Anyone who follows any political commentary has seen parallels drawn between the social, political, and economic landscapes of 1930s Europe and today’s United States—systemic economic stagnation and increasing inequality, racial tensions, and nationalist sentiment.
In the opinion of these commentators, looking at similar historical periods can be helpful for understanding our current situation. However, if we are going to use the past to understand the present, it seems only sensible that we turn to texts from the past to do so. This year is the twenty-fifth since Friedrich A. Hayek died, and his much-acclaimed The Road to Serfdom can provide a valuable perspective for thinking through how we got here.
In the years leading up to and during World War II, there was a consensus among British intellectuals, influenced by leftist theories of the inevitable consolidation of a technology-driven market, that totalitarianism was the logical end of capitalism. Seeing this, they subscribed to the belief that this historical trend could be managed scientifically to avoid its right-wing outcome. The prominent intellectual E. H. Carr, considering the German historical trend from the end of the nineteenth century towards a more unified and interventionist state, argued in his 1942 book Conditions of Peace that “we know the direction in which the world is moving, and we must bow to it or perish.”
During the war, Hayek was an economics professor at the London School of Economics. Barred from taking a public post in Britain during the war because of his Austrian nationality, he decided to write a book to encourage people to think truly historically, so as to debunk this belief that liberalism always lead to authoritarianism. Instead of positing and blindly following “scientific laws of history” he argued we should try to understand the specific reasons and policies for why liberalism and the free market seemed to be failing to meet their promises.
Although we might not refer to inevitable trends in history as often, we can see some of this determinism in our public discourse today. Across the political spectrum we have all heard the narrative that the rise of white nationalism in the United states is caused by globalization and technological change; intrinsic properties of twenty-first century capitalism. NAFTA is signed, jobs “inevitably” go to Mexico, and people turn to scapegoating. On the left, this narrative may also include the rise of neoliberalism, which, beyond the globalization of the Washington Consensus, is rooted in a free market ideology which has led to heavy industry concentration, exemplified by the big banks, and deep income inequality. It is clear, then, how the conditions of the 1930s resemble ours. Liberalism, free trade, and markets are understood as the common causes of a seemingly inevitable horrifying populism.
A glance at the Wall Street Journal and its constant coverage of ever-larger mergers and acquisitions, or a half-dedicated watch of John Oliver’s Last Week Tonight episode on corporate consolidation, should make it clear that we are rapidly heading toward monopoly. In the last twenty years the number of publicly traded companies has been cut in half.
At the same time, it is well understood that with lower central bank interest rates (as we’ve had for the last decade) comes cheaper money for companies to leverage themselves and buy out their competitors. Moreover, during between 1970 and 1999 the Department of Justice and the Federal Trade Commission together brought an average of 15.7 antitrust-cases, whereas in the 2000-2014, they only brought 2.8 cases a year. For Hayek, particular policies like these have to be considered both in their own right and holistically in conjunction with other specific policies that might also push the market in the direction of monopoly, as opposed to simply attributing the trend to free market “neoliberalism.”
Hayek wrote, “When the course of civilization takes an unexpected turn […] we naturally blame anything but ourselves.” He attributed this to the fact that we always see our policies as well-intentioned and so assume that we could never be to blame for their failures. In Hayek’s time this “we” referred to classical British liberals. In our time, we can take it to mean the optimistic and enlightened Obama supporters—the majority in universities like this one.
It is in this way that the book is as relevant today as ever. It is very likely we might be starting the road down to serfdom ourselves.
One of Hayek’s central arguments is that the road toward socialism (fascism being a kind of socialism) often starts with a concerted effort against competition carried out by vested interests: “this movement is deliberately planned mainly by the capitalist organizers of monopolies, and they are thus one of the main sources of this danger.” But it is only if governments submit to these corporate interests, or to a coalition of groups that have aligned with them, that the path toward monopoly will start: “The impetus of the movement toward totalitarianism comes mainly from the two great vested interests: organized labor and organized capital.”
For example, if we were to take Hayek’s perspective concerning the financial crisis we would see that it was not the result of bankers selfishly gambling their money in the market, as the leftist narrative might suggest, but (among many, many other things) the result of lobbying by the financial industry, Fannie Mae and Freddie Mac, and the government’s bowing to it. In particular, Fannie and Freddie, two Government Sponsored Enterprises (GSEs), were meant to lower underwriting standards and incentivize private banks into originating loans to low-income urban constituents, largely by purchasing mortgages issued by the banking sector that unintentionally made the industry great profits.
Senators including Charles Schumer, Barack Obama, and Joseph Biden accumulated millions in donations from these GSEs and from large financial institutions, and ended up supporting policies like the Community Reinvestment Act. These laws mandated increases in mandatory GSE loan purchases and made it easier for people to purchase homes, even without a downpayment. This completely distorted the subprime mortgage market, and encouraged the public to go deeply into debt.
Crucially, this lobbying was done in conjunction with well-meaning activist organizations like the Association of Community Organizations for Reform Now, which saw home ownership as a tool for upward mobility. Senators as dear to the average college student (including myself) as Schumer, Obama, and Biden do not simply take their cues from large financial institutions; they have to see some positive outcome in people’s lives (in this case a home) for them to support a policy that directly increases bank’s profits.
The crisis, then, is not a result of the recklessness of the free market, but the result of ineffective policies. As the economist Raghuram Rajan put it in his 2010 book Fault Lines, “easy credit has been used as a palliative throughout history by governments that are unable to address the deeper anxieties of the middle class directly.”
Hayek outlines several more ways in which nations, upon embarking in completely well intentioned economic planning, eventually see themselves unable to deliver their campaign promises. Politicians submit to the the myth of full employment and inject tens of billions of dollars into General Motors’ bailout, mistakenly thinking that it would save more jobs than a normal structuring bankruptcy of the firm and those dollars going to education or R&D would. The government’s well-meaning intervention in the economy, pushed for by the capitalist class, fails to deliver as promised. Citizens, feeling betrayed by politicians’ inability to fulfill their promises, might turn to a strongman individual who can is “freed from the fetters of democratic procedure” in order to “get things done” and override the system that initially failed them.
To be sure, The Road to Serfdom is a text lauded by right-wing institutions like the Heritage Foundation and commentators like Glenn Beck. But precisely because of this, revisiting Hayek’s classic will not only provide the important historical consciousness that I have discussed, but will also be revealing in showing how effectively neoliberalism has appropriated his work. The text repeatedly makes arguments like the preservation of competition not being “incompatible with an extensive system of social services” which citizens have rights to or that equality of opportunity should be constantly promoted. Were one to draw as many parallels as possible, one will be reminded of the ways in which fascist Germany appropriated Nietzsche.
If we refuse to read Hayek, however, we might find ourselves in Rudolf Carnap’s position, tearing apart the author and his text without having read him, and falling into the public (and neoliberal-constructed) perception of both.
The image featured in this article is licensed under Creative Commons. The original can be found here.
Pablo is a fourth year studying Economics and Philosophy. The founder of the Paul Douglas Institute, he has worked in several think tanks including the Institute of Economic Affairs.