Hayek: A Collaborative Biography

Part VIII: The Constitution of Liberty: 'Shooting in Cold Blood', Hayek's Plan for the Future of Democracy

Robert Leeson

• Publisher: Palgrave Macmillan
• Year: 2019
• ISBN:
  9783319780696
• Topic: Volkswirtschaftslehre
• Subtopic: Wirtschaftstheorie

This book is the eighth volume in this Collaborative Biography, which explores the life and works of Nobel Prize-winning economist F.A. Hayek (1899-1992). Making extensive use of archival material and Hayek's own published writings, it presents a strong challenge to perceptions of the economist's life and thought. In this volume, chapters canvas subjects such as the relationship between the Austrian School of Economics and the Cold War, the Hapsburg Empire, and the overthrow (or planned overthrow) of democracy in a variety of countries, with a view to examining the process by which economics is constructed and disseminated.

Part ICrony Capitalists and Their ‘Free’ Market School of Economics

© The Author(s) 2019

Robert LeesonHayek: A Collaborative BiographyArchival Insights into the Evolution of Economicshttps://doi.org/10.1007/978-3-319-78069-6_1

Begin Abstract

1. ‘Free’ Market ‘Knowledge’: ‘That Part of the Argument Which Is Not Sympathetic to Me, I Pass Over’

Robert Leeson¹

(1)

Department of Economics, Stanford University, Stanford, CA, USA

Robert Leeson

Email: [email protected]

End Abstract

1 Archival Insights into the Evolution of Economics

This volume of the AIEE series examines the relationship between the Austrian School of Economics and the overthrow (or planned overthrow) of democracy in a variety of countries, including inter-war Germany and Austria and Cold War Chile, the USA and Britain. The AIEE series seeks to provide a systematic archival examination of the process by which economics is constructed and disseminated. All the major schools will be subject to critical scrutiny; a concluding volume will attempt to synthesise the insights into a unifying general theory of knowledge construction and influence.

Before encountering the argumentum ad hominem of the Tobacco, Obesity and Fossil Fuel (TOFF) Professoriate, the AIEE editor largely accepted the validity of Ludwig ‘von’ Mises’ (1998, 90) cliché: ‘Scientists are bound to deal with every doctrine as if its supporters were inspired by nothing else than the thirst for knowledge.’ Two AIEE volumes were initially planned for the entire Austrian section. However, it soon became apparent that due to the amount of stolen and covered-up evidence almost two score volumes would be required to examine Friedrich ‘von’ Hayek alone.

Economic ‘theory’ is a misnomer: the subject has been constructed through competition between school-based theories. Theory (and illustrative evidence) is the bridge between the school (or individual economist) and their preferred (if often unacknowledged or fully recognised) societal outcomes. The ‘presuppositions of Harvey Road’ informed John Maynard Keynes’ theorising (Harrod 1951), and the presuppositions of his proto-Nazi family and milieu played a similar role for Hayek. And as Lawrence White (2008) unintentionally discovered, for Hayek and Mises, economic ‘theory’ is an elaborate and ornate facade behind which to pursue deflation—and thus ‘extensive unemployment’—so as to reconstruct the ‘spontaneous’ order (see also Magliulo 2018; Glasner 2018). And Presuppositionalist public stoning theocrats also sense an opportunity to impose their ‘free’ market.

The two fraternities that emerged from the French Revolution—committed, respectively, to the slogans of ‘liberty’ and ‘equality’—have tended to see the world as an irreconcilable conflict concerning the share of national income that ‘should’ accrue to the owners of the two primary factors of production: labour (human capital) and (non-human) capital. Two trade unions (and their associated political representatives) emerged from the Third Estate: for employers and for labour. Adam Smith (1827 [1776], 137) famously cautioned that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ Mises (2006 [1958], 97) complained: ‘You have, in the legislatures, representatives of wheat, of meat, of silver, and of oil, but first of all, of the various unions.’ Mises (1881–1973), the co-leader of the third-generation Austrian School, was a paid lobbyist for employer trade unions¹; and the co-leaders of the fourth generation, Hayek (1899–1992) and Murray Rothbard (1926–1995), were also funded from the same source.² Behind the abstractions of ‘mal-investment,’ their mission was to undermine the power of the other (labour) trade union. In contrast, the British branch of the neoclassical school promotes the tax-funded acquisition of education (human capital) as a harmonising invisible hand.

