfdom: Planning and intervention (it is highly revealing that Hayek invokes the interventionist and welfare state policies adopted by Labour as full-blown “socialist planning”) generate pervasive economic inefficiencies and dislocations.8 This pervasive inefficiency supposedly leads to the wholesale replacement of democracy.

They then cite the foreword to the 1976 edition of RTS:

In the preface, Hayek notes that if any reader asked whether he would still “defend all the main conclusions of ... [the] book ... the answer ... is on the whole affirmative” (xxiii). Importantly, Hayek notes that “terminology has changed” between 1944 and 1976, and

for this reason what I say in the book may be misunderstood.... At the time I wrote, socialism meant ... nationalization ... [and] central economic planning.... [Hence] Sweden ... is today very much less socialistically organized than ... Britain or Austria, though Sweden is commonly regarded as much more socialistic. This is due to the fact that socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In [this] ... latter kind of socialism the [totalitarian] effects I discuss in this book [Road to Serfdom] are brought about more slowly, indirectly, and imperfectly ... the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book. (Hayek 1976/1994, xxiii–xxiv, emphasis added)

Hayek intended the argument to apply to the British Labour Party. British socialists would then had to have preferred totalitarianism to liberalism for the RTS mechanism to run its course; otherwise, they'd have retreated from planning before going too far down that path. It's of course possible that their retreat came only because Hayek showed them the inevitable outcome of pushing through with planning. But that we can't point to an example of a democratic country turning totalitarian using the RTS mechanism suggests that the RTS mechanism isn't a particularly important one in explaining any real world totalitarianism; totalitarianism tends to come in with planning rather than as later consequence of it.

So, I'll disagree with Caldwell that Hayek's mechanism hasn't been tested. Caldwell writes:

Next, there are no examples of democratically elected governments that tried to put such a system into place.10 So we cannot directly test to see if he was right or wrong. We do, however, have examples of such systems that were not democratically elected. And Hayek’s description of life under such regimes is spot on.

Planning cannot be done without totalitarianism. But the RTS argument isn't just that; it's that steps toward planning push us to totalitarianism. And that many western European democracies turned back from planning rather than continuing on the road to serfdom suggests Hayek's mechanism was wrong, even if he was right that planning cannot be done without totalitarianism.

But I will have to re-read Constitution of Liberty and Law, Legislation and Liberty to contrast the mechanisms there with those in Road to Serfdom.

Note also that John Quiggin reviews Farrant and McPhail's argument at Crooked Timber:

Until the right went completely crazy, the most common claim in support of Hayek was that his predictions had somehow been vindicated by Thatcher’s reaction against the welfare state. Leaving aside the fact that Thatcher’s remodelling of the British economy in the image of the City of London looks a lot less appealing today than it did only a few years ago, this totally misses the point of Hayek’s book. If he had wanted to argue that social democratic policies would reduce the rate of economic growth, and to throw in a bit of hyperbole, he could have called it “The Road to Destitution” or something similar. Hayek wanted to make the much stronger claim that the attempt to implement Labor’s policies would necessarily lead to a loss of personal and political freedom.

Stopping points on the Road to Serfdom [updated]

Update: see also here and here.

Andrew Farrant and Ed McPhail nicely contrast divergent readings of The Road to Serfdom in the July-August issue of Challenge.

Where some recent scholars, like Bruce Caldwell, reading Hayek's Road to Serfdom see his argument as simply being that full-blown command and planning socialism is incompatible with freedom, the book's resurgent popularity among the likes of Limbaugh and Beck rests on the inevitability reading of its argument: that the slope to full command planning is very slippery, and small pushes in that direction risk a cannonball run to serfdom. In that reading, unless we change our ways and that right soon, very bad things await. Which is the correct reading of what Hayek meant?

Farrant and McPhail nicely show that Hayek intended his thesis to apply not only to full command planning but also to the welfare state.

