Fear is false evidence appearing real. True friendship is transparency.
It is not the fault of a foreign country when it influences Australia. It is the belief in powerlessness in Australian leaders that compromise sovereignty for economic advantage as they have been conditioned to believe that is more important than democratic principles. The fault line in the sand is within which attracts the problem from with-out. It they truly believed in democracy they would not allow disproportionate influence.
It you don’t want donations to influence then ban donations.
If our government seriously wants to stop Chinese or other foreign interference then values is where you must focus. What you focus on expands. Do not underestimate the strength of balanced decision making weighing up all sides to Advance Australia Fair. If all politicians operated from a base of community services, principled decision making and had the courage to be willing to sacrifice economic gains external influences would disappear.
Lao Tzu’s message is directed to both leaders in China and Australia. For those who do not want to hear criticism are in denial of the violence they project covertly or overtly in the name of friendship or freedom. The most genuine friend will be the one who holds the mirror up to those in denial so they can see themselves without their story.
Only love will sacrifice everything to reveal the truth that sets all free. Yet there is no sacrifice when you no longer attach your identity to materialism. True freedom comes from allowance not domination. You can be free in prison. You can be imprisoned in a mansion. A person is respected when what they say and do aligns. This means the inner truth and outer appearance are integrated. This is what creates a “great” leader.
This blog is inspired by the Four Corners documentary on Chinese influence in Australia (see below). This message from Lao Tzu sums up the real issue from an ancient sage in China. We have to go deeper if we wish to stop the conflict. It is not about cleverness, cyber security, bioterrorism, it is about “who we are” as a people and what we believe in. What is true? What is important? What serves the Australian people?
Below this video is the Four Corners Documentary entitled “Interference: China’s covert political influence campaign in Australia” | Four Corners.
Four Corners holds a mirror up, perhaps life is sending China and Australia a message – like attracts. Eventually truth surfaces, you cannot control anyone, as nature will rebalance to find harmony. Truth tellers are natural rebalancers that feel the impulse to speak the truth to perceived power, this rebalances power dynamics.
The Chinese people are not the enemy. Criticism is not the enemy. Greed is the enemy as it has no culture, no identity, no name yet quietly it corrupts and erodes innocence as insecurity (not enough) is the home of greed. The problem to solve is insecurity. In conflict resolution we teach “solve the problem do not hate the person”. We seek wise solutions as no problem is intractable when you understand human nature not in the sense of “know your enemy” but in the sense of “understand your potential friend”.
So those dominating are never free until the pain of denial becomes too great and they must change. What you resist persists what you look at disappears, society disappears because “you are me”. When I hurt you I hurt myself. Truth is not about belief it is about clarity to see through the illusion of the lies we tell ourselves that become cultural stories. Many surround themselves with “yes” people they call loyal or glee clubs they call friends (clubs) to reinforce the lie as the truth. Yet truth cannot be faked, it is what it is and unifies naturally. Lao Tzu demonstrates real justice which is based on wisdom (divine law) not law (legislation) or the constitution. Wisdom looks into the root of behaviours that cause imbalance (or disharmony) in society.
The wise do not control or force behaviour change through pain, they recognise to rebalance one must honour only truth. that is why we call a Justice “Your Honour”. Truth sets both parties free as they evolve through respecting unbiased decisions. Truth leads to unity which some call social order, real order is natural resonance which requires no social contract as harmony is the outcome.
I contemplated the endless lies we speak identifying as this country or that, this power or that, pro this or anti that. I shake my head as confusion not Confucius is the outcome which is the maze with no exit. That is why violence escalates my friends. You are fighting yourselves believing it is the “other”. The cyber wars, 5G mmwave (US), sub-6 spectrum (China, world), exploiting labour, connectivity, smart cities, city deals, buying up resources to control or predict outcomes to feel secure.
When truth is the centre-peace, you can predict harmony as you understand universal lore. This always works to the highest good of all, as the sum of the parts is the whole. Yet we are still at a primitive stage believing in self interest, economic growth, security as force, personal fortunes whilst the planet traverses tipping points, the icecaps melt, the magnetic fields weaken, resources redirect away from those in greatest need and we call this security as Earth Inc (titanic) sinks. This is a false economy.
I did smile at Peter Dutton making a moral stand on the relationship between Sam Dastyari and Huang Xiangmo, when he too met with him.
The issue of access due to lobbyists when ordinary Australians, like myself, can’t get access. Santoro charged $20,000 for access. This is greed. How is that democratic? We have no economic value yet we are citizens and our taxes pay for their privilege. Is this how we advance Australia fair? This is about allegiances. For whom do political figures work? Who places them in positions of power? Who elects the faceless faces who have disproportionate influence? What happens to the Australian public? Are they truly safe?
Australia has interfered in East Timor and I am sure if we drilled own we could find the mirror here in so many cases where other foreign influences have manipulated us into issues that are not relevant to the Australian people. The real work for Australian politicians, intelligence and law enforcement is to look within if you genuinely want to change what is happening outside.
I think of the murdered Assistant Police Commissioner Colin Winchester, he comes to me in inspiration these days as I feel for his case. My own father believed the accused David Eastman was a miscarriage of justice, he wrote many Letters to the Editor. In 2014, after 2 decades in jail, David Eastman was released. He was later awarded $9 million in compensation. The police must be protected when they uncover crimes or confront illegal power. Colin Winchester was going to testify in Queanbeyan against cannabis growers. The cannabis growers were known as the Bungendore 11 and linked to the Italian mafia who started two crops in NSW in the 1980s under the supervision of the police informant.
Immediately I go to the murder of Donald Mackay. The murder of Liberal Party candidate and Griffith anti-drug crusader Mr Mackay was Australia’s first political assassination. It is alleged it was at the hands of the Calabrian mafia, apparently the same group as Winchester. A quick search provides more insight into what creates corruption, money laundering, drug trade and illegality https://en.wikipedia.org/wiki/%27Ndrangheta
My thoughts turn to poverty, corruption, greed and powerlessness parading as power. The same mirror that others can see themselves caught up in. So how do we help them exit what is, a self defeating circle of pain and fear intensifying a culture of violence? I see the links as all the same root cause. Yet we still spend energy making the “other” wrong yet we won’t look into where we are “wrong”. Byron Katie speaks of projection and she is right. We have to question our own thinking every time we see an enemy, imagine if every side did this.
When I was teaching truth to children, I gave them a blind spot test. They look at two dots, cover one eye and then one dot disappears. The eyes play tricks. The dot represents what we deny, refuse to see, the reality is, it is there, but we won’t see it as we are right the other wrong. The other is the “enemy”. The Christians say in relation to judgement “take the log out of your own eye” until we do, we blame the world for what is our own blindness, our own weakness contributing to a values free world. At what point do we stop what we want the other to stop. Until you stop the other won’t as what you think about you bring about. This is the law of attraction. We create our reality, remember! We blame others but we don’t see ourselves as the same. We are all in it together. This is a truism.
This article by the Guardian provides insight into the hypocracy that we witness in politics. Peter Dutton is now Home Affairs Minister with the power to decrypt and access every citizen’s information inclusive of the Covidsafe app for contact tracing without a warrant.
In the story below Malcolm Turnbull asked Scott Morrison to deal with Petter Dutton. Yet he did not do anything to reinforce values and sovereignty, there is no leadership by example when there is nothing to see here when clearly there is.
Going back to Lao Tzu’s example we do not go to the root of the problem of “greed” as we are persuaded that economic growth is more important than Australian sovereignty, it would be argued as pragmatic “the way things are done”. Is it serving the Australian people’s true interests? This is why Australians become disheartened, why social order breaks down, it is because Australians don’t know who to trust anymore as all seem amoral. We then lose respect for those in power as they don’t respect themselves. This is loss of face. We respect integrity and honesty.
This article demonstrates the hypocracy as each follow the money not values to ensure the real security of Australians. So we are indeed stuck between a rock and a hard place. The enemy is within, not outside. So in my view $270 billion on new weapons only escalates the problem and diverts precious resources. We have to learn to think differently if we want to reclaim our sovereignty and dignity as Australians. I always see the Man from Snowy River, as so many forget or don’t remember our heritage. Clancy allowed this stranger to come on the ride with other bushmen. They were rounding up horses in the high country. There was one colt that was wild and free. Everyone was too scared to follow the colt of Old Regret down the sheer mountain face. It was the man from Snowy River who showed courage, others thought suicide! as he jumped the log and headed down a near vertical cliff face. He didn’t think of himself, he went for it, took the risk and his story was told in years to come by Banjo Paterson. Banjo was reminding Australians of courage in the face of great risk. We don’t respect those who feather their own nests at the expense of the public. We respect those who truly represent us as they have taken our taxes and given us narratives of democratic representation. We discover it is they who stand back, too afraid to confront what they fear, saying this is the way it is, no choice, this is the future. Clancy and this stranger from the high country would say “bullshit mate”. You define your own reality. You take the reins. You don’t hang back. You take a leap of faith (remember Indiana Jones) not a great leap forward. You decide what you want on behalf of Australians and commit to it. This is leadership. This is integrity. This is power. But if you sell out “freedoms” and weakly claim it is a trade off for a higher standard of living, you have sold out to the highest bidder. You will lose everything as life will not support you, as greed takes from life. Why? You are out of balance or indeed harmony. Life will rebalance. As nature is the power. So if you suppress, oppress and control others the pendulum swings back the other way as it must, as all are part of nature, to restore balance we must speak up and be heard. Whistle-blowers are being nudged from within. So for those who say one thing and do another, the children are watching. They will copy and call it “the way things are done”. If you speak with integrity what you believe you live, then others will feel inspired. That is how you restore Australian sovereignty. You live as an example of what it means to be a genuine Australian. We are waiting for you. I wonder who you will be?
Turnbull, who introduced foreign interference laws in 2017, said the allegations contained in a Four Corners-Nine newspapers report regarding a meeting between Dutton and Huang following a payment to former Liberal minister turned lobbyist Santo Santoro were “very troubling”.
“The allegation is that Santo Santoro received money in return for securing privileged access to the minister on behalf of Huang Xiangmo and all of that, in circumstances where there has been rising concern about lobbyists, about foreign influence,” Turnbull said.
Earlier in the day, Morrison had defended the government’s record citing Turnbull’s foreign interference laws and highlighting instead former Labor senator Sam Dastyari’s resignation after rolling controversies regarding his relationships to Chinese-linked donors, including Huang.
“All I know is Sam Dastyari had to resign in disgrace over foreign interference and behaving in a reckless and shameful way, betraying his own country,” Morrison said.
