In 1944 and 1945, as World War II was drawing to a close, F. A.Hayek, the Austrian-born economist, published a “political” book, The Road to Serfdom, which received genteel praise in Europe, but caused quite a stir in the U.S.,1where it became a best seller. The book rapidly moved outside refined quarters to become a galvanizing force in a rancorous, polarized debate. Leading political scientists like Charles Merriam took to the radio “to mark Hayek ‘F’ (for flunked) and expunge him from the public record.”2But others admired the book. Max Eastman called it “the most important book on political economy in our generation.”3
A close examination of Hayek and his critics reveals that they did not merely clash over how an economy worked, or even about the proper role of government in the economy. Their differences grew out of a disagreement on first principles and a related argument about the nature of history. They argued about the capabilities of human reason, and the meaning and nature of historical change, of freedom, and ultimately of truth itself. A study of the argument between Hayek and his critics provides an instructive episode through which to explore the depths of political debate in the United States.
The debate over The Road to Serfdom went on among people who thought of themselves as “liberals.”4Alan Brinkley argues that a transition took place in the early twentieth century from classical liberalism, grounded in the belief “in economic freedom and strictly limited government,” to a “’reform’ liberalism,” often called “progressivism” or, later on, “New Deal Liberalism,” which held that economic liberty was an insufficient goal for policy, and stressed instead the need for a minimum of subsistence as a precondition for the human dignity that allowed for the enjoyment of liberty. A study of Hayek and his critics indicates that what actually happened was that one group of thinkers continued to subscribe to classical liberalism, and another group embraced a new theory which they chose to call “liberal.” This latter group, “embraced the conviction that the government must play an active role in the economy” in order to protect the individual from coercion by big business, and argued that freedom was impossible when businesses could so easily force people to act in certain ways.5The former group, meanwhile, continued to hold that a growing state always threatened liberty.
Their debate was ultimately about history. In 1944 American economists looked back over the last century and saw great changes in the national and world economy. The large industrial corporation had been invented and entire industries, in steel, railroads, telephones, and automobiles, had sprung up out of literally nothing. New Deal liberals argued that the twentieth century was so radically different from earlier epochs that the maintenance of liberty required a radical redefinition of the state. Classical Liberals, on the other hand, appreciated the grand changes of the last century, but held that times had not changed so much that the role of government in a free society had to be altered.
New Deal liberals criticized Hayek for failing to appreciate that the rise of massive industrial corporations in the late nineteenth and early twentieth century required a large state to keep those firms from squashing the individual. “‘[Left]-Liberalism’ in mid and late twentieth-century America,” Brinkley notes, “has been to a significant extent a conscious repudiation of the anti-statist elements of the classical tradition.”6Reviewing The Road to Serfdom in The Nation, Reinhold Niebuhr complained that Hayek demonstrated “no understanding of the fact that technical civilization has accentuated the centralization of power in economic society and that the tendency to monopoly has thrown the nice balance of economic forces—if it ever existed—into disbalance.”7To Niebuhr and his friends, time had passed by Hayek’s argument.
Actually, Hayek denied that that much change had occurred. He anticipated and criticized the historical argument that his critics made against him.8Drawing on a different understanding of history, the Classical Liberal denied that technological changes demanded economic concentration, and he accused his opponents of post hoc ergo propter hoc reasoning. The chapter on “The ‘Inevitability’ of Planning” addressed this topic:
The historical fact of the progressive growth of monopoly during the last fifty years and the increasing restriction of the field in which competition rules is, of course, not disputed—although the extent of the phenomenon is often greatly exaggerated. The important question is whether this development is a necessary consequence of the advance of technology or whether it is simply the result of the policies pursued in most countries. . . .The actual history of this development strongly suggests the latter.