F.A.
Hayek interviewed by Thomas W. Hazlett
F.
A. Hayek must have sensed something in the wind at about the time I
interviewed him in Los Angeles in May 1977. In the 1930s and 40s, Hayek
had been the second most famous economist on the planet, best known
as John Maynard Keynes's intellectual sparring partner. On the fundamental
questions of economic policy, the debate pitting Professor Hayek of
the London School of Economics against Professor Keynes of Cambridge
University sparked a memorable confrontation between classical economics
and the new-fangled "macroeconomics" of Lord Keynes's 1936
General Theory.
The
Keynesians swept academic arguments in a virtual shut-out. With Keynes's
death in 1945, in fact, Hayek (and the classical trade cycle theory)
quickly faded from public view. Economic policy entered a golden age
of "demand management" in which the business cycle was rendered
obsolete, and Hayek moved out of economic theory altogether. In 1950
he went to the University of Chicago, where he chaired the Committee
on Social Thought, finishing his career at the University of Freiberg
(1962-68) and the University of Salzburg (1968-77). He embarked upon
major contributions in such new fields as psychology (The Sensory Order,
1952), political theory (The Constitution of Liberty, 1960), and law
(Law, Legislation & Liberty, Volumes l-lll, 1973-79).
He
was wise to steer clear of economics. For his quibble with Keynes was
not the only humiliation he had suffered in rarified theoretical discourse.
The famous Socialist Calculation Controversy was prompted by the Austrian
critique of central planning. From the 1920s until the '40s, Hayek and
his countryman Ludwig von Mises argued that socialism was bound to fail
as an economic system because only free markets--powered by individuals
wheeling and dealing in their own interest--could generate the information
necessary to intelligently coordinate social behavior. In other words,
freedom is a necessary input into a prosperous economy. But even as
Hayek's elegant essay extolling market prices as the signals of a rational
economy was hailed as a seminal contribution upon its publication in
the American Economic Review in 1945, shrewd socialist theorists proved
to the satisfaction of their peers that central planning could be streamlined
so as to solve, with really big computers, the very information problem
that F. A. Hagek had so courteously exposed.
Losing
a scholarly debate or two is not the worst that can befall a buman being
of talent, and Hayek was not destroyed. He went on to publish brilliant
work in subsequent years. But within the economics profession it is
no secret that Hayek was an academic outcast, a throwback, a marginal
character whose ideas had been neatly disproven to all reasonable men
in the scientific journals of his day.
But
then something bizarre happened. The late 20th century decided to provide
a reality check on the academic scribblers. The 1960s and '70s saw post-war
prosperity ignite into an inflationary spiral in the very countries
that had embraced Keynesianism (mainly the United States and the U.K.).
Shocking to the peer-review process, which had rigorously proven otherwise
on many occasions, full employment could not be maintained via off-the-shelf
Keynesian bromides. The traditional therapy-stimulate consumption and
penalize savings with a healthy infusion of government deficit spending-was
now being refereed by the real world, and the results were found "nonrobust."
The macro models of Cambridge, Harvard, Berkeley, and MIT fell apart,
and by the 1980s the very solutions that Keynes had hustled were being
painfully thwacked as precisely the root of our troubles. Suddenly the
old classical medicine-savings, investment, balanced budgets, competition,
and productivity growth-were popularly claimed to be the economic-policy
goal of good government. Even the politicians, so bubbly to receive
Keynes's prescription for government spending as the magical elixir
with which to treat an ailing economy, had publicly abandoned Keynesianism.
And
the possibility of rational economic planning under socialism? Yes,
we ran that experiment as well. The Third World tried it and promptly
dropped to income levels last recorded in the Pleistocene Epoch. The
Second (Communist) World tried it in massive police-state doses and...well...dissolved.
