FA Hayek on How Obama's War on Income Inequality Will Nazify America

I'm rereading The Road to Serfdom.  Accessibly written, Hayek lays out many of his most important ideas. According to Bruce Caldwell's introduction to the Definitive Edition, the book has sold 300,000 copies, which is rare for a book written for an academic audience. Hayek comments on income inequality, an issue that the Democrats and their media have adopted this year.  

I do not understand this obsession because the greatest gains to the poor have occurred in countries whose laws are objective, that is, that follow the rule of law and that permit entrepreneurs to innovate.  Such innovation results in increasing real wages, but it allows even greater gains to the entrepreneurs. The result is that in free market economies the poor become better off because of income inequality; the greater the entrepreneurial success, the greater the gains to the poor.

I wonder if the  aim of the advocates of income redistribution is really to enhance state control, further reduce freedom,  and improve the position of the inept rich, crony capitalists, at the expense of the poor.  College professors do well when the inept rich do well because crony capitalism typically benefits universities.   Show me a proposal for regulation, and I will show you a Rockefeller, Ochs-Sulzberger, Bundy, or Bush angling for the fruits of government violence.  I will also show you a clique of academics cheering on the redistributive policy and the inadvertent gains to the inept rich in the interest of additional government subsidies to universities.

In order to effect wealth equality, government must violently compel its victims to give up their wealth to benefit the state's beneficiaries.  Government violence results in declining national wealth, as failed socialist economies such as North Korea's, France's, India's, and the United States' show.  As Winston Churchill put it, "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries."  Of course, the effect of government violence is never really equality.  Government cronies inevitably do well as the families of Kim Il-sung, George W. Bush, Barack Obama, and John D. Rockefeller illustrate.

Capitalism benefits the poor the most. Life expectancy in early modern Britain was between 25 and 40 years old, and in revolutionary America it was about 35. The gains in life expectancy came about because of improvements in sanitation and public health, and secondarily because of the invention of drugs. Market capitalism made both possible.  For example, the wealth needed to construct sanitary housing did not exist in the precapitalist economy.  The capitalist increases in the real hourly wage that continued in the US until the expansion of government spending in the 1960s, when the US transitioned from a capitalist to a socialist state, meant that the poor working person could improve his lot through saving.  Today, many working Americans cannot save because of the high costs of home ownership, commodities, and taxation, all due to government and Federal Reserve policy.

In The Road to Serfdom Hayek discusses how, in the absence of public resistance,  socialism leads to totalitarianism. The requirements of central planning, economic regulation, and wealth redistribution directly contradict the requirements of the rule of law and democracy.  Wealth redistribution is inherently coercive.  The advocacy of income equality is the advocacy of violence.

With respect to government programs to enforce wealth equality, Hayek draws parallels to Nazis (p. 117):

A necessary and only apparently paradoxical result...is that formal equality before the law is in conflict with, and in fact incompatible with, any activity of the government deliberately aiming at material or substantive equality of different people, and that any policy aiming directly at a substantive ideal of distribution justice must lead to the destruction of the Rule of Law. To produce the same result for different people, it is necessary to treat them differently.  To give different people the same objective opportunities  is not to give them the same subjective chance.  It cannot be denied that the Rule of Law produces economic inequality--all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.  It is very significant and characteristic that socialists (and Nazis) have always protested against "merely" formal justice, that they have always objected to a law which had no views on how well off particular people ought to be, and that they have always demanded a "socialization of the law," attacked the independence of judges, and at the same time given their support to all such movements as the Freirechtsschule which undermined the Rule of Law.

Hayek, who came from Austria, adds this footnote:

It is therefore not altogether false, when the legal theorist of National Socialism, Carl Schmitt, opposes to the liberal Rechstaat (i.e., the Rule of Law), the National Socialist ideal of the gerechte Staat) ("the just state")--only that the sort of justice which is opposed to formal justice necessarily implies discrimination between persons. [Editor Bruce Caldwell adds the following: German jurist Carl Schmitt (1888-1985) was a critic of liberal parliamentarianism and defender of the authoritarian state. In the 1930s he attempted to reconcile his views with those of the Nazis, offering legal justifications of their takeover of the government and defending the Nuremberg Laws that excluded Jews from public and social life. Though he lost favor with the Nazis by 1936, outside of Germany he was often viewed as the legal theorist of National Socialism.  Hayek also refers to the Freirechtsschule, which is the German term for "legal realism," a doctrine that holds that instinct rather than rule-following is the actual basis of judicial interpretation of the law."--Ed.]

