STAFF NEWS & ANALYSIS
Reuters Confusion Between Mises and Hayek: A Flawed Analysis
By Staff News & Analysis - May 15, 2013

Hayek has become the patron saint of conservative intellectuals – and with good reason. He went head to head with John Maynard Keynes in 1931 in an effort to stop Keynesianism in its tracks. Hayek failed, but his attempt gave him mythical status among thinkers who deplore big government and central management of the economy. Hayek became a conservative hero a second time with publication of his Road to Serfdom (1944) that suggested the larger the state sector, the more there was a tendency to tyranny. Many of today's Hayekians harden up Hayek's carefully expressed thoughts to declare that all government is potentially despotic, while also ignoring his arguments in favor of governments providing a generous safety net for the less advantaged, including a home for every citizen and universal health care – perhaps because Americans were first introduced to Serfdom in a much truncated Reader's Digest edition. They would do well to re-read the original. – Reuters Commentary

Dominant Social Theme: Hayek understood that government was necessary and vital to a healthy society.

Free-Market Analysis: In this editorial posted at Reuters we can see clearly how statists utilize the great mind of Austrian F.A. Hayek to buttress the modern Leviathan.

Leaving aside the melancholy aspect of using free-market ideas to buttress what in some aspects is a kind of tyranny – the utilization of monopoly fiat currency in particular – we are left with a promotional spectacle that conflates an individual perspective with aspects of a larger human wisdom.

Just because Hayek was a protégé of a more brilliant and uncompromising man, Ludwig von Mises, doesn't entitle command-and-control types to utilize him to bash free markets.

Hayek's idea of the business cycle, of spontaneous order and numerous other brilliant observations have assured him of place in a pantheon of great free-market thinkers. But he was initially a socialist as a youth and never lost his attraction to certain big government ideas.

This article, in fact, explains Hayek's government attractions concisely. But its larger point is to justify government interference in the marketplace by citing Hayek. In a sense, then, we find it a bit malicious, not to say misguided.

It has been a bad couple of weeks for conservative social scientists. First a doctoral student ran the numbers on the study by Harvard's Carmen Reinhart and Kenneth Rogoff that underpins austerity and deep public spending cuts as a cure for the Great Recession and found it full of errors. Then a policy analyst, Jason Richwine, who angered Senate Republicans trying to pass immigration reform with a one-sided estimate of the cost of making undocumented workers citizens, was obliged to clear his desk at the Heritage Foundation when it became known his Harvard dissertation suggested Hispanics had lower intelligence than "the white native population." It makes you wonder what Friedrich Hayek would have to say about such aberrant research.

The rest of Hayek's vast oeuvre doesn't get much notice, even from those who boast of their devotion to the master. But it is not a stretch to say that the very notion of conservative think tanks grew out of his plea for an ideology that would inspire and unite the right as effectively as socialist theory continues to inspire the left.

In the aftermath of World War Two, when Western governments adopted Keynesianism wholesale and Social Democrats with big spending agendas won landslide elections, Hayek assembled a ragbag of nonconservatives and maverick thinkers to a summit in an off-season ski resort on Mont Pelerin, Switzerland. He set them a task: Come up with an ideology to inspire conservatives and arm them with cogent arguments to counter socialists and Keynesians. He warned them the effort could take 25 years.

The group met annually, argued sharply with each other, and eventually outlived the fashion for Keynes and socialism. Mont Perelin's achievement is that conservatives, once mostly traditional and opportunistic, are now armed – some would say cursed – with a compelling ideology of their own. By the time of Ronald Reagan and Margaret Thatcher, both Hayek devotees, a worldwide conservative revolution was challenging the onward rush of socialism and, with various degrees of success, slowing its progress.

… Perhaps the most enduring legacy Hayek left, along with an immense body of work, is the clutch of conservative think tanks that fuel conservative political debate, among them the Hoover Institution, the Cato Institute, the Manhattan Institute, the Ludwig von Mises Institute and the Heritage Foundation.

So what would Hayek make of the Richwine affair? One thing right off: Hayek disliked national borders because they inhibited the free movement of labor. He was also color-blind. So the racial prejudice that underpins much opposition to immigration reform he would find abhorrent. He would also find Richwine's sloppy and partial immigration paper an affront to scientific integrity.