The
trends away from Keynesianism in the West and from socialism everywhere
else were just beginning to assert themselves when Hayek-out of the
economics profession for, essentially, 30 years-was surprisingly awarded
a Nobel Prize in Economics in 1974. Quickly, he was transformed from
goofball to guru. And not without justification. By the late 1970s-with
the Labor, Democratic, and Social Democratic parties (oh come on, you
remember them: Think, now think!)still in power in London, Washington,
and Bonn-Hayek's vision had already spotted global political movements
on the horizon. The glacial worldwide policy shifts of the 1 980s were
cautiously anticipated by Hayek in this (never before published) interview.
He seemed to sense that soon it would not be a sign of disrespect to
be dubbed the greatest philosopher of capitalism since Adam Smith.
Sometimes
you have to live a long time just to be proved right. When Friedrich
August von Hayek, born in 1899, died March 23 in Freiberg, Germany,
he had outlived both Keynes and Marx. Happily for the human race, so
have his ideas.
Thomas
W. Hazlett interviewed Hayek in 1977, shortly before starting graduate
school in economics at the University of California, Los Angeles.
Reason:
Of your bestselling The Road to Serfdom, John Maynard Keynes wrote:
"In my opinion it is a grand book.... Morally and philosophically
I find myself in agreement with virtually the whole of it: and not only
in agreement with it, but in deeply moved agreement." Why would
Keynes say this about a volume that was deeply critical of the Keynesian
viewpoint?
Hayek:
Because he believed that he was fundamentally still a classical English
liberal and wasn't quite aware of how far he had moved away from it.
His basic ideas were still those of individual freedom. He did not think
systematically enough to see the conflicts. He was, in a sense, corrupted
by political necessity. His famous phrase about, "in the long run
we're all dead," is a verv good illustration of being constrained
by what is now politicallv possible. He stopped thinking about what,
in the long run, is desirable. For that reason, I think it will turn
out that he will not be a maker of long-run opinion, and his ideas were
of a fashion which, fortunately, is now passing away.
Reason:
Did Keynes turn around in his later years, as has frequently been rumored?
Hayek:
Nothing as drastic as that. He was fluctuating all the time. He was
in a sort of middle line and he was always concerned with expediency
for the moment. In the last conver- sation I had with him (about three
weeks before his death in 1945). I asked him if he wasn't getting alarmed
about what some of his pupils were doing with his ideas. And he said,"
Oh, they're just fools. These ideas were frightfully important in the
1930s, but if these ideas ever become dangerous. you can trust me--I'm
going to turn public opinion around like this." And he would have
done it. I'm sure that in the post-war period Keynes would have become
one of the great fighters against inflation.
Reason:
Was the Keynes thesis that govemment spending is needed to bolster aggregate
demand in times of unemployment correct at one time?
Hayek:
No. Certainly not. But, of course. I go much further than this. I believe
that if it were not for govemment interference with the monetary system,
we would have no industrial fluctuations and no periods of depression.
Reason:
So trade cycles are caused solely by government monetary authorities?
Hayek:
Not that directly. As you put it, it would seem that it results from
deliberate mistakes made by government policies. The mistake is the
creation of a semi-monopoly where the basic money is controlled by govemment.
Since all the banks issue secondarv money, which is redeemable in the
basic money, you have a system which nobody can really control. So it's
really the monopoly of government over the issue of money which is ultimately
responsible. Nobody in charge of such a monopoly could act reasonably.
Reason:
You have written that the period from about 1950 to 1975 will go down
in history as the Great Prosperity. If the Keynes thesis is incorrect,
why the tremendous economic success? Why, for instance,haven't we experienced
a hyperinflation on the order of Germany in 1922?
Hayek:
Because the inflation in Germany was not for the purpose of maintaining
prosperity but was forced upon them due to financial difficulties. If
you inflate for the purpose of maintaining prosperity you can do so
at a much more moderate rate.
The prosperity
did last longer than I anticipated. I always expected its breakdown,
but I thought it would come much sooner. I was thinking in terms of
the collapse of the inflationary booms during past trade cycles.
But those
collapses were due to the gold standard, which put a brake on those
expansions after a few years. We never had a time where a policy of
deliberate expansion was unlimited by any framework of monetary order.
We've come to an end only when has been seen we cannot accelerate inflation
so fast that we can still maintain prosperity.