“I think when it comes to these issue, our government’s record is squeaky clean.”
But Turnbull said Morrison could not waive off the allegations and he used Dastyari’s example as a reason for his successor to move quickly on the issue.
“Remember the furore that arose about Senator Dastyari. All the same issues have arisen again and this has to be addressed at the highest level of security, priority, urgency by the prime minister,” Turnbull said.
“The buck stops with him. I know what it is like to be prime minister and, ultimately, you are responsible and so Scott Morrison has to deal with this.”
“Scott Morrison is the prime minister and you can’t waive this off and say it is all part of gossip and the bubble. This is the national security of Australia.”
Asked later about Turnbull’s comments, Morrison said he had spoken to Dutton.
“I have spoken to Peter Dutton and there are no issues here that troubled me,” Morrison said. “No suggestion that Peter in any way, shape or form has sought or been provided with any benefit here.”
The allegations relate to the desire by Huang for Australian citizenship. The Four Corners investigation revealed Huang tried to speed up a citizenship ceremony for his wife and children late in 2014.
Dastyari claimed he was surprised that after passing on the ceremony application to Dutton’s office, it was approved within two weeks in the holiday period in January 2015.
According to the report, when Huang applied for his own citizenship in late 2015, he was already being investigated by ASIO. He was worried about his access so consulted Santoro who had boasted Dutton was one of his “best friends”.
Huang put Santoro on a retainer in 2016, according to the report, and in the same year, Huang, Dutton and the minister’s senior staffer had lunch at Master Ken’s restaurant in Sydney’s Chinatown.
Dutton rejected the allegations as a “beat up” and said he met Huang as a “significant leader in the Chinese community”. Huang’s bid for citizenship failed.
“I have had that one meeting with him over lunch. I have never seen him since. What has he got from me? He is now offshore and is prevented from coming back into Australia,” said Dutton.
Dutton said that the transactions for lobbying businesses on both sides of parliament was an issue for lobbyists.
“There are lobbyists who are registered on both sides of parliament, people that operate as lobbyists,” he said.
“Their transactions and how they conduct their business is an issue for them.
Dutton said while he had never met Huang when his family’s citizenship ceremony was approved, it would be unusual for a minister to knock it back.
“You take at face value what somebody like Sam Dastyari, as a member of parliament, was vouching for and they ask for the ceremony and it would be very unusual for a minister of the day to knock that back,” Dutton said.
“So if Mr Dastyari has not been above board or misrepresented the reason for the citizenship ceremony then I think that is something that he, and frankly, Mr Shorten need to explain.”
Bill Shorten described the Four Corners revelations as unhealthy.
“It is explosive and very surprising revelations on Four Corners last night about the conduct of the minister in charge, one of the ministers in charge of national security where it is cash for access and meeting people connected to the Chinese government.
“This is very unhealthy.”
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Serfdom created out of technocratic ideologies that replace labour with automation, deomcracy with compliance is the resurfacing of totalitarianism in systems theory that again, have no concept of socio-emotional reality, equality, self determination and choice. It reflects the imbalance between the public and private interests with philosophies of totalitarianism. We are moving towards fascism in my view.
In truth Fascism has its roots in the masculine that has disconnected from empathy for the ‘other’. Fascist dictators want the world in their image, they regard any form of difference, challenge as ‘the enemy’ and they seek to repress or silence this form of expression. Psychologically the root in fascism is in inadequacy and insecurity (fear) which is protected by a facade of a hard veneer that bullies to frighten the other. This mindset gains confidence when surrounded by those who are subservient, not unlike the Napoleon form of leader who demands respect. They rule with an iron fist and are intolerant to changes from what is proscribed doctrine, they feel secure in unquestioned ideologies.
Across history these leaders have emerged out of great crisis, traumatic events and poverty to restore control in what may be perceived as out of control. They see obedience as loyalty and this is rewarded. The perception of reality is distorted and it is always from their perspective, they cannot and do not desire to see the other side as it can shake their world view. They are seekers of power not truth. Power seekers must be right (righteousness) as this gives them a feeling of power. The power is what they are addicted to as it inflates their sense of self worth and value as the opposite is the default. They love to feel powerful, loved, respected and in control. They are the extreme form of domination politics and economics.
I found Hayek’s ideas reflective of similar problems today given the loss of individual freedom (freedom of speech, self determination), totalitarianism, loss of freedom, repression, democracy seeks equality, ensure advantages gained are greater than the social costs, negative externalities“) cannot effectively be regulated solely by the marketplace, deforestation, of some methods of farming, or of the smoke and noise of factories, not be confined to the owner of the property in question, or to those willing to submit to the damage for an agreed compensation. The government also has a role in preventing fraud. Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez-faire capitalism“. In the book, Hayek writes that the government has a role to play in the economy through the monetary system (a view that he later withdrew), work-hours regulation, social welfare, and institutions for the flow of proper information.
Hayek states in relation to deprivation and homelessness: “There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”
So Hayek and Keynes are not opposites there are overlaps. The concern is that central planning becomes ‘big brother’ which removes liberties yet what Hayek and Keynes didn’t know is that in 2020 we are entering the very totalitarian state promulgated by the very ideologues of Hayek and Friedman who argue for aspects of these economic ideologies to justify the removal of freedoms, the selling off of assets, reducing employment (automation), environmental damage, corruption (government/business) in garnering business, unfair trade deals, price fixing, industrial segments reshaping the world in their image (digitisation), surveillance capitalism, collapsing of social welfare, data gathering and no privacy. These are the very things that the classical liberal and Keynesian economists did not want. Yet the ideologies are used to increase the freedom, wealth and control of a small number of persons globally who want total power. This is the real state of play in my view.
I believe the real serfdom is to be implemented through compliance, removal of the money system (cash), forced use of chipped cards/people to track all activity, removal of human rights, moving people into cities, Smart Cities IT IoT grid, no Bill of Rights (freedoms), legislation favouring specific groups over others to allow abuse under the guise of freedom, users pay in courts (only those with money can have just outcomes), right wing ideological/religious concentration preserving white male dominance for fear of women changing the game and so on. I don’t say this as a feminist it is becoming clear after extensive research as I seek to understand the problem. I had no idea about misogyny until I experienced unequal treatment and was informed. I was truly surprised.
So let’s have a look at the Road to Serfdom by Friedrich Hayek. His form of fear of Fascism arises from central planning. My description above refers to the desire for power which can come from both sides of political ideologies. the challenge is to find the balance between oversight in economic planning and encouraging of individualism as a form of freedom of expression. However, in our current society most people are unable to express their freedom, they are still enslaved in systems of work that are task orientated serving the corporation not the individual. The truth can be obscured by economics and economists who haven’t worked in the system. I worked in 400 companies and I saw the servitude first hand. I always knew the people have extraordinary potential, I knew this from a young age.
The Road to Serfdom
The Road to Serfdom (German: Der Weg zur Knechtschaft) is a book written between 1940 and 1943 by Austrian British economist and philosopherFriedrich Hayek. Since its publication in 1944, The Road to Serfdom has been an influential and popular exposition of market libertarianism. It has been translated into more than 20 languages and sold over two million copies (as of 2010). The book has also made a significant impact on twentieth-century conservative and libertarian economic and political discourse, and is often cited today by commentators.
The Road to Serfdom was to be the popular edition of the second volume of Hayek’s treatise entitled “The Abuse and Decline of Reason”, and the title was inspired by the writings of the 19th century French classical liberal thinker Alexis de Tocqueville on the “road to servitude”. In the book, Hayek “[warns] of the danger of tyranny that inevitably results from government control of economic decision-making through central planning.” He further argues that the abandonment of individualism and classical liberalism inevitably leads to a loss of freedom, the creation of an oppressive society, the tyranny of a dictator, and the serfdom of the individual. Hayek challenged the view among British Marxists that fascism (including National Socialism) was a capitalist reaction against socialism. He argued that fascism, National Socialism and socialism had common roots in central economic planning and empowering the state over the individual.
The book was first published in Britain by Routledge in March 1944, during World War II, and was quite popular, leading Hayek to call it “that unobtainable book”, also due in part to wartime paper rationing. It was published in the United States by the University of Chicago Press in September 1944 and achieved great popularity. At the arrangement of editor Max Eastman, the American magazine Reader’s Digest published an abridged version in April 1945, enabling The Road to Serfdom to reach a wider popular audience beyond academics.
Writing in the era of the Great Depression, the rise of autocracies in Russia, Italy and Germany, and World War II, Hayek wrote a memo to the director of the London School of Economics, William Beveridge, in the early 1930s to dispute the then-popular claim that fascism represented the dying gasp of a failed capitalist system. The memo grew into a magazine article, and he intended to incorporate elements of the article into a book much larger than The Road to Serfdom. However, he ultimately decided to write The Road to Serfdom as its own book. He sent the manuscript to three American publishing houses, all of them rejecting it.
The book was originally published for a British audience by Routledge Press
in March 1944 in the United Kingdom. The book was subsequently rejected
by three publishers in the United States, and it was only after
economist Aaron Director spoke to friends at the University of Chicago that the book was published in the U.S by the University of Chicago Press on September 18, 1944.
The American publisher’s expectation was that the book would sell
between 900 and 3,000 copies. But the initial printing run of 2,000
copies was quickly sold out, and 30,000 copies were sold within six
months. In 2007, the University of Chicago Press estimated that more than 350,000 copies had been sold.
A 20-page version of the book was then published in the April 1945 issue of Reader’s Digest, with a press run of several million copies. A 95-page abridged version was also published in 1945 and 1946. In February 1945, a picture-book version was published in Look magazine, later made into a pamphlet and distributed by General Motors. The book has been translated into approximately 20 languages and is dedicated “To the socialists of all parties“. The introduction to the 50th anniversary edition is written by Milton Friedman (another recipient of the Nobel Prize in Economics 1976).
In 2007, the University of Chicago Press issued a “Definitive Edition”, Volume 2 in the Collected Works of F. A. Hayek series. In June 2010, the book achieved new popularity by rising to the top of the Amazon.com bestseller list following extended coverage of the book on The Glenn Beck Program. Since that date, it has sold another 250,000 copies in its print and digital editions.
Hayek argues that Western democracies, including the United Kingdom and the United States, have “progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past”.Society has mistakenly tried to ensure continuing prosperity by centralized planning, which inevitably leads to totalitarianism. “We have in effect undertaken to dispense with the forces which produced unforeseen results and to replace the impersonal and anonymous mechanism of the market by collective and ‘conscious’ direction of all social forces to deliberately chosen goals.“Socialism, while presented as a means of assuring equality, does so through “restraint and servitude“, while “democracy seeks equality in liberty“. Planning, because it is coercive, is an inferior method of regulation, while the competition of a free market is superior “because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority”.
