I’m paying close attention to Amazon rankings just now[1], and it’s striking that both the #1 and #2 spots in “Economics-Theory” are held by FA Hayek’s Road to Serfdom. Whatever your view of Hayek’s work in general, this is truly bizarre, and indicative of the kind of disconnection from reality going on on the political right. On the natural interpretation, shared by everyone in mainstream economics from Samuelson to Stigler, this book, which argued that the policies advocated by the British Labour Party in 1944 would lead to a totalitarian dictatorship, was a piece of misprediction comparable to Glassman and Hassett’s Dow 36000. So what is going on in the minds of the buyers? Are they crazy? Do they actually think that Hayek was proven right after all? Is there a defensible interpretation of Hayek that makes sense?
The answers are “Yes”, “Yes” and “No”. The current sales of Hayek’s book are being driven by Glenn Beck, who claims that Britain is indeed a socialist dictatorship of the kind predicted by Hayek (or was, until the recent election), and that Obama is propelling the US along the Road to Serfdom by making medical care marginally more affordable.
Until the right went completely crazy, the most common claim in support of Hayek was that his predictions had somehow been vindicated by Thatcher’s reaction against the welfare state. Leaving aside the fact that Thatcher’s remodelling of the British economy in the image of the City of London looks a lot less appealing today than it did only a few years ago, this totally misses the point of Hayek’s book. If he had wanted to argue that social democratic policies would reduce the rate of economic growth, and to throw in a bit of hyperbole, he could have called it “The Road to Destitution” or something similar. Hayek wanted to make the much stronger claim that the attempt to implement Labor’s policies would necessarily lead to a loss of personal and political freedom.
The most plausible attempt to extract a defensible claim from The Road to Serfdom is to suggest that it applied to policies of comprehensive and centralised economic planning, which might, on an extreme reading, have been imputed to the Labour Party of 1944. Fortunately, on this account, Labour saw the folly of such ideas and did not attempt to implement them. Even on this charitable account, a book warning against hypothetical policies that might have been, but weren’t, adopted in the early postwar period, and aren’t advocated by anybody nowadays, would be of fairly marginal historical interest. But, as Ed McPhail and Andrew Farrant have shown (I’ve linked to a summary since the article seems to be paywalled) this view can’t really be defended.
Depressingly, most of the rest of the “economic theory Top 20” list, including Wealth of Nations, Free to Choose and the writings of Peter Schiff, suggest that the buyers are the same people buying (if perhaps not reading) Hayek. If people actually read Smith, particularly the Moral Sentiments they might gain something, but these purchases look more like an affirmation of tribal identity than an attempt to learn something.
fn1. Zombie Economics briefly made it into the Economics-theory Top 20, but is now slipping out again.
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John Quiggin 
How good a proxy are the Amazon rankings now?
Booko AU gives the Book Depository (US) as ~AUD5 cheaper, a reason to avoid Amazon, without their other negatives.
The Kindle editions (Hayek, Friedman, Smith) also make it harder to judge.
When I looked – Zombie Economics was at 18 and David Harvey’s book on Marx’s Capital was at 15.
Interesting in a way….
Interestingly, there is another book with the title “Zombie Economics” which is scheduled for release in May 2011. http://www.amazon.com/Zombie-Economics-Guide-Personal-Finance/dp/1583334270
v. Hayek’s “Road to Serfdom” is classified as an economic theory book??? Strange.
I looked and Zombie Economics is now at 17. Considering Amartya Sen is at 13 I think you are in superior company in the teens. As for Amazon rankings……Im deeply suspicious of anything at all US firms rank, rate or accredit.
Hi John,
hope you don’t mind me posting a question on a different topic, couldn’t wait for a Monday discussion.
I’ve just sent the treasurer Swan the following question, via treasury web site.
====
Dear Treasurer,
I’m trying to further my understanding on how government finance works. Can I ask you what is the purpose of government taxation?
a) Fund government expenditures
b) Regulate aggregate demand
c) a and b
d) none
Thank you
====
The question of the role of the government taxation really intrigues me. More I read more I am convinced it’s the option b). But then the whole world is build on the premise that it is a). I’d really like to hear what you think.
@hrvoje
Primarily (a), but (b) is also relevant.
John,
ok thank you.
You would have heard of Abba P. Lerner and Functional Finance
http://en.wikipedia.org/wiki/Functional_finance
Does the functional finance describe the world we live in, and if not why not?
It is interesting that Abba,
was a student of Hayek
http://en.wikipedia.org/wiki/Abba_P._Lerner
so I guess this being a Hayek thread I’m not too far off track:)
@jquiggin
so by choosing a) you’re not in a agreement with Chartalism/MMT
http://en.wikipedia.org/wiki/Chartalism
@jquiggin
so by choosing a) you’re not in an agreement with Chartalism/MMT view of the world
http://en.wikipedia.org/wiki/Chartalism
‘Road to Serfdom’ describes actually existing Europe in the alternative reality inhabited by the unhinged right, just as much as Mark Steyn’s rubbish about the Muslims taking over Europe describes actually existing Europe to the same readership. They read these books as confirmation of their preconceived beliefs, much like some Christians nod their heads reading books explaining how we are in the Last Days and Marxists love books about the imminent collapse of capitalism.