Reason:
The United States has cut inflation from 12 percent to 4.8 percent,
Britain from 30 percent to 13 percent--both without Depression-type
setbacks. Doesn't this offer hope that economic adjustments can be made
without massive unemployment?
Hayek:
I don't know why you suggest this. It has been accomplished, very much,
through extensive unemployment. I think it is certainly true that ending
an inflation need not lead to that long-lasting period of unemployment
like the 1930s,because then the monetary policy was not only wrong during
the boom but equally wrong during the Depression. First, they prolonged
the boom and caused a worse depression, and then they allowed a deflation
to go on andprolonged the Depression. After a period of inflation like
the past 25 years, we can't get out of it without substantial unemployment.
Reason:
How does inflation cause unemployment?
Hayek:
By drawing people into jobs which exist only because the relative demand
for the particular things is temporarily increased, and these employments
must disappear as soon as the increase in the quantity of money ceases.
Reason:
Yet, if the United States, for example, went through a period of temporarily
high unemployment--say we have double the current rate of unemployment
for one to two years--wouldn't all the automatic income-maintenance
programs, such as unemployment insurance, welfare, etc., run up such
an enormous bill as to bankrupt the federal government, which already
runs a deficit of S50 billion or $60 billion in a so-called recovery
period?
Hayek:
Yes, they probably would. There would be an enormous political struggle
on the question of whether social-security benefits ought to be adapted
to inflation or cut down. I don't think that you can effect a permanent
cure without a substantial alteration of the social-security system.
Reason:Will
the horror of financing this colossal welfare bureaucracy prove the
stimulus to "shock" us into a more rational government framework?
Hayek:
No. My only hope really is that some minor country or countries which
for different reasons will have to construct a new constitution will
do so along sensible lines and will be so successful that the others
find it in their interest to imitate it. I do not think that countries
that are rather proud of their constitutions will ever really need to
experiment with changes in it. The reform may come from, say, Spain,
which has to choose a new constitution. It might be prepared to adopt
a sensible one. I don't think its really likely in Spain, but it's an
example. And they may prove so successful that after all it is seen
that there are better ways of organizing government than we have.
Reason:
To avoid inflation, your prescription has been to advocate that monetary
policy be pursued with the goal of maintaining stability in the value
of money. Is it necessary to trust the politicians to regulate the money
supply? Can't market forces adjust to correct for a gradual deflation?
Hayek:
Yes, they do occasionallv. The trouble is, in the mechanical system
what forces politicians is the gold standard. The gold standard, even
if it were nominally adopted now, would never work because people are
not willing to play by the rules of the game. The rules of the game
that the gold standard requires [say] that if you have an unfavorable
balance of trade, you contract your currency. That's what no government
can do--they'd rather go off the gold standard. In fact, I'm con- vinced
that if we restored the gold standard now, within six months the first
country would be off it and, within three years. it would completely
disappear.
The gold
standard was based on what was essentially an irrational superstition.
As long as people believed there was no salvation but the gold standard,
the thing could work. That illusion or superstition has been lost. We
now can never successfully run a gold standard. I wish we could. Its
largely as a result of this that I have been thinking of alternatives.
Reason:
You have, at various times, championed a commodity-reserve monetary
system and competition in the money supply. Are these practical alternatives
to a govemment con- trolled central banking system?
Hayek:
Yes. I have been convinced that while the idea of the commodity-reserve
system is a good one, practically it is unmanageable. The idea of accumulating
actual stocks of com- modities as reserves is so complex and impractical
that it just cannot be done.
Then I
came to the conclusion that the necessity of actual redemption of the
real commodities is only necessary if you have to place a discipline
on an authority which otherwise has no interest in keeping its currency
stable. If you place the issue of money in the hands of firms whose
business depends upon their success in keeping the money they issue
stable, the situation changes completely. In that case, there is no
necessity of depending upon their obligation to redeem in commoditei:
it depends on the fact that they must so regulate the supply of their
money that the public will accept the money for its stability. This
is better than anything else.
Reason:
The Keynesian economic formula seeks out a nearly perfect symbiotic
relationship with the political forces of the modem welfare state. At
what point can this marriage be broken? How can the Keynesians be politically
defeated?