Centralized planning is inherently undemocratic in Hayek’s view, because it requires “that the will of a small minority be imposed upon the people”. The power of these minorities to act by taking money or property in pursuit of centralized goals, destroys the Rule of Law and individual freedoms.Where there is centralized planning, “the individual would more than ever become a mere means, to be used by the authority in the service of such abstractions as the ‘social welfare‘ or the ‘good of the community‘”. Even the very poor have more personal freedom in an open society than a centrally planned one. “[W]hile the last resort of a competitive economy is the bailiff, the ultimate sanction of a planned economy is the hangman.” Socialism is a hypocritical system, because its professed humanitarian goals can only be put into practice by brutal methods “of which most socialists disapprove”. Such centralized systems also require effective propaganda, so that the people come to believe that the state’s goals are theirs.
Hayek argues that the roots of National Socialism lie in socialism, and then draws parallels to the thought of British leaders:
The increasing veneration for the state, the admiration of power, and of bigness for bigness‘ sake, the enthusiasm for “organization” of everything (we now call it “planning”) and that “inability to leave anything to the simple power of organic growth” … are all scarcely less marked in England now than they were in Germany.
Hayek believed that after World War II, “wisdom in the management of our economic affairs will be even more important than before and that the fate of our civilization will ultimately depend on how we solve the economic problems we shall then face“. The only chance to build a decent world is “to improve the general level of wealth” via the activities of free markets. He saw international organization as involving a further threat to individual freedom. He concluded: “The guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.”
The role of government
Hayek believed that government intervention in markets would lead to a
loss of freedom, he recognized a limited role for government to perform
tasks of which free markets were not capable:
The successful use of competition as the principle of
social organization precludes certain types of coercive interference
with economic life, but it admits of others which sometimes may very
considerably assist its work and even requires certain kinds of
While Hayek is opposed to regulations that restrict the freedom to enter a trade, or to buy and sell at any price, or to control quantities, he acknowledges the utility of regulations that restrict legal methods of production, so long as these are applied equally to everyone and not used as an indirect way of controlling prices or quantities, and without forgetting the cost of such restrictions:
To prohibit the use of certain poisonous substances, or
to require special precautions in their use, to limit working hours or
to require certain sanitary arrangements, is fully compatible with the
preservation of competition. The only question here is whether in the
particular instance the advantages gained are greater than the social
costs they impose.
He notes that there are certain areas, such as the environment, where activities that cause damage to third parties (known to economists as “negative externalities“) cannot effectively be regulated solely by the marketplace:
Nor can certain harmful effects of deforestation, of some
methods of farming, or of the smoke and noise of factories, be confined
to the owner of the property in question, or to those willing to submit
to the damage for an agreed compensation.
The government also has a role in preventing fraud:
Even the most essential prerequisite of its [the
market’s] proper functioning, the prevention of fraud and deception
(including exploitation of ignorance), provides a great and by no means
fully accomplished object of legislative activity.
The government also has a role in creating a safety net:
There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.
He concludes: “In no system that could be rationally defended would the state just do nothing.”
Since publication, Hayek has offered a number of clarifications on words that are frequently misinterpreted:
In 2007, the University of Chicago Press estimated that more than 350,000 copies of The Road to Serfdom have been sold. It appears on Martin Seymour-Smith‘s list of the 100 Most Influential Books Ever Written, and it made #1 on Human Events: Top Ten Books Every Republican Congressman Should Read in 2006. It was influential enough to warrant mention during the 1945 British general election, when according to Harold Macmillan, Winston Churchill was “fortified in his apprehensions [of a Labour government] by reading Professor Hayek’s The Road to Serfdom“ when he warned in an election broadcast in 1945 that a socialist system would “have to fall back on some form of Gestapo“. The Labour leader Clement Attlee
responded in his election broadcast by claiming that what Churchill had
said was the “second-hand version of the academic views of an Austrian
professor, Friedrich August von Hayek”. The Conservative Central Office sacrificed 1.5 tons of their precious paper ration allocated for the 1945 election so that more copies of The Road to Serfdom could be printed, although to no avail, as Labour won a landslide victory.
Political historian Alan Brinkley had this to say about the impact of The Road to Serfdom:
The publication of two books … helped to galvanize the concerns
that were beginning to emerge among intellectuals (and many others)
about the implications of totalitarianism. One was James Burnham’s The
Managerial Revolution … [A second] Friedrich A. Hayek’s The Road to Serfdom …
was far more controversial—and influential. Even more than Burnham,
Hayek forced into public discourse the question of the compatibility of
democracy and statism … In responding to Burnham and Hayek …
liberals [in the statist sense of this term as used by some in the
United States] were in fact responding to a powerful strain of
Jeffersonian anti-statism in American political culture … The result
was a subtle but important shift in liberal [i.e. American statist]
The Road to Serfdom
has been the subject of much praise and much criticism. It was placed
fourth on the list of the 100 best non-fiction books of the twentieth
century compiled by National Review magazine, was ranked #16 in reader selections of the hundred best non-fiction book of the twentieth century administered by Modern Library, and appears on a recommended reading list for the ‘libertarian right’ hosted on the Political Compass test website.
John Maynard Keynes
said of it: “In my opinion it is a grand book … Morally and
philosophically I find myself in agreement with virtually the whole of
it: and not only in agreement with it, but in deeply moved agreement.” However, Keynes did not think Hayek’s philosophy was of practical
use; this was explained later in the same letter, commenting: “What we
need therefore, in my opinion, is not a change in our economic
programmes, which would only lead in practice to disillusion with the
results of your philosophy; but perhaps even the contrary, namely, an
enlargement of them. Your greatest danger ahead is the probable
practical failure of the application of your philosophy in the United
responded with both praise and criticism, stating, “in the negative
part of Professor Hayek’s thesis there is a great deal of truth. It
cannot be said too often – at any rate, it is not being said nearly
often enough – that collectivism is not inherently democratic, but, on
the contrary, gives to a tyrannical minority such powers as the Spanish
Inquisitors never dreamt of.” Yet he also warned, “[A] return to ‘free’
competition means for the great mass of people a tyranny probably worse,
because more irresponsible, than that of the state.”
Milton Friedman described The Road to Serfdom as “one of the great books of our time,” and said of it:
I think the Adam Smith role was played in this cycle [i.e. the late
twentieth century collapse of socialism in which the idea of
free-markets succeeded first, and then special events catalyzed a
complete change of socio-political policy in countries around the world]
by Friedrich Hayek’s The Road to Serfdom.
Herman Finer, a Fabian socialist, published a rebuttal in his The Road to Reaction
in 1946. Hayek called Finer’s book “a specimen of abuse and invective
which is probably unique in contemporary academic discussion”.
In his review (collected in The Present as History, 1953) MarxistPaul Sweezy
joked that Hayek would have you believe that if there was an
over-production of baby carriages, the central planners would then order
the population to have more babies instead of simply warehousing the
temporary excess of carriages and decreasing production for next year.
The cybernetic arguments of Stafford Beer in his 1973 CBC Massey Lectures, Designing Freedom – that intelligent adaptive planning can increase freedom – are of interest in this regard, as is the technical work of Herbert A. Simon and Albert Ando
on the dynamics of hierarchical nearly decomposable systems in
economics – namely, that everything in such a system is not tightly
coupled to everything else.
Mises Institute libertarian/anarcho-capitalist economist Walter Block has observed critically that while The Road to Serfdom makes a strong case against centrally planned economies, it appears only lukewarm in its support of a free market system and laissez-fairecapitalism,
with Hayek even going so far as to say that “probably nothing has done
so much harm to the liberal cause as the wooden insistence of some
liberals on certain rules of thumb, above all the principle of
laissez-faire capitalism”. In the book, Hayek writes that the government
has a role to play in the economy through the monetary system (a view
that he later withdrew),
work-hours regulation, social welfare, and institutions for the flow of
proper information. Through analysis of this and many other of Hayek’s
works, Block asserts that: “in making the case against socialism, Hayek
was led into making all sort of compromises with what otherwise appeared
to be his own philosophical perspective – so much so, that if a system
was erected on the basis of them, it would not differ too sharply from
what this author explicitly opposed”.
The ideas advocated in The Road to Serfdom have been criticized by many academics.
Gordon Tullock has argued Hayek’s analysis incorrectly predicted governments in much of Europe in the late 20th century would descend into totalitarianism. He uses Sweden, in which the government at that time controlled 63 percent of GNP, as an example to support his argument that the basic problem with The Road to Serfdom
is “that it offered predictions which turned out to be false. The
steady advance of government in places such as Sweden has not led to any
loss of non-economic freedoms.” While criticizing Hayek, Tullock still
praises the classical liberal notion of economic freedom, saying,
“Arguments for political freedom are strong, as are the arguments for
economic freedom. We needn’t make one set of arguments depend on the
other.” However, according to Robert Skidelsky,
Hayek “safeguarded himself from such retrospective refutation”.
Skidelsky argues that Hayek’s argument was contingent, and that, “By the
1970s there was some evidence of the slippery slope … and then there
was Thatcher. Hayek’s warning played a critical part in her determination to ‘roll back the state.'”
Economic sociologist Karl Polanyi
made a case diametrically opposed to Hayek, arguing that unfettered
markets had undermined the social order and that economic breakdown had
paved the way for the emergence of dictatorship.
Barbara Wootton wrote Freedom under Planning after reading an early copy of The Road to Serfdom, provided to her by Hayek. In the introduction to her book, Wootton mentioned The Road to Serfdom
and claimed that “Much of what I have written is devoted to criticism
of the views put forward by Professor Hayek in this and other books.” The central argument made in Freedom under Planning
is that “there is nothing in the conscious planning of economic
priorities which is inherently incompatible with the freedoms which mean
most to the contemporary Englishman or American. Civil liberties are
quite unaffected. We can, if we wish, deliberately plan so as to give
the fullest possible scope for the pursuit by individuals and social
groups of cultural ends which are in no way state-determined.” Wootton criticizes Hayek for claiming that planning must lead to oppression, when, in her view, that is merely one possibility
among many. She argues that “there seems hardly better case for taking
for granted that planning will bring the worst to the top than for the
opposite assumption that the seats of office will be filled with
Thus, Wootton acknowledges the possibility that planning may exist
alongside tyranny, but claims that it is equally possible to combine
planning with freedom. She concludes that “A happy and fruitful marriage
between freedom and planning can, in short, be arranged.” However, Frank Knight, founder of the Chicago school of economics, disputes the claim that Freedom under Planning contradicts The Road to Serfdom. He wrote in a scholarly review of the Wootton book: “Let me repeat that the Wootton book is in no logical sense an answer to The Road to Serfdom, whatever may be thought of the cogency of Hayek’s argument, or the soundness of his position.”
wrote that the free market economy Hayek advocated is designed for an
infinite planet, and when it runs into physical limits (as any growing
system must), the result is a need for centralized planning to mediate
the problematic interface of economy and nature. “Planning is planning,
whether it’s done to minimize poverty and injustice, as socialists were
advocating then, or to preserve the minimum flow of ecosystem services
that civilization requires, as we are finding increasingly necessary
In the public interest. John Maynard Keynes is the reason we have a social welfare system as he argued for government intervention as it was common sense that a government inject funds into an economy, particularly during downturns. The safety net was to ensure that people were not begging on the street and had income to spend which also created stimulus. In-fact the welfare state is an excellent stabiliser of an economy given Reserve Banks (Central Banks) affecting growth and recession through changes to economic levers (interest rates, bonds).
