F. A. Hayek: ObamaCare's Defender

"There is little doubt that the growth of health insurance is a desirable development. And perhaps there is also a case for making it compulsory since many who could thus provide for themselves might otherwise become a public charge. But there are strong arguments against a single scheme for state insurance; there seems to be an overwhelming case against a free health service for all." -- F. A. Hayek.

Hayek wrote this on page 298 of his magnum opus, The Constitution of Liberty (1960). We could put this another way.

This isn't about putting government in charge of your health insurance; it's about putting you in charge of your health insurance. Under the reforms we seek, if you like your doctor, you can keep your doctor. If you like your health care plan, you can keep your health care plan.

These words may sound familiar. They are from President Obama's 2009 speech calling on Congress to pass ObamaCare.

But if Hayek was willing to surrender the moral case against ObamaCare, what about the welfare state in general? Hayek favored this surrender.

In the Western world some provision for those threatened by the extremes of indigence or starvation due to circumstances beyond their control has long been accepted as a duty of the community. . . . The necessity of some such arrangement in an industrial society is unquestioned -- be it only in the interest of those who require protection against acts of desperation on the part of the needy.

These are the opening words of chapter 19, "Social Security." He spelled out the implications of this position on the next page.

Once it becomes the recognized duty of the public to provide for the extreme means of old age, unemployment, sickness, etc., irrespective of whether the individuals could and ought to have made provision for themselves, and particularly once help is assured to such an extent that it is apt to reduce individual's efforts, it seems an obvious corollary to compel them to ensure (or otherwise provide) against those common hazards of life. . . . Finally, once the state requires everybody to make provisions of a kind which only some had made before, it seems reasonable enough that the state should also assist in the development of appropriate institutions. Since it is the action of the state which makes necessary the speeding up of developments that would otherwise have proceeded more slowly, the cost of experimenting with and developing new types of institutions may be regarded as no less the responsibility of the public than the cost of research for the dissemination of knowledge in other fields that concern the public interest. . . . Up to this point the justification for the whole apparatus of "social security" can probably be accepted by the most consistent defenders of liberty. Though many may think it unwise to go so far, it cannot be said that this would be in conflict with the principles we have stated. Such a program as has been described would involve state coercion, but only coercion intended to forestall greater coercion of the individual in the interest of others; and the argument for it rests as much on the desire of individuals to protect themselves against the consequences of the extreme misery of their fellows as on any wish to force individuals to provide more effectively for their own needs.

He wrote: "The necessity of some such arrangement in an industrial society is unquestioned -- be it only in the interest of those who require protection against acts of desperation on the part of the needy." Let me summarize his position: "Voters should surrender to violence-prone blackmailers. This surrender is both moral and institutional. This policy of surrender is consistent with liberty." Let me identify where this road is headed: to something worse than serfdom.

Sixteen years after the publication of The Road to Serfdom, Hayek pulled the moral rug out from under the fledgling libertarian movement that his earlier book had helped to launch. The Road to Serfdom became a best-seller for the University of Chicago Press. It was summarized in 1945 in Reader's Digest. This book, along with Hazlitt's Economics in One Lesson (1946), probably contributed more to an understanding of the dangers of central planning than any other book that was widely read, and has remained widely read, ever since the mid-1940s.

Nevertheless, Hayek's work has always been a liability in the areas of morality and epistemology. He was never as committed to the free market as his mentor was: Ludwig von Mises. Mises was hard-core in his defense of free market principles. Hayek never was.

THE TINKERER

There is something else that most people do not understand. There are two basic approaches to academic topics, and Hayek understood this clearly. He said that some people are system-builders. He said that others are tinkerers. He always called himself a tinkerer.

Ludwig von Mises was a system-builder. Even more of a system-builder was Murray Rothbard. But Hayek never had that ability or inclination. He would take a small topic and investigate it. He would generally keep in the back of his mind this principle: voluntary decisions in the marketplace are more efficient than decisions by central planning boards. He understood enough of Mises to be opposed to central planning. But he was never committed in the way that Mises was to the fundamental principle that the state should be restricted from entry into affairs that are governed by price competition, open entry, and voluntary contracts. In this sense, Hayek was always soft-core.

He wrote some very important articles. His article on "The Use of Knowledge in Society," published in 1945, remains a classic. Every student who takes an upper-division course in economics ought to read that article. Of course, the professors need to read the article even more than they do. It appears as Chapter 4 of his collection of essays, Individualism and Economic Order (1948). This book is online here.

From 1944 until 1960, he labored long and hard on his book, The Constitution of Liberty. I bought it in 1960. I had not read The Road to Serfdom. I was put off by chapter 19: a defense of the welfare state as an aspect of the free society. Hayek believed in the basic right of the civil government to take money away from people in order to create safety nets for the general population. In other words, Hayek was not a libertarian. He was generally opposed to market interference, but on the fundamental issue of the welfare state, he was in the other camp. He was as schizophrenic as any scholar I have ever seen. He was a tinkerer. He was not bothered by broad contradictions.

I bought my copy of The Constitution of Liberty a few months after its publication. I was 18 years old. I immediately recognized the extent of his intellectual schizophrenia. Reading Chapter 19 inoculated me against Hayek early in my career.