Hayek:
I really should begin with Keynes himself. Keynes despaired in the 1920s
of the possibility of again making wages flexible. He came to the conclusion
that we must accept wages as they are and adjust monetary policy to
the existing wage structure. That, of course, forced him to say "I
don't want any restriction on monetary policy because I have to adjust
monetary policy to a given situation."
But he
overlooked tha, at that very moment, the trade unions knew that the
government was under an obligation to correct the effect of the trade-union
policy, and so we get a hopeless spiral. The unions push up wages, and
government has to provide enough money to keep employment at these wages,
and this leads into the inflationary spiral. This came out of the practical
considerations of Keynes in the short run--that we can't do anything
about the rigidity of wages.
In fact,
the British in the 1920s were very near success. The very painful, and
silly, process of deflation was very nearly successful at the end of
the 2Os. Then they got frightened by the long period of unemployment.
I think if they had lasted a year or two longer they probably would
have succeeded.
Reason:
Gunnar Myrdal, your co-winner for the Nobel Prize in 1974, recently
published an article advocating the abolition of the Nobel Prize for
economics, apparently as a reaction to the awarding of the prize to
Milton Friedman and yourself. His most remarkable statement is his reference
to you regarding your lack of concern. Specifically, that you have "certainly
never been much troubled by epistemological worries."
Not only
does the statement summon shock on the basis of your numerous writings
on the very question of epistemology (in economics as well as in other
fields), but your Nobel speech, delivered into Myrdal's own ears, centered
on the subject of the methodology of economics. Is Myrdal's misstatement
prompted by ignorance or malice? And is this a fair sampling of the
general academic environment throughout Europe?
Havek:
No, it is certainly a rather extreme case combined with an intellectual
arrogance that, even among economists, is rare. Myrdal has been in opposition
on these issues even before Keynes came out. His book on monetary doctrines
and values and so on dates from the late 1920s. He has his own peculiar
view on this subject which I think is wrong. His book couldn't even
be reproduced now. I don't think he has ever been a good economist.
Reason:
So Myrdal is not typical? The intellectual and academic environment
is, on the whole, much more hospitable to your ideas?
Hayek:
Oh, much more than Myrdal, yes. And, of course, the younger generation
is coming around to my sort of view. In a sense, I would say that the
great problem is still a methodo- logical one but not the one Myrdal
has in mind. I believe that economics and the sciences of complex phenomena
in general, which include biology, psychology, and so on, cannot be
mod- eled after the sciences that deal with essentially simple phe-
nomena like physics.
Don't be
shocked when I call physics essentially simple phenomena. What I mean
is that the theories which you need to explain physics need to contain
very few variables. You can easily verify this if you look into the
formula appendix to any textbook on phvsics, where you will find that
none of the formulas which state the general laws of physics contain
more than two or three variables.
You can't
explain anything of social life with a theory which refers to only two
or three variables. The result is that we can never achieve theories
which we can use for effective prediction of particular phenomena, because
you would have to insert into the blanks of the formula so many particular
data that you never know them all. In that sense, our possibility both
of explaining and predicting social phenomena is very much more limited
than it is in physics.
Now, this
dissatisfies the more-ambitious young men. They want to achieve a science
which both gives the same exactness of prediction and the same power
of control as you achieve in the physical sciences. Even if they know
they won't do it, they say, "We must try. We ultimately will discover
it." When we embark on this process, we want to achieve a command
of social events which is analogous to our command of physical affairs.
If they really created a society which was guided by the collective
will of the group, that would just stop the process of intellectual
progress. Because it would stop this utilization of widely dispersed
opinion upon which our society rests and which can only exist in this
very complex process which you cannot intellectually master.
Reason:
In 1947 you founded the Mont Pelerin Society, an international group
of free-market scholars. Has its progress pleased you?