It is noteworthy that Keynes came from a loving family. This is important in formulating what he realised was important. The social fabric.
Pauperising the public through government spending cuts across the board and specifically in welfare programs and then cutting taxes for those in upper income brackets is not a stimulus measure but a reward for donations/deals which creates distortions in the economy. Moreover, the so called asset recycling (without public referendum or even yields) transfers power to the private sector as the public has no say over this asset. this is particularly noteworthy in large infrastructure/utility assets whereby there has been cross subsidisation of essential services.
Privatisation is more costly as the asset attracts users pay where as it was free to the public when government owned. The myth of government inefficiency and incompetence has been propaganda, in my view, to promote the argument that the private sector is more efficient. The private sector will minimise costs, inclusive of wages (as a cost of production) as it seeks to maximise profit. The social costs rise in this model. Pump priming of the economy is contracted. Profits are not necessarily reinvested into the company or the nation state, those profits can go overseas and be invested in other high yield assets or illegal activities.
The nature of self interest and greed rewarded ensures distortions is so-called rational economic decisions that do not have a vested interest in public wellbeing, opinion other than stimulating consumption as the basis of the social contract. The citizen thus becomes a consumer and anyone not consuming is of zero value given cost accounting. This is why welfare is cut as the modus operandi for the private sector is self interest the government modus operandi is re-election (to be seen as accountable to the public). However, the reality is that government/business relations have fused through lobbying, donations and class together with right wing doctrines and economics philosophies (free markets, freedom, libertarianism, neo-conservatism, economic rationalism, deregulation etc.). This ideological mantra is now overlayed over the top of government evaluations of efficiency and budgets. In economics the budget is not supposed to balance as it is expected that governments will spend as this pump primes and helps to influence economic stability. Internally within government today private contractors are replacing internal expertise which was typically local citizens with foreign contractors in many instances (albeit based in Australia Pty Ltd) who gain access to government systems, policies, processes and people. Relationships and control is built around access and design. Thus specific ideologies by certain economists have been used to privatise government rather than guide economic policies to ensure social wellbeing which was why government was invented. John Maynard Keynes demonstrated social awareness, principles and courageous discourse to challenge free markets and social harm. Moreover sophisticated social policy ensured government spending allocations went to those most in need to ensure social stability as the mainstay of a strong economy. Other business model perspectives regard social spending as a waste of public money as it does not yield profits in a narrow free market orientation. The free market is about deregulation not freedom of thought, it is unfetted capitalism which drives to remove any obstacles to profit. The trickle down is the argument but as government privatises there will not be a trickle down and we will see the poverty gap grow, indifference grow and communities based on class who are gated with surveillance rather than the egalitarian society that Australia has experienced as unique in the world.
The social cost is the real cost that will impact economic growth together with the emerging ecological crisis based on human imbalance. Inequality drives to the heart of imbalance and has its roots in family breakdown and gender inequality. These basic foundations are what develop the resiliency in the human race, ideological extremes only serve to exacerbate fundamental conflicts that have not been resolved through dialogue, intelligent problem solving and a real desire for a better future for all. This is the real crisis of consciousness that is occurring. So let’s go to John Maynard Keynes and remember why economics was created in the first place.
During the Great Depression of the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of neoclassical economics that held that free markets
would, in the short to medium term, automatically provide full
employment, as long as workers were flexible in their wage demands. He
argued that aggregate demand
(total spending in the economy) determined the overall level of
economic activity, and that inadequate aggregate demand could lead to
prolonged periods of high unemployment. Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions. He detailed these ideas in his magnum opus, The General Theory of Employment, Interest and Money, published in 1936. In the mid to late-1930s, leading Western economies adopted Keynes’s policy recommendations. Almost all capitalist
governments had done so by the end of the two decades following
Keynes’s death in 1946. As a leader of the British delegation, Keynes
participated in the design of the international economic institutions
established after the end of World War II but was overruled by the American delegation on several aspects.
According to the economic historian and biographer Robert Skidelsky,
Keynes’s parents were loving and attentive. They remained in the same
house throughout their lives, where the children were always welcome to
return. Keynes would receive considerable support from his father,
including expert coaching to help him pass his scholarship exams and
financial help both as a young man and when his assets were nearly wiped
out at the onset of Great Depression
in 1929. Keynes’s mother made her children’s interests her own, and
according to Skidelsky, “because she could grow up with her children,
they never outgrew home”.
In January 1889 at the age of five and a half, Keynes started at the kindergarten of the Perse School for Girls
for five mornings a week. He quickly showed a talent for arithmetic,
but his health was poor leading to several long absences. He was tutored
at home by a governess, Beatrice Mackintosh, and his mother. In January
1892, at eight and a half, he started as a day pupil at St Faith’s
preparatory school. By 1894, Keynes was top of his class and excelling
at mathematics. In 1896, St Faith’s headmaster, Ralph Goodchild, wrote
that Keynes was “head and shoulders above all the other boys in the
school” and was confident that Keynes could get a scholarship to Eton.
In 1897, Keynes won a scholarship to Eton College, where he displayed talent in a wide range of subjects, particularly mathematics, classics
and history. At Eton, Keynes experienced the first “love of his life”
in Dan Macmillan, older brother of the future Prime Minister Harold Macmillan. Despite his middle-class background, Keynes mixed easily with upper-class pupils.
In 1902 Keynes left Eton for King’s College, Cambridge, after receiving a scholarship for this also to read mathematics. Alfred Marshall begged Keynes to become an economist,
although Keynes’s own inclinations drew him towards philosophy – especially the ethical system of G. E. Moore. Keynes joined the Pitt Club and was an active member of the semi-secretive Cambridge Apostles
society, a debating club largely reserved for the brightest students.
Like many members, Keynes retained a bond to the club after graduating
and continued to attend occasional meetings throughout his life. Before
leaving Cambridge, Keynes became the President of the Cambridge Union Society and Cambridge University Liberal Club. He was said to be an atheist.
In May 1904, he received a first-class BA in mathematics. Aside
from a few months spent on holidays with family and friends, Keynes
continued to involve himself with the university over the next two
years. He took part in debates, further studied philosophy and attended
economics lectures informally as a graduate student for one term, which
constituted his only formal education in the subject. He took civil
service exams in 1906.
The economist Harry Johnson wrote that the optimism imparted by Keynes’s early life is a key to understanding his later thinking.
Keynes was always confident he could find a solution to whatever problem
he turned his attention to and retained a lasting faith in the ability
of government officials to do good.
Keynes’s optimism was also cultural, in two senses: he was of the last
generation raised by an empire still at the height of its power and was
also of the last generation who felt entitled to govern by culture,
rather than by expertise. According to Skidelsky, the sense of cultural unity current in Britain from the 19th century to the end of World War I
provided a framework with which the well-educated could set various
spheres of knowledge in relation to each other and life, enabling them
to confidently draw from different fields when addressing practical
In October 1908, Keynes’s Civil Service career began as a clerk in the India Office. He enjoyed his work at first, but by 1908 had become bored and resigned his position to return to Cambridge and work on probability theory, at first privately funded only by two dons at the university – his father and the economist Arthur Pigou.
By 1909 Keynes had published his first professional economics article in The Economic Journal, about the effect of a recent global economic downturn on India. He founded the Political Economy Club, a weekly discussion group. Also in 1909, Keynes accepted a lectureship in economics funded personally by Alfred Marshall. Keynes’s earnings rose further as he began to take on pupils for private tuition.
In 1911 Keynes was made the editor of The Economic Journal. By 1913 he had published his first book, Indian Currency and Finance. He was then appointed to the Royal Commission on Indian Currency and Finance
– the same topic as his book – where Keynes showed considerable talent
at applying economic theory to practical problems. His written work was
published under the name “J M Keynes”, though to his family and friends
he was known as Maynard. (His father, John Neville Keynes, was also
always known by his middle name).
First World War
The British Government called on Keynes’s expertise during the First World War.
While he did not formally re-join the civil service in 1914, Keynes
traveled to London at the government’s request a few days before
hostilities started. Bankers had been pushing for the suspension of specie payments – the convertibility of banknotes into gold – but with Keynes’s help the Chancellor of the Exchequer (then Lloyd George)
was persuaded that this would be a bad idea, as it would hurt the
future reputation of the city if payments were suspended before it was
In January 1915, Keynes took up an official government position at the Treasury.
Among his responsibilities were the design of terms of credit between
Britain and its continental allies during the war and the acquisition of
scarce currencies. According to economist Robert Lekachman,
Keynes’s “nerve and mastery became legendary” because of his
performance of these duties, as in the case where he managed to assemble
– with difficulty – a small supply of Spanish pesetas.
The secretary of the Treasury was delighted to hear Keynes had
amassed enough to provide a temporary solution for the British
Government. But Keynes did not hand the pesetas over, choosing instead
to sell them all to break the market: his boldness paid off, as pesetas
then became much less scarce and expensive.
Keynes’s colleague, David Lloyd George. Keynes was initially wary of the “Welsh Wizard,” preferring his rival Asquith,
but was impressed with Lloyd George at Versailles; this did not prevent
Keynes from painting a scathing picture of the then-prime minister in
his Economic Consequences of the Peace.
Keynes’s experience at Versailles
was influential in shaping his future outlook, yet it was not a
successful one. Keynes’s main interest had been in trying to prevent Germany’s compensation payments
being set so high it would traumatize innocent German people, damage
the nation’s ability to pay and sharply limit her ability to buy exports
from other countries – thus hurting not just Germany’s economy but that
of the wider world.