Hayek had tough things to say about traditional seats of learning that apply equally today to the lavishly appointed think tanks he inspired. His views were so out of the mainstream that for most of his life he was treated as a pariah – even by Chicago University's conservative economics professors who did not think his economics up to snuff.

Instead, Hayek had to accept a specially established chair in the social studies department funded by a businessman who had adored Serfdom. As a truly original and free thinker, Hayek was wary of businessmen who spend shareholders' dividends on employing tame academics to research pet projects.

It was from personal knowledge, then, that he wrote, in The Constitution of Liberty (1960), about "the need for protecting institutions of learning against the cruder kind of interference by political or economic interests." He advocated "watchfulness, especially in the social sciences, where the pressure is often exercised in the name of highly idealistic and widely approved aims." He went on, "The danger lies … in the increased control which the growing financial needs of research give to those who hold the purse strings."

… "The belief in integral freedom," Hayek wrote, "is based on an essentially forward-looking attitude and not on any nostalgic longing for the past or a romantic admiration for what has been." He went further. "I doubt whether there can be such a thing as a conservative political philosophy. Conservatism may often be a useful practical maxim, but it does not give us any guiding principles which can influence long-range developments."

Reading Hayek can be uncomfortable for those who are under the impression he would agree with them.

So what of the myriad, well-paid fellows attached to conservative institutions? Hayek deplored intellectuals who became involved in party political battles, as so many think-tank fellows do today.

"The task of the political philosopher," he wrote, "can only be to influence public opinion, not to organize people for action." But he did not have in mind encouraging grass-roots causes like the Tea Party. An unashamed elitist and individualist, Hayek was suspicious of all mass movements.

… There is a hard lesson there for similar institutions dedicated not so much to discovering the truth as to pandering to a political clique. If they had read Hayek a little more closely, or with a more open mind, they might have saved themselves a great deal of embarrassment.

Actually, if the author had read more Mises and less Hayek, he might have spared himself from a flawed analysis of Hayek's influence. Anyone who studies Austrian free-market economics must come away with the conclusion that Mises was the greater and more coherent thinker … and someone who ultimately is having the greater impact.

It is Mises not Hayek who has inspired the great modern revolution in free-market thinking. It is Mises's great book Human Action that stands as the totem of freedom in the modern age. Mises was a great theoretical thinker while Hayek was more of a populist.

Hayek was "softer" than Mises, which was why he was eventually granted a Nobel Prize. It is an old trick: Water down an ideology and then build up a person who endorses that diminished presentation.

Even today, in certain National Socialist – neo Nazi – attacks on free-market economics we have the spectacle of Hayek being used as a stalking horse. The confusion between Mises and Hayek is deliberate and meant to associate Austrian economics with elite manipulation.

But Mises, unlike Hayek, rejected most compromise. Today, taking Mises's ideas to their logical extremes one finds it is impossible to justify current variants of Leviathan. It was Mises who could not bring himself to avoid the conclusion that even a little bit of socialism is inevitably deadly to society.

Every law, unfortunately, is a price fix, distorting the economy and redistributing wealth from those who have created it to those who have not and will not use it so efficiently.

Hayek's willingness to compromise with the theoretical utilization of force to generate redistributionism stands starkly and illogically against some of his other great insights. Mises was far more ideologically consistent and in the 21st century, it is Mises who is winning the day, despite articles like this one.

To use Hayek as the standard for free-market thought and to further compound this confusion by lumping in the Ludwig von Mises Institute with Cato, et al. is to do a disservice to both institutions. Hayek founded the Mount Pelerin Society; Ludwig von Mises walked out of it.

Nonetheless, it is inspiring to see these ideas discussed in a Reuters editorial. Who would have thought that Mises, let alone his Institute would ever be mentioned, no matter how incorrectly, in the most mainstream of wire services? For decades the mainstream pretended that Mises, and indeed all of Austrian economics, never existed; but now his influence is widening and acceptance is grudgingly growing.

After Thoughts

Times, indeed, are changing.

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