Much of what Lerner says is mainstream Keynesianism. But I think Keynesian fiscal policy is consistent with the long-run balanced budget constraint.
I spent this week some days at home in Vienna. After a walk through Wienerwald I paid a visit to the grave of Friedrich Ausgust von Hayeks in Neustift am Walde before ending the day at the Heurigen in Neustift.
It seems the Viennese government started its own version of austerity with the citizens who will least notice it. The dead ones. Hayeks honor grave is a shame. Totally neglected. Maybe Glenn and the other folks can put some of their funds to good use and sponsor regular gardening for the grave for the next 100 years.
I have to wonder whether those criticizing Hayek’s Road to Serfdom have actually read the book or not. Anyone who has actually read it would know that The Road to Serfdom is not mainly concerned with the welfare state. The main concern of most of the book is about the dangers of central planning and control of industry and economic activity, not government social welfare provision.
Indeed Hayek was far less hostile and somewhat sympathetic to the idea of the government having a limited role in things like social welfare, minimum labour conditions, helping increase the supply of information and the like (much to the disappointment of some free market commentators).
It must be remembered that at the time The Road to Serfdom was published, prior to the end of World War 2, relatively few countries had much in the way of welfare states. On the other hand, the idea of central planning and government intervention in industry had advanced a lot further in many countries. In that environment, a book criticizing the welfare state would not have attracted much interest or relevance. But a book warning of the dangers of central planning of economic activity had far more currency in a time when the world was under threat from fascist and/or communist totalitarianism.
Aside from all that, I think the more general idea that non-economic freedoms are to some extent linked to economic freedom and that excessive government intervention in economic activity has the potential to jeopardise broader personal freedom has some truth, although Hayek and others may have exaggerated the case somewhat.
Dear John
Someone introduced me to your work and I happened to chance upon it through a recent AFR article. I was disappointed by the limited understanding your writings display on how governments and markets work.
I would suggest that you haven’t properly understood Hayek. Let me urge you therefore to read up Hayek’s work – particularly The Fatal Conceit and The Constitution of Liberty, and appreciate his views on local knowledge and the price system. Markets therefore usually resolve various ‘market failures’ through search and innovation – at a level of sophistication that governments can’t even dream of.
And where governments are asked to regulate certain activities (for good reason – and Hayek is NOT against regulation as he is often misrepresented), please try to understand that they will generally fail because of incompetence and obduracy. Innovation and government regulation are poles apart. Competence is also at premium, since the incentives of government regulators are extremely weak – no profit system to determine their fate.
Finally, please do try to work in a government organisation for 28 years (like I have done), and thus internalise fundamental lessons of public choice theory – about how governments work (or rather don’t work).
Once you’ve done these things, I am certain your views will shift dramatically in favour of Hayek and against Keynesianism! I can guarantee you of that! If you wish you could also read chapter 3 of my book, ‘Breaking Free of Nehru’ – available on the internet, to get an idea of what Hayek was trying to say.
(Please note that I am writing this purely in my personal capacity, and do not generally comment on Australian policy matters, but I do believe Australia will be well served by GENUINELY understanding Hayek.)
Regards
Sanjeev
Sanjeev, I have read the works to which you refer, and, while they haven’t had the effects you hope for, they have certainly influenced my thinking. But this post is specifically about The Road to Serfdom, and its incorrect predictions.
In response to Monkey’s Uncle, there was a lot of government intervention in industry in the UK and elsewhere after 1945, including widespread nationalisation. But there was no corresponding tendency towards dictatorship, contrary to Hayek’s claim.
Don’t you think, JQ, that rather than continue to incrementally tinker with a hopeless compromised economic theory, it is time to develop a more comprehensive economic model that integrates our, now very clearly limited, environment. You know, seek a kind of Apple versus Microsoft, or iPod versus Walkman, outcome. Perhaps this is what you have sought to achieve with Zombie Economics (have not read it yet) but if not, there is a blinding need for such an initiative. As a product designer I always find that a step away from the existing allows a more intuitive redefintion of the operating framework. It is my belief that the existing economic theories are intrinsically confined by the history that gave rise to them, and this is a history with an extremely limited connection to the world and environment in which they must operate. Just thinking out loud here.
The Labour party was blessed with many socialists who would have liked Hayek’s prediction to come true.
@Joseph Clark
Probably – but what does it matter now Joseph? The mad right were far worse and did more damage than labor party socialists or communists ever did in the US or Australia in the 1930s and 40s and beyond (tell me isnt the GFC quite enough evidence of mostly conservative madness for you Joseph? Oh just hang around then…until you are convinced).
I just wish the Conservatives (who are btw no longer conservative at all…but a bunch of borderlines psychotics) would fall off the nearest cliff so the rest of us can live in peace without fraud, with a government who isnt afraid to regulate corporate types who commit fraud from here to Long bay and across to Goulburn with privatised guards to watch over them.