The first libertarian to publish a warning on this book was Hayek's graduate student, Ronald Hamowy. In the first issue of the student publication, New Individualist Review, which was published in April 1961, Hamowy wrote a critique of the book from the libertarian standpoint. Hayek was one of the general editors of the journal. Hayek replied to his critique in the second issue three months later. You can read this exchange on-line: Hamowy, Hayek. (It is fascinating that Hamowy was chosen to be the editor of the corrected, posthumous edition of The Constitution of Liberty in Hayek's collected works.)

Hayek was a confirmed evolutionist, so he did not believe in fixed law of any kind, including social law. Over a period of four decades, he repeated his position again and again. He believed that all social institutions evolve, and that new conditions create new responses. He denied categorically that there is any fixed principle of law governing this evolutionary process. Thus, he had no philosophical or moral answer to this criticism, namely, that it is at least conceivable that new economic and social conditions would create a situation in which the free market's response would be a form of suicide. The free market's response might be to develop state institutions that would overcome many aspects of the free market. In fact, Hayek expressly said this with respect to the development of the welfare state.

So, Hayek was always an unreliable defender of the free market system. From a philosophical standpoint, he offered no defense, other than this one: the inability of men to specify permanent principles. He offered pragmatic defenses, all based on social evolution. He never accepted Mises' principle of deductive reasoning as governing economic theory.

HAYEK WAS A CONSERVATIVE, NOT A LIBERTARIAN

Hayek was much closer to conservatives than to libertarians. He was much closer to Russell Kirk than he was to Murray Rothbard. Neither Kirk nor Hayek believed in economic law. They both rejected the idea on the same basis, namely, their commitment to some form of social evolution. Each of them would come down on the side of free-market institutions, for they did not trust the operations of state bureaucracies, but always on the basis of a pragmatic argument that society had chosen these free market institutions voluntarily. Then the question arises: "How can we stop the state from invading and capturing the institutions of society?" Or this: "How can we stop the politicizing of social institutions by the state?" Hayek had no philosophical answer, and neither did Kirk.

Hayek wrote this in 1949 in "The Intellectuals and Socialism."

Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestioningly accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues. Any system which judges men by the completeness of their conformity to a fixed set of opinions, by their "soundness" or the extent to which they can be relied upon to hold approved views on all points, deprives itself of a support without which no set of ideas can maintain its influence in modern society.

This permanent and comprehensive dismissal of permanent and comprehensive systems of thought included Mises's theory of a priori reasoning as the proper epistemological foundation for economic theory. This is why libertarians in the Mises camp have never been comfortable with Hayek.

In the debate between Keynes and Hayek, there was no debate. That debate is mythological. The music videos on Hayek vs. Keynes are very clever, but they are misleading. Hayek's sporadic negative comments on Keynes came decades after Keynes and his disciples had completely swept both the academic and government worlds. There was Hazlitt vs. Keynes, but that came only in 1959 -- too late to have any effect: Hazlitt's book, The Failure of the "New Economics" . Hayek and Mises did not respond to Keynes in a comprehensive way. This was a strategic error. By the time Hazlitt wrote his book, 23 years had gone by, and the universities had been completely taken over by Keynesians. Hazlitt had never gone to college. Academia chose to ignore his book. The book is devastating.

Hayek's strategic error in 1936 and thereafter still exists. No Austrian school economist has responded to Keynes in a comprehensive way: books, articles, and videos. That is why I proposed the Keynes project in 2009. There have been no takers.

So, with no academic Austrian school defenders challenging Keynes in the 1960s, economics students went to Friedman and the Chicago school. But these economists were statists to the core with respect to monetary theory and monetary policy. They categorically rejected the idea that the free market, meaning free banking, meaning banking completely unprotected by civil governments, should govern monetary policy. They had their own plans for central banking, which no one with any influence in politics or government considered for five seconds. It was enough that the Chicago school baptized central banking. "Thanks, guys; now please go away. Don't call us. We'll call you."

This is why LewRockwell.com and the Mises Institute have fundamentally changed the alignments: statism vs. the free market. The World Wide Web has brought readers to Lew Rockwell.com and Mises.org. Because of copyright restrictions, Web readers do not read much that was written by Hayek. Price competition rules (free to download). Digits rule (on-line now).

Mises.org promotes economists who believe in systems. Mises was a systems man, and so was Rothbard. Neither of them was a tinkerer. Therefore, it is far easier for a student to learn basic economics from Mises or Rothbard that it is from Hayek. He never wrote a comprehensive treatise defending economic theory or the free market social order. For that matter, neither did Friedman. (The only systematic Chicago school textbook was written by Allen and Alchian, who were at UCLA: University Economics. Its last edition was in 1972.)

CONCLUSION

You do not win a war by tinkering.

There is a story from the Cold War era about a young Russian diplomat who gets his first chance to leave the USSR: an assignment in Paris. His equivalent is a young French diplomat who gets assigned to Moscow. The trains each way stop at Warsaw. The Russian thinks: "This must be Paris." The Frenchman thinks: "This must be Moscow."

On the road between Keynes and Rothbard, Hayek was Warsaw.