Hayek:
Oh yes. I mean its main purpose has been wholly achieved. I became very
much aware that each of us was discovering the functioning of real freedom
only in a very small field and accepting the conventional doctrines
almost everywhere else. So I brought people together from different
interests. Any time one of us said, "Oh yes--but in the field of
cartels you need government regulation," someone else would say,
"Oh no, I've studied that." That was how we developed a consistent
doctrine and some international circles of communication.
Reason:
U.S. News & World Report did a special cover story last year in
which they interviewed eight leading social scientists from around the
world, including yourself, on the question: "Is Democracy Dying?"
What I found most interesting was that several of the other thinkers
seemed to be reciting passages out of The Road to Serfdom in identifying
the current crisis as a result of the involvement of the welfare state
in vast areas of our formerly private lives. Do you see this thesis
gaining academic adherents? Are more intellectuals beginning to un-
derstand the fundamental conflict between liberty and bureau- cracy,
so to speak?
Hayek:
No doubt, yes. That the ideas are spreading, there is no doubt. What
I cannot judge is what part of the intelligent- sia has yet been reached.
Compared with what the situation was 25 years ago, instead of a single
person in a few centers of the world, there are now dozens wherever
I go. But that is still a very small fraction of the people who make
opinion, and sometimes I have very depressing experiences. I was quite
depressed two weeks ago when I spent an afternoon at Brentano's Bookshop
in New York and was looking at the kind of books most people read. That
seems to be hopeless; once you see that you lose all hope.
Reason:
You currently carry the torch for the Austrian school of economics,
representing a great tradition from Carl Menger to Bohm-Bawerk to Ludwig
von Mises to yourself. What is the most important way in which the Austrians
differ with Milton Friedman and the Chicago School?
Hayek:
The Chicago School thinks essentially in "macro-economic"
terms. They try to analyze in terms of aggregates and averages, total
quantity of money, total price level, total employment--all these statistical
magnitudes which, I think, is a very useful approach and even quite
impressive.
Take Friedman's
"quantity theory." I wrote 40 years ago that I have strong
objections against the quantity theory because it is a very crude approach
that leaves out a great many things, but I pray to God that the general
public will never cease to believe in it. Because it is a simple formula
which it under- stands. I regret that a man of the sophistication of
Milton Friedman does not use it as a first approach but believes it
is the whole thing. So it is really on methodological issues, ultimately,
that we differ.
Friedman
is an arch-positivist who believes nothing must enter scientific argument
except what is empirically proven. My argument is that we know so much
detail about economics, our task is to put our knowledge in order. We
hardly need any new information. Our great difficulty is digesting what
we already know. We don 't get much wiser by statistic information except
in gaining information about the specific situation at the moment. But
theoretically I don't think statistical studies get us anywhere.
Reason:
You have written that the main reason that the Keynesian explanation
of unemployment was accepted over the classical explanation was that
the former could be statistically tested while the latter could not.
Hayek:
From that point of view, Milton's monetarism and Keynesianism have more
in common with each other than I have with either.
Reason:
You met Alexandr Solzhenitsyn at the Nobel ceremonies in Stockholm.
How did you find him?
Hayek:
I was strongly confirmed in my very high opinion of the man. He is a
very impressive figure in addition to his works. But I had no chance
to argue with him because he had just come out of Russia and his capacity
for communicating orally was very limited.
Reason:
What validity is there in his thesis concerning the collapse of the
West?
Havek:
I think he is unduly impressed by certain superficial features of Western
politics. If he believes, as he does believe, that what our politicians
do is a necessary consequence of opinions generally held in the West,
he really must come to that conclusion. Fortunately, I think, what the
politicians do is not an expression of the profound belief of the more
intelligent people in the West, and I hope Solzhenitsyn will soon discover
that there are people who can see further than seems to be shown by
the policies of the West.
Reason:
Your teacher, Ludwig von Mises, wrote Socialism in 1920. It became the
opening round in a controversy that is still brewing over whether a
socialist economy was even logi- cally possible. Socialist economists,
particularly in Eastern Europe, have thanked Mises for his thoughtful
criticisms and have generally engaged in a thought-provoking discourse
with Mises, Lord Robbins, and yourself for the past half-century. What
is the present state of the debate?