Unfortunately for Keynes, conservative powers in the coalition that emerged from the 1918 coupon election
were able to ensure that both Keynes himself and the Treasury were
largely excluded from formal high-level talks concerning reparations.
Their place was taken by the Heavenly Twins – the judge Lord Sumner and the banker Lord Cunliffe
whose nickname derived from the “astronomically” high war compensation
they wanted to demand from Germany. Keynes was forced to try to exert
influence mostly from behind the scenes.
The three principal players at Versailles were Britain’s Lloyd George, France’s Clemenceau and America’s President Wilson.
It was only Lloyd George to whom Keynes had much direct access; until
the 1918 election he had some sympathy with Keynes’s view but while
campaigning had found his speeches were only well received by the public
if he promised to harshly punish Germany, and had therefore committed
his delegation to extracting high payments.
Lloyd George did, however, win some loyalty from Keynes with his
actions at the Paris conference by intervening against the French to
ensure the dispatch of much-needed food supplies to German civilians.
Clemenceau also pushed for substantial reparations, though not as high
as those proposed by the British, while on security grounds, France
argued for an even more severe settlement than Britain.
Wilson initially favored relatively lenient treatment of Germany –
he feared too harsh conditions could foment the rise of extremism and
wanted Germany to be left sufficient capital to pay for imports. To
Keynes’s dismay, Lloyd George and Clemenceau were able to pressure
Wilson to agree to include pensions in the reparations bill.
Towards the end of the conference, Keynes came up with a plan
that he argued would not only help Germany and other impoverished
central European powers but also be good for the world economy as a
whole. It involved the radical writing down of war debts, which would
have had the possible effect of increasing international trade all
round, but at the same time thrown the entire cost of European
reconstruction on the United States.
Lloyd George agreed it might be acceptable to the British
electorate. However, America was against the plan; the US was then the
largest creditor, and by this time Wilson had started to believe in the
merits of a harsh peace and thought that his country had already made
excessive sacrifices. Hence despite his best efforts, the result of the
conference was a treaty which disgusted Keynes both on moral and
economic grounds and led to his resignation from the Treasury.
In June 1919 he turned down an offer to become chairman of the British Bank of Northern Commerce, a job that promised a salary of £2000 in return for a morning per week of work.
Keynes’s analysis on the predicted damaging effects of the treaty appeared in the highly influential book, The Economic Consequences of the Peace, published in 1919.
This work has been described as Keynes’s best book, where he was able
to bring all his gifts to bear – his passion as well as his skill as an
economist. In addition to economic analysis, the book contained pleas to
the reader’s sense of compassion:
I cannot leave this subject as
though its just treatment wholly depended either on our pledges or on
economic facts. The policy of reducing Germany to servitude for a
generation, of degrading the lives of millions of human beings, and of
depriving a whole nation of happiness should be abhorrent and
detestable, – abhorrent and detestable, even if it was possible, even if
it enriched ourselves, even if it did not sow the decay of the whole
civilized life of Europe.
Also present was striking imagery such as “year by year Germany must
be kept impoverished and her children starved and crippled” along with
bold predictions which were later justified by events:
If we aim deliberately at the
impoverishment of Central Europe, vengeance, I dare predict, will not
limp. Nothing can then delay for very long that final war between the
forces of Reaction and the despairing convulsions of Revolution, before
which the horrors of the late German war will fade into nothing.
Keynes’s followers assert that his predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the outbreak of the Second World War. However the historian Ruth Henig
claims that “most historians of the Paris peace conference now take the
view that, in economic terms, the treaty was not unduly harsh on
Germany and that, while obligations and damages were inevitably much
stressed in the debates at Paris to satisfy electors reading the daily
newspapers, the intention was quietly to give Germany substantial help
towards paying her bills, and to meet many of the German objections by
amendments to the way the reparations schedule was in practice carried
Only a small fraction of reparations was ever paid. In fact, the historian Stephen A. Schuker demonstrates in American ‘Reparations’ to Germany, 1919–33,
that the capital inflow from American loans substantially exceeded
German out payments so that, on a net basis, Germany received support
equal to four times the amount of the post-Second World War Marshall Plan.
Schuker also shows that, in the years after Versailles, Keynes
became an informal reparations adviser to the German government, wrote
one of the major German reparation notes, and supported the
hyperinflation on political grounds. Nevertheless, The Economic Consequences of the Peace
gained Keynes international fame, even though it also caused him to be
regarded as anti-establishment – it was not until after the outbreak of
the Second World War that Keynes was offered a directorship of a major
British Bank, or an acceptable offer to return to government with a
formal job. However, Keynes was still able to influence government
policy making through his network of contacts, his published works and
by serving on government committees; this included attending high-level
policy meetings as a consultant.
Keynes had completed his A Treatise on Probability before the war but published it in 1921. The work was a notable contribution to the philosophical and mathematical underpinnings of probability theory, championing the important view that probabilities were no more or less than truth values intermediate between simple truth and falsity. Keynes developed the first upper-lower probabilistic interval
approach to probability in chapters 15 and 17 of this book, as well as
having developed the first decision weight approach with his
conventional coefficient of risk and weight, c, in chapter 26. In
addition to his academic work, the 1920s saw Keynes active as a
journalist selling his work internationally and working in London as a
financial consultant. In 1924 Keynes wrote an obituary for his former
Alfred Marshall which Joseph Schumpeter called “the most brilliant life of a man of science I have ever read.”
Marshall’s widow was “entranced” by the memorial, while Lytton Strachey rated it as one of Keynes’s “best works”.
In 1922 Keynes continued to advocate reduction of German reparations with A Revision of the Treaty. He attacked the post-World War I deflation policies with A Tract on Monetary Reform in 1923
– a trenchant argument that countries should target stability of
domestic prices, avoiding deflation even at the cost of allowing their
currency to depreciate. Britain suffered from high unemployment through
most of the 1920s, leading Keynes to recommend the depreciation of sterling
to boost jobs by making British exports more affordable. From 1924 he
was also advocating a fiscal response, where the government could create
jobs by spending on public works.
During the 1920s Keynes’s pro stimulus views had only limited effect on
policy makers and mainstream academic opinion – according to Hyman Minsky one reason was that at this time his theoretical justification was “muddled”. The Tract
had also called for an end to the gold standard. Keynes advised it was
no longer a net benefit for countries such as Britain to participate in
the gold standard,
as it ran counter to the need for domestic policy autonomy. It could
force countries to pursue deflationary policies at exactly the time when
expansionary measures were called for to address rising unemployment.
The Treasury and Bank of England were still in favor of the gold
standard and in 1925 they were able to convince the then Chancellor Winston Churchill to re-establish it, which had a depressing effect on British industry. Keynes responded by writing The Economic Consequences of Mr. Churchill and continued to argue against the gold standard until Britain finally abandoned it in 1931.
Keynes had begun a theoretical work to examine the relationship between unemployment, money, and prices back in the 1920s. The work, Treatise on Money,
was published in 1930 in two volumes. A central idea of the work was
that if the amount of money being saved exceeds the amount being
invested – which can happen if interest rates are too high – then
unemployment will rise. This is in part a result of people not wanting
to spend too high a proportion of what employers payout, making it
difficult, in aggregate, for employers to make a profit. Another key
theme of the book is the unreliability of financial indices
for representing an accurate – or indeed meaningful – an indication of
general shifts in purchasing power of currencies over time. In
particular, he criticized the justification of Britain’s return to the gold standard in 1925 at pre-war valuation by reference to the wholesale price index. He argued that the index understated the effects of changes in the costs of services and labor.
Keynes was deeply critical of the British government’s austerity measures during the Great Depression. He believed that budget deficits during recessions
were a good thing and a natural product of an economic slump. He wrote,
“For Government borrowing of one kind or another is nature’s remedy, so
to speak, for preventing business losses from being, in so severe a
slump as the present one, so great as to bring production altogether to a
At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity,
which contained specific policy recommendations for tackling
unemployment in a global recession, chiefly counter-cyclical public
spending. The Means to Prosperity contains one of the first mentions of the multiplier effect.
While it was addressed chiefly to the British Government, it also
contained advice for other nations affected by the global recession. A
copy was sent to the newly elected President Franklin D. Roosevelt and other world leaders. The work was taken seriously by both the American and British governments, and according to Robert Skidelsky,
helped pave the way for the later acceptance of Keynesian ideas, though
it had little immediate practical influence. In the 1933 London Economic Conference opinions remained too diverse for a unified course of action to be agreed upon.
Keynesian-like policies were adopted by Sweden and Germany, but
Sweden was seen as too small to command much attention, and Keynes was
deliberately silent about the successful efforts of Germany as he was dismayed by their imperialist ambitions and their treatment of Jews.
Apart from Great Britain, Keynes’s attention was primarily focused on
the United States. In 1931, he received considerable support for his
views on counter-cyclical public spending in Chicago, then America’s
foremost center for economic views alternative to the mainstream. However, orthodox economic opinion remained generally hostile regarding fiscal intervention to mitigate the depression, until just before the outbreak of war. In late 1933 Keynes was persuaded by Felix Frankfurter
to address President Roosevelt directly, which he did by letters and
face to face in 1934, after which the two men spoke highly of each
However, according to Skidelsky, the consensus is that Keynes’s efforts
only began to have a more than marginal influence on US economic policy
Keynes’s magnum opus, The General Theory of Employment, Interest and Money was published in 1936. It was researched and indexed by one of Keynes’s favorite students, later the economist David Bensusan-Butt. The work served as a theoretical justification for the interventionist policies Keynes favoured for tackling a recession. The General Theory challenged the earlier neoclassical economic paradigm, which had held that provided it was unfettered by government interference, the market would naturally establish full employment
equilibrium. In doing so Keynes was partly setting himself against his
former teachers Marshall and Pigou. Keynes believed the classical theory
was a “special case” that applied only to the particular conditions
present in the 19th century, his theory being the general one. Classical
economists had believed in Say’s law, which, simply put, states that “supply creates its demand“,
and that in a free market workers would always be willing to lower
their wages to a level where employers could profitably offer them jobs.
An innovation from Keynes was the concept of price stickiness
– the recognition that in reality workers often refuse to lower their
wage demands even in cases where a classical economist might argue it is
rational for them to do so. Due in part to price stickiness, it was
established that the interaction of “aggregate demand” and “aggregate supply”
may lead to stable unemployment equilibria – and in those cases, it is
the state, not the market, that economies must depend on for their
The General Theory argues that demand, not supply, is the key
variable governing the overall level of economic activity. Aggregate
demand, which equals total un-hoarded income in a society, is defined by
the sum of consumption and investment. In a state of unemployment and
unused production capacity, one can only enhance employment and total income by first
increasing expenditures for either consumption or investment. Without
government intervention to increase expenditure, an economy can remain
trapped in a low employment equilibrium – the demonstration of this
possibility has been described as the revolutionary formal achievement
of the work.