Both major branches of the neoclassical school (British and Austrian) promote interference with the price mechanism. In the British Pigouvian-externality tradition, taxes and subsidies are recommended to promote full-cost pricing; and in the post-Keynesian tradition, incomes policies or price and wage controls (underpinned by cost-push or wage-price spiral analysis) are often proposed to assist the pursuit of the empty concept of ‘full’ employment.

In The General Theory of Employment, Interest and Money, Keynes (1936, Chapter 2)—disturbed by the threat to civilisation posed by the return to the gold standard and the resulting general strike—advocated (naively, perhaps) a once-and-for-all rise in the price level to reduce both real wages and unemployment:

it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.

The Great Inflation of the 1970s—initiated by the second-year (1948–) Mont Pelerin Society (MPS) member and Richard Nixon’s Chair of the Federal Reserve, Arthur Burns—turned Keynes’ ‘dream’ into a nightmare.

To end inflation, Mises reportedly stated: ‘Hear that noise’ of the printing presses? ‘Turn it off!’ (Chapter 8, below). Using a price-wage-depression spiral, Austrians seek to ‘turn off’ labour trade union power through a ‘contrivance’ to reduce prices: demand-pull deflation which (temporarily) increases the real wage creates double-digit unemployment (the equilibrating vehicle) through which nominal wages and labour trade union power are reduced. They also provide intellectual respectability to the TOFF lobby in their efforts to keep prices reduced (by avoiding externality full-cost pricing).

The AIEE series had been designed to address six questions:

1. i.
   How is knowledge constructed and by whom?
2. ii.
   What quality control mechanisms are applied by producers?
3. iii.
   How is knowledge marketed?
4. iv.
   Who consumes it and why?
5. v.
   What quality control mechanisms are applied by consumers?
6. vi.
   What are the consequences (intended and unintended) of the constructed knowledge?

The Hayek Archives (some stolen, some available, some suppressed) suggest at least seven further questions:

1. vii.
   Why does a community tolerate—rather than reporting—academic, financial and immigration fraud?
2. viii.
   What are the consequences of fraud for public policy?
3. ix.
   Do scholars have a responsibility to report the fraudulent use of public funds to the authorities?
4. x.
   Why did a History of Economics Society (HES) President offer the AIEE editor hundreds of thousands of tax-exempt dollars not to publish the long-suppressed evidence about Hayek and to work, instead, on a hagiographic project?
5. xi.
   What role did Hayek and Mises play in facilitating Hitler’s rise to power?
6. xii.
   Why do epigone-generation Austrians continue to promote the deflation that assisted Hitler’s rise to power?
7. xiii.
   What role have Austrian economists and philosophers played in ending democracy in Chile and elsewhere?

2 ‘I Have Very Strong Positive Feelings on the Need of an “Un-Understood” Moral Tradition’³

Achieved status is acquired within a societal structure that bears the heavy residual influence of previously achieved—that is, subsequently ascribed—status.⁴ In England, selective entrance grammar schools were the primary vehicle for upward social mobility. The majority of voters, however, had been non-selective entrance ‘secondary modern’ educated (trades, semiskilled and unskilled), and only a small minority were privately educated in ‘public’ (fee-paying) schools. With condescension, goes deference: before the 1979 general election, Margaret Thatcher, who was sneered at by the private (that is, ‘public’) school focused Private Eye as a ‘grocer’s daughter,’ took ‘upper-class’ elocution lessons to out-trump the lower-middle-class-born, non-university educated James Callaghan.

Hayek (1994, 92) observed that people got ‘enchanted by merely listening’ to Keynes’ ‘words’: his Old Etonian ‘voice was so bewitching.’ The editor of the (L...

Table of contents

• Cover
• Front Matter
• Part I. Crony Capitalists and Their ‘Free’ Market School of Economics
• Part II. Hitler and the Austrian School ‘United Front’ with ‘Neo Nazis’
• Back Matter