Hayek:
I've always doubted that the socialists had a leg to stand on intellectually.
They have improved their argument somehow, but once you begin to understand
that prices are an instrument of communication and guidance which embody
more information than we directly have, the whole idea that you can
bring about the same order based on the division of labor by simple
direction falls to the ground. Similarly, the idea [that] you can arrange
for distributions of incomes which correspond to some conception of
merit or need. If you need prices, including the prices of labor, to
direct people to go where they are needed, you cannot have another distribution
except the one from the market principle. I think that intellectually
there is just nothing left of socialism.
Reason:
Could socialist economies exist without the tech- nology, innovations,
and price information they can borrow from Western capitalism and domestic
black markets?
Hayek:
I think they could exist as some sort of medieval system. They could
exist in that form with a great deal of starvation removing excess population.
It's all a question of why should an economy not continue to exist.
But whatever economic advance Russia has achieved was, of course, achieved
by using the technology developed by the West. I know that the Russians
would be the last ones to deny it.
Reason:
A very interesting part of your social philosophy is that value and
merit are and ought to be two distinct qualities. In other words, individuals
should not be remunerated in ac- cordance with any concept of justice,
whether it be the Puritan ethic or egalitarianism. Do you find many
free-market advo- cates falling into this thinking, that value and merit
should be equated in a "truly moral society"?
Hayek:
I think there is a little shift recently as a result of my outright
attack on the concept of social justice. It is now turning on the problem
of whether social justice has any meaning at all and, of course, social
justice is essentially based on some concept of merit. I'm afraid I
have shocked my closest friends by denying that the concept of social
justice has any meaning whatever. But I haven't been persuaded that
I was wrong.
Reason:
Well, then, why isn't there any such thing as social justice?
Hayek:
Because justice refers to rules of individual conduct. And no rules
of the conduct of individuals can have the effect that the good things
of life are distributed in a particular manner. No state of affairs
as such is just or unjust: it is only when we assume that somebody is
responsible for having brought it about.
Now, we
do complain that God has been unjust when one family has suffered many
deaths and another family has all of its children grow up safely. But
we know we can't take that seriously. We don't mean that anybody has
been unjust.
In the
same sense, a spontaneously working market, where prices act as guides
to action, cannot take account of what people in any sense need or deserve,
because it creates a distribution which nobody has designed, and something
which has not been designed, a mere state of affairs as such, cannot
be just or unjust. And the idea that things ought to be designed in
a 'just' manner means, in effect, that we must abandon the market and
turn to a planned economy in which somebody decides how much each ought
to have, and that means, of course, that we can only have it at the
price of the complete abolition of personal liberty.
Reason:
Is Britain irrevocably on the road to serfdom?
Hayek:
No, not irrevocably. That's one of the misunderstandings. The Road to
Selfdom was meant to be a warning: "Unless you mend your ways,
you ll go to the devil." And you can always mend your ways.
Reason:
What policy measures are currently possible to reverse the trend in
Britain?
Hayek:
So long as you give one body of organized interests, namely the trade
unions, specific powers to use force to get a larger share of the market,
then the market will not function. And this is supported by the public
because of the historic belief that in past the trade unions have done
so much to raise the standard of living of the poor that you must be
kind to them. So long as this view is prevalent, I don't believe there
is any hope. But you can induce change. We must now put our hope in
a change of attitude.
I'm afraid
many of my British friends still believe, as Keynes believed, that the
existing moral convictions of the English would protect them against
such a fate. This is non- sense. The character of a people is as much
made by the institutions as the institutions are made by the character
of the people. The present British institutions contribute everything
to change the British character. You cannot rely on an inherent "British
character" saving the British people from their fate. But you must
create institutions in which the old kinds of attitudes will be revived
which are rapidly disappearing under the present system.
Reason:
So there is really nothing the government can do prior to a change in
public opinion?
Hayek:
You can distinguish between positive and negative moves. The government
should certainly cease doing a great many things it does now. In that
sense it depends upon the government ceasing to do things, and then
that would open the possibility for other developments which you cannot
guide and direct. Take the general complaint about British entrepreneurs
being inefficient, lazy , and so on. All of this is a result of institutions.