The book advocated activist economic policy by government to stimulate
demand in times of high unemployment, for example by spending on public works.
“Let us be up and doing, using our idle resources to increase our
wealth,” he wrote in 1928. “With men and plants unemployed, it is
ridiculous to say that we cannot afford these new developments. It is
precise with these plants and these men that we shall afford them.”
The General Theory is often viewed as the foundation of modern macroeconomics. Few senior American economists agreed with Keynes through most of the 1930s.
Yet his ideas were soon to achieve widespread acceptance, with eminent American professors such as Alvin Hansen agreeing with the General Theory before the outbreak of World War II.
Keynes himself had only limited participation in the theoretical debates that followed the publication of the General Theory as he suffered a heart attack in 1937, requiring him to take long periods of rest. Among others, Hyman Minsky and Post-Keynesian
economists have argued that as result, Keynes’s ideas were diluted by
those keen to compromise with classical economists or to render his
concepts with mathematical models like the IS–LM model (which, they argue, distort Keynes’s ideas).
Keynes began to recover in 1939, but for the rest of his life his
professional energies were largely directed towards the practical side
of economics – the problems of ensuring optimum allocation of resources
for the war efforts, post-war negotiations with America, and the new
international financial order that was presented at the Bretton Woods Conference.
In the General Theory and later, Keynes responded to the
socialists who argued, especially during the Great Depression of the
1930s, that capitalism caused war. He argued that if capitalism were
managed domestically and internationally (with coordinated international
Keynesian policies, an international monetary system that didn’t put
the interests of countries against each other, and a high degree of
freedom of trade), then this system of managed capitalism could promote
peace rather than conflict between countries. His plans during World War
II for post-war international economic institutions and policies (which
contributed to the creation at Bretton Woods of the International Monetary Fund and the World Bank, and later to the creation of the General Agreement on Tariffs and Trade and eventually the World Trade Organization) were aimed to give effect to this vision.
Although Keynes has been widely criticized – especially by members of the Chicago school of economics
– for advocating irresponsible government spending financed by
borrowing, in fact he was a firm believer in balanced budgets and
regarded the proposals for programs of public works during the Great
Depression as an exceptional measure to meet the needs of exceptional
During the Second World War, Keynes argued in How to Pay for the War,
published in 1940, that the war effort should be largely financed by
higher taxation and especially by compulsory saving (essentially workers
lending money to the government), rather than deficit spending, in order to avoid inflation.
Compulsory saving would act to dampen domestic demand, assist in
channeling additional output towards the war efforts, would be fairer
than punitive taxation and would have the advantage of helping to avoid a
post-war slump by boosting demand once workers were allowed to withdraw
their savings. In September 1941 he was proposed to fill a vacancy in
the Court of Directors of the Bank of England, and subsequently carried out a full term from the following April. In June 1942, Keynes was rewarded for his service with a hereditary peerage in the King’s Birthday Honours. On 7 July his title was gazetted as “Baron Keynes, of Tilton, in the County of Sussex” and he took his seat in the House of Lords on the Liberal Party benches.
As the Allied victory began to look certain, Keynes was heavily involved, as leader of the British delegation and chairman of the World Bank commission, in the mid-1944 negotiations that established the Bretton Woods system.
The Keynes plan, concerning an international clearing-union, argued for
a radical system for the management of currencies. He proposed the
creation of a common world unit of currency, the bancor, and new global institutions – a world central bank and the International Clearing Union.
Keynes envisaged these institutions managing an international trade and
payments system with strong incentives for countries to avoid
substantial trade deficits or surpluses.
The USA’s greater negotiating strength, however, meant that the
outcomes accorded more closely to the more conservative plans of Harry Dexter White. According to US economist J. Bradford DeLong, on almost every point where he was overruled by the Americans, Keynes was later proved correct by events.
The two new institutions, later known as the World Bank and the International Monetary Fund
(IMF), were founded as a compromise that primarily reflected the
American vision. There would be no incentives for states to avoid a
large trade surplus; instead, the burden for correcting a trade imbalance would continue to fall only on the deficit
countries, which Keynes had argued were least able to address the
problem without inflicting economic hardship on their populations. Yet,
Keynes was still pleased when accepting the final agreement, saying that
if the institutions stayed true to their founding principles, “the
brotherhood of man will have become more than a phrase.”
the war, Keynes continued to represent the United Kingdom in
international negotiations despite his deteriorating health. He
succeeded in obtaining preferential terms from the United States for new and outstanding debts to facilitate the rebuilding of the British economy.
Just before his death in 1946, Keynes told Henry Clay, a professor of social economics and advisor to the Bank of England, of his hopes that Adam Smith‘s “invisible hand”
could help Britain out of the economic hole it was in: “I find myself
more and more relying for a solution of our problems on the invisible
hand which I tried to eject from economic thinking twenty years ago.”
From the end of the Great Depression to the mid-1970s, Keynes
provided the main inspiration for economic policymakers in Europe,
America and much of the rest of the world.
While economists and policymakers had become increasingly won over to
Keynes’s way of thinking in the mid and late 1930s, it was only after
the outbreak of World War II that governments started to borrow money
for spending on a scale sufficient to eliminate unemployment. According
to the economist John Kenneth Galbraith
(then a US government official charged with controlling inflation), in
the rebound of the economy from wartime spending, “one could not have
had a better demonstration of the Keynesian ideas.”
The Keynesian Revolution was associated with the rise of modern liberalism in the West during the post-war period.
Keynesian ideas became so popular that some scholars point to Keynes as
representing the ideals of modern liberalism, as Adam Smith represented
the ideals of classical liberalism. After the war, Winston Churchill attempted to check the rise of Keynesian policy-making in the United Kingdom and used rhetoric critical of the mixed economy in his 1945 election campaign. Despite his popularity as a war hero, Churchill suffered a landslide defeat to Clement Attlee whose government’s economic policy continued to be influenced by Keynes’s ideas.
By the 1950s, Keynesian policies were adopted by almost the entire developed world and similar measures for a mixed economy
were used by many developing nations. By then, Keynes’s views on the
economy had become mainstream in the world’s universities. Throughout
the 1950s and 1960s, the developed and emerging free capitalist
economies enjoyed exceptionally high growth and low unemployment.
Professor Gordon Fletcher has written that the 1950s and 1960s, when
Keynes’s influence was at its peak, appear in retrospect as a golden age of capitalism.
In late 1965 Time magazine ran a cover article with a title comment from Milton Friedman (later echoed by U.S. President Richard Nixon), “We are all Keynesians now“.
The article described the exceptionally favourable economic conditions
then prevailing, and reported that “Washington’s economic managers
scaled these heights by their adherence to Keynes’s central theme: the
modern capitalist economy does not automatically work at top efficiency,
but can be raised to that level by the intervention and influence of
the government.” The article also states that Keynes was one of the
three most important economists who ever lived, and that his General Theory was more influential than the magna opera of other famous economists, like Adam Smith‘s The Wealth of Nations.
Keynesian economics were officially discarded by the British
Government in 1979, but forces had begun to gather against Keynes’s
ideas over 30 years earlier. Friedrich Hayek had formed the Mont Pelerin Society
in 1947, with the explicit intention of nurturing intellectual currents
to one day displace Keynesianism and other similar influences. Its
members included the Austrian School economist Ludwig von Mises
along with the then young Milton Friedman. Initially the society had
little impact on the wider world – according to Hayek it was as if
Keynes had been raised to sainthood after his death and that people
refused to allow his work to be questioned.
Friedman however began to emerge as a formidable critic of Keynesian
economics from the mid-1950s, and especially after his 1963 publication
of A Monetary History of the United States.
On the practical side of economic life, “big government”
had appeared to be firmly entrenched in the 1950s, but the balance
began to shift towards the power of private interests in the 1960s.
Keynes had written against the folly of allowing “decadent and selfish”
speculators and financiers the kind of influence they had enjoyed after
World War I. For two decades after World War II the public opinion was
strongly against private speculators, the disparaging label “Gnomes of Zürich”
being typical of how they were described during this period.
International speculation was severely restricted by the capital
controls in place after Bretton Woods. According to the journalists Larry Elliott and Dan Atkinson,
1968 was the pivotal year when power shifted in favour of private
agents such as currency speculators. As the key 1968 event Elliott and
Atkinson picked out America’s suspension of the conversion of the dollar
into gold except on request of foreign governments, which they
identified as the beginning of the breakdown of the Bretton Woods
Criticisms of Keynes’s ideas had begun to gain significant
acceptance by the early 1970s, as they were then able to make a credible
case that Keynesian models no longer reflected economic reality. Keynes
himself included few formulas and no explicit mathematical models in
his General Theory. For economists such as Hyman Minsky,
Keynes’s limited use of mathematics was partly the result of his
scepticism about whether phenomena as inherently uncertain as economic
activity could ever be adequately captured by mathematical models.
Nevertheless, many models were developed by Keynesian economists, with a
famous example being the Phillips curve
which predicted an inverse relationship between unemployment and
inflation. It implied that unemployment could be reduced by government
stimulus with a calculable cost to inflation. In 1968, Milton Friedman
published a paper arguing that the fixed relationship implied by the
Philips curve did not exist.
Friedman suggested that sustained Keynesian policies could lead to both
unemployment and inflation rising at once – a phenomenon that soon
became known as stagflation.
In the early 1970s stagflation appeared in both the US and Britain just
as Friedman had predicted, with economic conditions deteriorating
further after the 1973 oil crisis.
Aided by the prestige gained from his successful forecast, Friedman led
increasingly successful criticisms against the Keynesian consensus,
convincing not only academics and politicians but also much of the
general public with his radio and television broadcasts. The academic
credibility of Keynesian economics was further undermined by additional
criticism from other monetarists trained in the Chicago school of economics, by the Lucas critique and by criticisms from Hayek’s Austrian School. So successful were these criticisms that by 1980 Robert Lucas claimed economists would often take offence if described as Keynesians.
Keynesian principles fared increasingly poorly on the practical
side of economics – by 1979 they had been displaced by monetarism as the
primary influence on Anglo-American economic policy. However, many officials on both sides of the Atlantic retained a preference for Keynes, and in 1984 the Federal Reserve officially discarded monetarism, after which Keynesian principles made a partial comeback as an influence on policy making.