Brooklyn College's Role in the Publication of FA Hayek's Road to Serfdom

I teach at Brooklyn College.  I'm always delighted to see historical references to it.  For instance, I recently learned that John Hospers, the first Libertarian Party presidential candidate, had taught philosophy at Brooklyn before moving on to USC and Harvard.  As well, Ayn Rand spoke at Brooklyn in the early 1960s.  I just learned that a former president of Brooklyn College, Harry Gideonse, had worked on behalf of FA Hayek to secure a publisher of what became Hayek's most famous book, The Road to Serfdom. In his introduction to Volume II of the Definitive Works of FA Hayek, Bruce Caldwell writes this:

In a letter dated August 8, 1942, Hayek asked Fritz Machlup, who was by then in Washington at the Office of Alien Property Custodian, for his help in securing an American publisher...Machlup's first stop was Macmillan, but they turned him down...Machlup's next move was, at Hayek's request, to send the (by now completed) typescript to Walter Lippmann, who would promote it to Little, Brown. This was done, but they also declined...Machlup then turned to Henry Gideonse, by now the [p]resident of Brooklyn College, but who previously had served as the editor of public policy pamphlets in which [Hayek's] "Freedom and the Economic System" had appeared.  Gideonse took the manuscript with his strong endorsement to Ordway Tead, the economics editor at Harper and Brothers.  This initiative also failed...Nearly a year went by...It was at this point that Aaron Director came to the rescue.  Director wrote to fellow Chicago economists Frank Knight and Henry Simons to see if the University of Chicago Press might want to consider publishing it...The acceptance letter to Hayek was dated December 28, 1943.

Bertrand de Jouvenel on The Medieval Ethos of The American Academy

"It is perhaps a fact worthy of notice that the modern use of profit, expansion from retained earnings, arose and was systematized in the monasteries; the saintly men who ran them saw nothing wrong in extending their holdings and putting new lands under cultivation, in erecting better buildings, and in employing an ever increasing number of people. They are the true original of the nonconsuming, ascetic type of capitalist. And Berdyaev has truly observed that Christian asceticism played a capital part in the development of capitalism; it is a condition of reinvestment. It is tempting to mention that modern intellectuals look favorably on the accumulation of wealth by bodies of bearing a public seal (nationalized enterprises), which are not without some similarity to monasterial businesses. They do not, however, recognize the same phenomenon when the seal is missing."

---Bertrand de Jouvenel, "Treatment of Capitalism by Intellectuals" in FA Hayek, editor, Capitalism and the Historians, pp. 105-6.

On Reconstructing The Idea of Capitalism

"I think...that the term 'capitalism' is an important one and that it should not only be retained but defended. We must clear away the rubble that has accumulated on this ancient citadel since Marx and Engels and Sombart wrote. As in the case of the excavation of Troy, only patience and devotion will permit us to triumph in the end. And the rubble is so heavy: dialectical revolution, rationalistic spirit, human exploitation, personal greed--all the cant, fury and misguided sentiment of one hundred years! The digging is worth our efforts, for at the bottom we shall find a system and a set of attitudes which have made possible material progress and the alleviation of human suffering. This system and attitudes we may as well call 'capitalism' and if we define it, for historical analysis, as the risk-taking function of private individuals (who, by the process--if they are successful--create capital) and the development and maintenance of sound fiscal policy by the state, I think we will able to save the term from the opprobrium from which it suffers."

L.M. Hacker, "The Anticapitalist Bias of American Historians" in F.A. Hayek, Capitalism and the Historians. Chicago: University of Chicago Press, 1954, p. 74.

Dollar Liberation

Llewellyn Rockwell of the Ludwig von Mises Institute has written an excellent blog on monetary reform and the gold standard.

Rockwell notes:

"It is the perfect storm: the big banks loot us through government, while the academic economists approve it as applied science.

"Moreover, there seems to be no test of whether or not what they are doing is a good thing. When the market responds negatively to a new infusion of cash, they say that it isn't enough. When the market responds positively, they take credit for fixing the problem. The state maintains the charade that it is the one infallible institution."

Llewellyn argues that the problem with a gold standard is that:

"the people charged with implementing it will invariably be the very people, advancement of whose interests has caused the current problem and have the least incentive to change the system. We've seen in the last several weeks how these people are willing to blow up the world rather than face liquidation. So the question becomes, how can we take steps toward sound money and banking without depending on the good will of the officials in charge?"

Rockwell recommends several books:

-Hans Sennholz's Money and Freedom
-George Selgin's Good Money

and the writings of Jörg Guido Hülsmann. FA von Hayek also advocated competitive currencies. Under the free market view of money:

"People should be free to use any money they can get each other to accept. More than that, people should be free to introduce new moneys based on gold or silver or any other commodity, and develop payment systems based on this, whether that means paper signifiers or digital goods. The market is capable of policing this system the same way it does retail trade."

View the whole thing here.