You would soon drive out the inefficient entrepreneur if there was more
competition. And you would soon find that they would work hard if it
was in their interest to do so. It is the set of institutions which
now prevails which creates the new attitudes which are so inimitable
to prosperity.
Reason:
If big government is really the culprit, why do Sweden and many Scandinavian
welfare states seem to be prospering?
Hayek:
Well, we mustn't generalize. Sweden and Switzerland are the two countries
which have escaped the damages of two wars and have become repositories
of a large part of the capital of Europe. In Switzerland, there is still
some traditional instinct against government interference. Switzerland
is a marvelous example where, when the politicians become too progressive,
the people hold a referendum and promptly say, "No!"
Reason:
Yet Sweden is reasonably successful...
Hayek:
Yes. But there is perhaps more social discontent in Sweden than in almost
any other country I have been. The standard feeling that life is really
not worth living is very strong in Sweden. Although they can hardly
conceive of things being different than what they're used to, I think
the doubt about their past doctrines is quite strong.
Reason:
From 1948 until about a decade ago. West Germany pursued pointedly free-market
policies and experienced an economic recovery so vital as to be judged
a "German Miracle." Yet, the Social Democrats are firmly in
power today, and some American analysts have suggested that this indicates
a basic flaw in the philosophy or strategy of the so-called Freiburg
School, the group of free-market economists that led the "German
Miracle." What mistakes did they make and what can we learn from
their example?
Hayek:
First, the idea that the Germans are now governed by a socialist government
is just wrong. The present German chancellor admits--perhaps not publicly,
but in conversation--that he is not a socialist. Secondly, until recently,
the German trade unions were led by people who really knew what a major
inflation is. And, until recently, all you needed to tell German trade
unionists when they made excessive wage claims is that "this will
lead to inflation," and they would collapse.
The German
prosperity is due, to a very high degree, to the reasonableness of the
German trade-union leaders which, in turn, was due to their experience
with inflation.
Reason:
A fellow Austrian great, the late Joseph Schumpeter, wrote Capitalism,
Socialism and Democracy in 1942. In that book, Schumpeter predicted
the collapse of capitalism due,not to its weakness (as Marx had predicted),
but due to its strengths. Specifically, the tremendous economic abundance
that would flower from the capitalist seed would produce an age of bureaucrats
and administrators, displacing the innovators and entrepreneurs that
had made it all possible. This, in turn, would undermine the social
fabric upon which capitalism rested: a widespread acceptance and respect
of private property. How does Schmpeter's thesis concerning the inherent
political instability of capitalism fit in with your own theories on
our road to serfdom?
Hayek:
Well, there is some similarity in the nature of the prediction. But
Schumpeter was really enjoying a paradox. He wanted to shock people
by saying that capitalism was certainly much better but it will not
be allowed to last, while socialism is very bad but it is bound to come.
That was the sort of paradox he just loved.
Underlying
this is the idea that certain trends of opinion-- which he correctly
observed--were irreversible. Although he claimed the opposite, he had,
in the last resort, really no belief in the power of argument. He took
it for granted that the state of affairs forces people to think in a
particular manner.
This is
fundarnentally false. There is no simple under- standing of what makes
it necessarv for people under certain conditions to believe certain
things. The evolution of ideas has its own laws and depends very largelv
on developments which we cannot predict. I mean, I'm trying to move
opinion in a certain direction, but I wouldn't dare to predict what
direction it will really move. I'm hoping that I can just divert it
mod- erately. But Schumpeter's attitude was one of complete despair
and disillusionment over the power of reason.
Reason:
Are you optimistic about the future of freedom?
Hayek:
Yes. A qualified optimism. I think there is an intellectual reversion
on the way, and there is a good chance it may come in time before the
movement in the opposite direction becomes irreversible. I am more optimistic
than I was 20 years ago, when nearly all the leaders of opinion wanted
to move in the socialist direction. This has particularly changed in
the younger generation. So, if the change comes in time, there still
is hope.