As Caldwell rightly points out, the crux of Hayek’s thesis had initially appeared in a 1938 article. Caldwell explains that Hayek—in 1939—“came out with an expanded version in the form of a public policy pamphlet. . . . If one compares the two articles one can trace an accretion of ideas that would later appear in The Road to Serfdom” (Caldwell 2007, 6). Tellingly, in the 1939 pamphlet Hayek wrote:

It is not necessary to review the familiar economic arguments which show why mere “interventionism” is self-defeating and self-contradictory, and how, if the central purpose of intervention is to be achieved, intervention must expand until it becomes a comprehensive system of planning. (Hayek [1939] 1997, 199–200, emphasis added)13

The tenor of the above remarks is readily apparent in The Road to Serfdom itself and throughout Hayek’s later commentary on the thesis of the book. As Hayek had explained in The Road to Serfdom: “[T]he close interdependence of all economic phenomena makes it difficult to stop planning just where we wish . . . 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” (Hayek [1944] 1994, 117, emphasis added). Importantly, Hayek—alluding to the negative consequences that welfare state policies have on the development of law, morals, education policy, and the organization of science—argues that

the general tendency towards a paternalistic welfare state, which is the result of a misunderstood rationalism . . . is constantly producing results which are only too similar to those produced by economic planning and which also had shown themselves clearly in Germany long before they became visible elsewhere. They contribute almost as much as the economic factors to that profound transformation of society which follows from increasing governmental regulation and leads towards another direction not in the least intended by those who advocated these regulations. (Hayek 1948, 14–15, quoted in Farrant and McPhail 2009; emphasis added)

Though Caldwell argues that Hayek’s reasoning is inapplicable to the welfare state (2007, 31), any such view is rather hard to square with Hayek’s suggestion that

[today] . . . socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In [this] . . . latter kind of socialism the [totalitarian] effects I discuss in [Road to Serfdom] are brought about more slowly, indirectly, and imperfectly . . . the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book. (Hayek [1976] 1994, xxiii–xxiv, emphasis added)

Similarly, Hayek remarks that while many socialists have “turned to a redistribution/fair-taxation idea—welfare . . . I believe this indirect control of the economic world ultimately leads to the same result [totalitarianism], with a very much slower process” (Hayek 1994, 108, emphasis added).

In short, Limbaugh has the accurate reading of Hayek, but the one that fails in the real world; Caldwell has the charitable reading of Hayek that's more consistent with ex post outcomes.

As noted above, Limbaugh et al. readily invoke Obama and Stalin as ideological soulmates. Similarly, one noted “Hayekian”—Glenn Beck—has suggested that Obama’s policies could lead to concentration camps. Lionel Robbins—a Hayekian fellow traveler and academic colleague of Hayek’s in the 1930s and 1940s—has noted that Hayek

is somewhat too apt to . . . assume that deviations from his norm lead cumulatively to disaster. . . . For instance, in my judgment Professor Hayek is justifiably critical of some contemporary arrangements regarding old age pensions and apprehensive of the difficulties which may arise should the burden be greatly increased. But why should he argue as if these were at all likely to lead us to social disintegration and the concentration camp. (Robbins 1961, 80, emphasis added)

Is Robbins engaging in mere hyperbole? Robbins, of course, unlike a right-wing fanatic such as Beck, is a serious scholar. We refer the reader to Hayek himself: “[T]he fact that the young supply the police and the army will decide the issue: concentration camps for the aged unable to maintain themselves are likely to be the fate of an old generation
whose income is entirely dependent on coercing the young” (Hayek 1960, 297, emphasis added).

I really like Hayek's "The Use of Knowledge in Society". The Road to Serfdom provides a nice explanation of why central planning is incompatible with personal liberty. But reading beyond that, following what Hayek seems to have intended, in reckoning that every divergence from market liberalism runs great risk of totalitarianism, is simply wrong. It's the right reading of Hayek, but the wrong reading of the world.