Not all academics accepted the criticism against Keynes – Minsky has
argued that Keynesian economics had been debased by excessive mixing
with neoclassical ideas from the 1950s, and that it was unfortunate that
this branch of economics had even continued to be called “Keynesian”. Writing in The American Prospect, Robert Kuttner
argued it was not so much excessive Keynesian activism that caused the
economic problems of the 1970s but the breakdown of the Bretton Woods
system of capital controls, which allowed capital flight from regulated economies into unregulated economies in a fashion similar to Gresham’s law phenomenon (where weak currencies undermine strong currencies).
Historian Peter Pugh
has stated that a key cause of the economic problems afflicting America
in the 1970s was the refusal to raise taxes to finance the Vietnam War, which was against Keynesian advice.
A more typical response was to accept some elements of the
criticisms while refining Keynesian economic theories to defend them
against arguments that would invalidate the whole Keynesian framework –
the resulting body of work largely composing New Keynesian economics. In 1992 Alan Blinder
wrote about a “Keynesian Restoration”, as work based on Keynes’s ideas
had to some extent become fashionable once again in academia, though in
the mainstream it was highly synthesised with monetarism and other
neoclassical thinking. In the world of policy making, free market
influences broadly sympathetic to monetarism have remained very strong
at government level – in powerful normative institutions like the World Bank, the IMF and US Treasury, and in prominent opinion-forming media such as the Financial Times and The Economist.
A series of major bailouts
were pursued during the financial crisis, starting on 7 September with
the announcement that the U.S. Government was to nationalise the two government-sponsored enterprises which oversaw most of the U.S. subprime mortgage market – Fannie Mae and Freddie Mac. In October, Alistair Darling, the British Chancellor of the Exchequer, referred to Keynes as he announced plans for substantial fiscal stimulus to head off the worst effects of recession, in accordance with Keynesian economic thought. Similar policies have been adopted by other governments worldwide.
This is in stark contrast to the action imposed on Indonesia during the Asian financial crisis of 1997, when it was forced by the IMF to close 16 banks at the same time, prompting a bank run.
Much of the post-crisis discussion reflected Keynes’s advocacy of
international coordination of fiscal or monetary stimulus, and of
international economic institutions such as the IMF and the World Bank,
which many had argued should be reformed as a “new Bretton Woods”, and
should have been even before the crises broke out.
The IMF and United Nations economists advocated a coordinated international approach to fiscal stimulus.Donald Markwell
argued that in the absence of such an international approach, there
would be a risk of worsening international relations and possibly even
world war arising from economic factors similar to those present during
the depression of the 1930s.
By the end of December 2008, the Financial Times reported that “the sudden resurgence of Keynesian policy is a stunning reversal of the orthodoxy of the past several decades.”
In December 2008, Paul Krugman released his book The Return of Depression Economics and the Crisis of 2008,
arguing that economic conditions similar to those that existed during
the earlier part of the 20th century had returned, making Keynesian
policy prescriptions more relevant than ever. In February 2009 Robert J. Shiller and George Akerlof published Animal Spirits,
a book where they argue the current US stimulus package is too small as
it does not take into account Keynes’s insight on the importance of
confidence and expectations in determining the future behaviour of businesspeople and other economic agents.
In the March 2009 speech entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People’s Bank of China,
came out in favour of Keynes’s idea of a centrally managed global
reserve currency. Zhou argued that it was unfortunate that part of the
reason for the Bretton Woods system breaking down was the failure to
adopt Keynes’s bancor. Zhou proposed a gradual move towards increased use of IMF special drawing rights (SDRs).
Although Zhou’s ideas had not been broadly accepted, leaders meeting in April at the 2009 G-20 London summit
agreed to allow $250 billion of special drawing rights to be created by
the IMF, to be distributed globally. Stimulus plans were credited for
contributing to a better than expected economic outlook by both the OECD
and the IMF,
in reports published in June and July 2009. Both organisations warned
global leaders that recovery was likely to be slow, so counter
recessionary measures ought not be rolled back too early.
While the need for stimulus measures was broadly accepted among
policy makers, there had been much debate over how to fund the spending.
Some leaders and institutions, such as Angela Merkel
and the European Central Bank,
expressed concern over the potential impact on inflation, national debt
and the risk that a too large stimulus will create an unsustainable
Among professional economists the revival of Keynesian economics
has been even more divisive. Although many economists, such as George
Akerlof, Paul Krugman, Robert Shiller, and Joseph Stiglitz, supported
Keynesian stimulus, others did not believe higher government spending
would help the United States economy recover from the Great Recession. Some economists, such as Robert Lucas, questioned the theoretical basis for stimulus packages. Others, like Robert Barro and Gary Becker, say that empirical evidence for beneficial effects from Keynesian stimulus does not exist.
However, there is a growing academic literature that shows that fiscal
expansion helps an economy grow in the near term, and that certain types
of fiscal stimulus are particularly effective.
Reception and views
economic thinking only began to achieve close to universal acceptance
in the last few years of his life. On a personal level, Keynes’s charm
was such that he was generally well received wherever he went – even
those who found themselves on the wrong side of his occasionally sharp
tongue rarely bore a grudge.
Keynes’s speech at the closing of the Bretton Woods negotiations was
received with a lasting standing ovation, rare in international
relations, as the delegates acknowledged the scale of his achievements
made despite poor health.
Austrian School economist Friedrich Hayek was Keynes’s most prominent contemporary critic, with sharply opposing views on the economy.
Yet after Keynes’s death, he wrote: “He was the one really great man I
ever knew, and for whom I had unbounded admiration. The world will be a
very much poorer place without him.”
Lionel Robbins, former head of the economics department at the London School of Economics,
who engaged in many heated debates with Keynes in the 1930s, had this
to say after observing Keynes in early negotiations with the Americans
while drawing up plans for Bretton Woods:
This went very well indeed. Keynes
was in his most lucid and persuasive mood: and the effect was
irresistible. At such moments, I often find myself thinking that Keynes
must be one of the most remarkable men that have ever lived – the quick
logic, the birdlike swoop of intuition, the vivid fancy, the wide
vision, above all the incomparable sense of the fitness of words, all
combine to make something several degrees beyond the limit of ordinary
I am spellbound. This is the most
beautiful creature I have ever listened to. Does he belong to our
species? Or is he from some other order? There is something mythic and
fabulous about him. I sense in him something massive and sphinx like,
and yet also a hint of wings.
Keynes’s intellect was the sharpest
and clearest that I have ever known. When I argued with him, I felt
that I took my life in my hands, and I seldom emerged without feeling
something of a fool.
Keynes’s obituary in The Times
included the comment: “There is the man himself – radiant, brilliant,
effervescent, gay, full of impish jokes … He was a humane man
genuinely devoted to the cause of the common good.”
As a man of the centre described by some as having the greatest impact of any 20th-century economist,
Keynes attracted considerable criticism from both sides of the
political spectrum. In the 1920s, Keynes was seen as anti-establishment
and was mainly attacked from the right. In the “red 1930s”, many young
economists favoured Marxist views, even in Cambridge,
and while Keynes was engaging principally with the right to try to
persuade them of the merits of more progressive policy, the most
vociferous criticism against him came from the left, who saw him as a
supporter of capitalism. From the 1950s and onwards, most of the attacks
against Keynes have again been from the right.
In 1931 Friedrich Hayek extensively critiqued Keynes’s 1930 Treatise on Money. After reading Hayek’s The Road to Serfdom, Keynes wrote to Hayek
“Morally and philosophically I find myself in agreement with virtually
the whole of it”, but concluded the letter with the recommendation:
we need therefore, in my opinion, is not a change in our economic
programmes, which would only lead in practice to disillusion with the
results of your philosophy; but perhaps even the contrary, namely, an
enlargement of them. Your greatest danger is the probable practical
failure of the application of your philosophy in the United States.
On the pressing issue of the time, whether deficit
spending could lift a country from depression, Keynes replied to Hayek’s
criticism in the following way:
I should… conclude rather
differently. I should say that what we want is not no planning, or even
less planning, indeed I should say we almost certainly want more. But
the planning should take place in a community in which as many people as
possible, both leaders and followers wholly share your moral position.
Moderate planning will be safe enough if those carrying it out are
rightly oriented in their minds and hearts to the moral issue.
Asked why Keynes expressed “moral and philosophical” agreement with Hayek’s Road to Serfdom, Hayek stated:
Because he believed that he was
fundamentally still a classical English liberal and wasn’t quite aware
of how far he had moved away from it. His basic ideas were still those
of individual freedom. He did not think systematically enough to see the
conflicts. He was, in a sense, corrupted by political necessity.
According to some observers,[who?]
Hayek felt that the post-World War II “Keynesian orthodoxy” gave too
much power to the state, and that such policies would lead toward
While Milton Friedman described The General Theory as “a great book”, he argues that its implicit separation of nominal from real magnitudes is neither possible nor desirable. Macroeconomic policy, Friedman argues, can reliably influence only the nominal. He and other monetarists have consequently argued that Keynesian economics can result in stagflation,
the combination of low growth and high inflation that developed
economies suffered in the early 1970s. More to Friedman’s taste was the Tract on Monetary Reform (1923), which he regarded as Keynes’s best work because of its focus on maintaining domestic price stability.
Joseph Schumpeter was an economist of the same age as Keynes and one of his main rivals. He was among the first reviewers to argue that Keynes’s General Theory was not a general theory, but a special case.
He said the work expressed “the attitude of a decaying civilisation”.
After Keynes’s death Schumpeter wrote a brief biographical piece Keynes the Economist
– on a personal level he was very positive about Keynes as a man,
praising his pleasant nature, courtesy and kindness. He assessed some of
Keynes’s biographical and editorial work as among the best he’d ever
seen. Yet Schumpeter remained critical about Keynes’s economics, linking
Keynes’s childlessness to what Schumpeter saw as an essentially short
term view. He considered Keynes to have a kind of unconscious patriotism
that caused him to fail to understand the problems of other nations.
For Schumpeter “Practical Keynesianism is a seedling which cannot be
transplanted into foreign soil: it dies there and becomes poisonous as
Keynes sometimes explained the mass murder that took place during the first years of communist
Russia on a racial basis, as part of the “Russian and Jewish nature”,
rather than as a result of the communist rule. After a trip to Russia,
he wrote in his Short View of Russia that there is “beastliness
on the Russian and Jewish natures when, as now, they are allied
together”. He also wrote that “out of the cruelty and stupidity of the
Old Russia nothing could ever emerge, but (…) beneath the cruelty and
stupidity of the New Russia a speck of the ideal may lie hid”, which
together with other comments may be construed as anti-Russian and antisemitic.