Communism – so what? Big deal. It hardly exists in Westrn countries now. Socialism – so what?. More of it would do us all good. How many among our neighbours think things are going well in any economic sense the way they are now? Not many I know.
Communism and Socialism – all non existent crimes in Western countries relative to the scale of the mess that the GFC and unchained capitalistic free markets reigned down and continue to reign down upon us all.
You will have to pardom me if Im loooking for a little more socialism in my life.
I think my neighbours are as well.
@Alice
Hayek’s point was that the socialist’s plan required a reduction of political as well as economic freedom. That is still true. The fact that they didn’t get their wish does not discredit Hayek’s thesis.
Hayek has been completely vindicated by the political histories of countries that continued the progression of state control.
As the degree of monopoly increases in capitalism, economic freedom becomes a romantic memory.
Hayek did not understand, true freedom, he did not understand true socialism, and he did not understand the true nature of world politics.
Hayek has been completely negated by the huge bailout of his exploitative societies.
I don’t see a difficulty with v. Hayek’s ‘Road to Serfdom’ when read in its historical context. It is a book open to many interpretations. For example, I take its content as written by an author very skilled with words (v. Hayek’s background is in law) who reflects on the terror of two versions of dictatorships, one in the ‘west’ which may labelled ‘right’ in some sense and the other one in the ‘east’ in Europe which may be labelled ‘left’. Not being an economic theoretician who progresses theoretical knowledge at the time, v. Hayek turned to the 19th century predominant economic thought for inspiration for a better world then that of Europe at the time.
IMHO, the confusions and difficulties with this book come from its recycling as an economic theory book in the late 20th century and beyond and the substitution of ‘capitalist’ for ‘west’ and communist for ‘east’. In its recycled version, v. Hayek’s ‘Road to Serfdom’ gets us absolutely nowhere but being stuck in the quicksand of polemical exchanges on ‘capitalist’ vs ‘communist’.
Suppose we take Prof Quiggin’s liberally broad notion of ‘capitalism’ and we define, for the purpose of the argument, ‘our’ system as capitalist (call it Suzy or Henry, it would make no difference at present). Isn’t it obvious that polemical debates on ‘capitalism’ vs ‘communism’ are redundant to address empirically observed income redistributions from the relatively poor to the relatively rich without reference to ‘communism’? I should think it is. The GFC is one area. It has been extensively discussed on this blogsite. There are others. For example, if we could get legislation to allow customers to send invoices to companies for jobs that have been outsourced to the customers, without prior contractual agreement, and the requirement that these invoices are to be paid from the pot allocated for bonus payments, then there would be a little or possibly a significant ‘trickle down’ of monetary wealth. Examples of outsourcing of jobs to customers without prior contractual agreement abound: Waiting in telephone loops, talking to customer service staff who have no authority to do anything, correcting data entry errors, waiting for delivery of spare parts, working through complex managerial structures to determine responsibility when a technologically and functionally related business is split up into separate accounting entities, etc., etc.
So, the lesson for me in v. Hayek’s ‘Road to Serfdom’ is that emerging dictatorships under whatever name or banner (corporatist, managerialist, others yet to be invented) are worth resisting before it is too late.
@Joseph Clark
What Hayek didnt seem to notice is that there is more than one road to serfdom.
I should correct the above comment. Hayek did discuss there was more than one road to serfdom but latter day followers have interpreted Hayek as suggesting only one (communism). This is so often the case with economic writers….the selective ommission of parts of their works (or the selective inclusion of parts of their work without the necessary background discussion) that dont suit the colours of particular political schools that come later.
The greatest misinterpretive injustices and skewing of meaning in economics often fall on the original author of an historical work such as this. The political adoption and advocation of an economics work can distort its true meaning entirely.
The only real path to serfdom is through greed, arrogance, corruption and stupidity. Every economic system beit communist or capitalist, unless intentionally contrived to favour one specific group (greed), should deliver globally positive outcomes. In the absence of the GACS factors the main deterent for positive economic outcomes is national degree of paranoia, defence. Where governments are over obsessed with military strength and drain performance from the economy for non productive outcomes in order to support that end, this is where you see underperforming economies. So it is specific political manipulation of the economic system not the system itself that determines economic energy.
In principle serfdom is not a natural outcome of any economic system unless it is specifically designed to achieve it. The real problem that we face is that no economic system in place today is designed to provide global balance, ie engage ecology and the environment.
Nice slapdown of the Austrians there Ernestine.
@Sanjeev Sabhlok
I agree with Sanjeev’s comments about government. I worked for 15 years in academia, 12 years in private sector finance and investment and 10 years in government, with a view to serving the Australian public. Much to my disappointment, I found the government is full of self-serving individuals: a personal discovery which I did not anticipate in my earlier naivety. I have to reluctantly agree with the Austrian observations (Hayek and Mises) about government bureaucracy. There are many truths in this world you cannot easily learn by reading (because of cover-ups and corruption), you have to learn by experience.