Some critics have sought to show that Keynes had sympathy with Nazism,
and a number of writers described him as antisemitic. Keynes’s private
letters contain portraits and descriptions, some of which can be
characterized as antisemitic, others as philosemitic. Scholars have suggested that these reflect clichés current at the time that he accepted uncritically, rather than any racism. On several occasions Keynes used his influence to help his Jewish friends, most notably when he successfully lobbied for Ludwig Wittgenstein to be allowed residency in the United Kingdom, explicitly in order to rescue him from being deported to Nazi-occupied Austria. Keynes was a supporter of Zionism, serving on committees supporting the cause.
Allegations that he was racist or had totalitarian beliefs have been rejected by Robert Skidelsky and other biographers.
Professor Gordon Fletcher wrote that “the suggestion of a link between
Keynes and any support of totalitarianism cannot be sustained”.
Once the aggressive tendencies of the Nazis towards Jews and other
minorities had become apparent, Keynes made clear his loathing of
Nazism. As a lifelong pacifist he had initially favoured peaceful
containment of Nazi Germany,
yet he began to advocate a forceful resolution while many conservatives
were still arguing for appeasement. After the war started he roundly
criticised the Left for losing their nerve to confront Hitler:
The intelligentsia of the Left were
the loudest in demanding that the Nazi aggression should be resisted at
all costs. When it comes to a showdown, scarce four weeks have passed
before they remember that they are pacifists and write defeatist letters
to your columns, leaving the defence of freedom and civilisation to Colonel Blimp and the Old School Tie, for whom Three Cheers.
Views on inflation
Keynes has been characterised as being indifferent or even positive about mild inflation. He had indeed expressed a preference for inflation over deflation, saying that if one has to choose between the two evils, it is “better to disappoint the rentier” than to inflict pain on working class families.
He also supported the German hyperinflation as a way to get free from
reparations obligations. However, Keynes was also aware of the dangers
of inflation. In The Economic Consequences of the Peace, he wrote:
is said to have declared that the best way to destroy the Capitalist
System was to debauch the currency. By a continuing process of
inflation, governments can confiscate, secretly and unobserved, an
important part of the wealth of their citizens. There is no subtler, no
surer means of overturning the existing basis of society than to debauch
the currency. The process engages all the hidden forces of economic law
on the side of destruction, and does it in a manner which not one man
in a million is able to diagnose.
Views on trade imbalances
Keynes was the principal author of a proposal – the so-called Keynes Plan – for an International Clearing Union.
The two governing principles of the plan were that the problem of
settling outstanding balances should be solved by “creating” additional
“international money”, and that debtor and creditor should be treated
almost alike as disturbers of equilibrium. In the event, though, the
plans were rejected, in part because “American opinion was naturally
reluctant to accept the principle of equality of treatment so novel in
The new system is not founded on free-trade (liberalisation of foreign trade)
but rather on the regulation of international trade, in order to
eliminate trade imbalances: the nations with a surplus would have an
incentive to reduce it, and in doing so they would automatically clear
other nations deficits.
He proposed a global bank that would issue its currency – the bancor –
which was exchangeable with national currencies at fixed rates of
exchange and would become the unit of account between nations, which
means it would be used to measure a country’s trade deficit or trade
surplus. Every country would have an overdraft facility in its bancor
account at the International Clearing Union. He pointed out that
surpluses lead to weak global aggregate demand – countries running
surpluses exert a “negative externality” on trading partners, and posed,
far more than those in deficit, a threat to global prosperity.
In his 1933 Yale Review article “National Self-Sufficiency,”
he already highlighted the problems created by free trade. His view,
supported by many economists and commentators at the time, was that
creditor nations may be just as responsible as debtor nations for
disequilibrium in exchanges and that both should be under an obligation
to bring trade back into a state of balance. Failure for them to do so
could have serious consequences. In the words of Geoffrey Crowther, then editor of The Economist,
“If the economic relationships between nations are not, by one means or
another, brought fairly close to balance, then there is no set of
financial arrangements that can rescue the world from the impoverishing
results of chaos.”
These ideas were informed by events prior to the Great Depression
when – in the opinion of Keynes and others – international lending,
primarily by the U.S., exceeded the capacity of sound investment and so
got diverted into non-productive and speculative uses, which in turn
invited default and a sudden stop to the process of lending.
Influenced by Keynes, economics texts in the immediate post-war
period put a significant emphasis on balance in trade. For example, the
second edition of the popular introductory textbook, An Outline of Money,
devoted the last three of its ten chapters to questions of foreign
exchange management and in particular the “problem of balance”. However,
in more recent years, since the end of the Bretton Woods system in 1971, with the increasing influence of Monetarist
schools of thought in the 1980s, and particularly in the face of large
sustained trade imbalances, these concerns – and particularly concerns
about the destabilising effects of large trade surpluses – have largely
disappeared from mainstream economics discourse and Keynes’ insights have slipped from view. They are receiving some attention again in the wake of the financial crisis of 2007–08.
Keynes’s early romantic and sexual relationships were exclusively with men. Keynes had been in relationships while at Eton and Cambridge; significant among these early partners were Dilly Knox and Daniel Macmillan.
Keynes was open about his affairs, and from 1901 to 1915 kept separate
diaries in which he tabulated his many sexual encounters. Keynes’s relationship and later close friendship with Macmillan was to be fortunate, as Macmillan’s company first published his tract Economic Consequences of the Peace.
Attitudes in the Bloomsbury Group, in which Keynes was avidly involved, were relaxed about homosexuality. Keynes, together with writer Lytton Strachey, had reshaped the Victorian attitudes of the Cambridge Apostles: “since [their] time, homosexual relations among the members were for a time common”, wrote Bertrand Russell. The artist Duncan Grant, whom he met in 1908, was one of Keynes’s great loves. Keynes was also involved with Lytton Strachey, though they were for the most part love rivals, not lovers. Keynes had won the affections of Arthur Hobhouse, and as with Grant, fell out with a jealous Strachey for it.
Strachey had previously found himself put off by Keynes, not least
because of his manner of “treat[ing] his love affairs statistically”.
Political opponents have used Keynes’s sexuality to attack his academic work. One line of attack held that he was uninterested in the long term ramifications of his theories because he had no children.
Keynes’s friends in the Bloomsbury Group were initially surprised
when, in his later years, he began pursuing affairs with women, demonstrating himself to be bisexual.Ray Costelloe (who would later marry Oliver Strachey) was an early heterosexual interest of Keynes.
In 1906, Keynes had written of this infatuation that, “I seem to have
fallen in love with Ray a little bit, but as she isn’t male I haven’t
able to think of any suitable steps to take.”
In 1921, Keynes wrote that he had fallen “very much in love” with Lydia Lopokova, a well-known Russian ballerina and one of the stars of Sergei Diaghilev‘s Ballets Russes. In the early years of his courtship, he maintained an affair with a younger man, Sebastian Sprott, in tandem with Lopokova, but eventually chose Lopokova exclusively. They were married in 1925, with Keynes’s former lover Duncan Grant as best man.
“What a marriage of beauty and brains, the fair Lopokova and John
Maynard Keynes” was said at the time. Keynes later commented to Strachey
that beauty and intelligence were rarely found in the same person, and
that only in Duncan Grant had he found the combination.
The union was happy, with biographer Peter Clarke writing that the
marriage gave Keynes “a new focus, a new emotional stability and a sheer
delight of which he never wearied”.
Lydia became pregnant in 1927 but miscarried.
Among Keynes’s Bloomsbury friends, Lopokova was, at least initially,
subjected to criticism for her manners, mode of conversation, and
supposedly humble social origins – the last of the ostensible causes
being particularly noted in the letters of Vanessa and Clive Bell, and Virginia Woolf. In her novel Mrs Dalloway (1925), Woolf bases the character of Rezia Warren Smith on Lopokova.E. M. Forster would later write in contrition about “Lydia Keynes, every whose word should be recorded”: “How we all used to underestimate her”.
46 Gordon Square, where Keynes would often stay while in London. Following his marriage, Keynes took out an extended lease on Tilton House, a farm in the countryside near Brighton, which became the couple’s main home when not in the capital.
Blue plaque, 46 Gordon Square
Support for the arts
thought that the pursuit of money for its own sake was a pathological
condition, and that the proper aim of work is to provide leisure. He
wanted shorter working hours and longer holidays for all.
Keynes was interested in literature in general and drama in particular and supported the Cambridge Arts Theatre financially, which allowed the institution to become one of the major British stages outside London.
Keynes’s interest in classical opera and dance led him to support the Royal Opera House at Covent Garden and the Ballet Company at Sadler’s Wells. During the war,
as a member of CEMA (Council for the Encouragement of Music and the
Arts), Keynes helped secure government funds to maintain both companies
while their venues were shut. Following the war, Keynes was instrumental
in establishing the Arts Council of Great Britain
and was its founding chairman in 1946. From the start, the two
organisations that received the largest grants from the new body were
the Royal Opera House and Sadler’s Wells.
Like several other notable British authors of his time, Keynes was a member of the Bloomsbury Group. Virginia Woolf‘s biographer tells an anecdote of how Virginia Woolf, Keynes, and T. S. Eliot discussed religion at a dinner party, in the context of their struggle against Victorian era morality.
Keynes may have been confirmed, but according to Cambridge University he was clearly an agnostic, which he remained until his death.
According to one biographer, “he was never able to take religion
seriously, regarding it as a strange aberration of the human mind.”
Keynes was ultimately a successful investor, building up a private fortune. His assets were nearly wiped out following the Wall Street Crash of 1929,
which he did not foresee, but he soon recouped. At Keynes’s death, in
1946, his net worth stood just short of £500,000 – equivalent to about
£20.5 million ($27.1 million) in 2018. The sum had been amassed despite
lavish support for various good causes and his ethic which made him
reluctant to sell on a falling market, in cases where he saw such
behaviour as likely to deepen a slump.
Keynes successfully managed the endowment of King’s College, Cambridge,
with the active component of his portfolio outperforming a British
equity index by an average of 8% a year over a quarter century, earning
him favourable mention by later investors such as Warren Buffett and George Soros.
Keynes was a lifelong member of the Liberal Party,
which until the 1920s had been one of the two main political parties in
the United Kingdom, and as late as 1916 had often been the dominant
power in government. Keynes had helped campaign for the Liberals at
elections from about 1906, yet he always refused to run for office
himself, despite being asked to do so on three separate occasions in
1920. From 1926, when Lloyd George became leader of the Liberals, Keynes
took a major role in defining the party’s economic policy, but by then
the Liberals had been displaced into third party status by the Labour Party.
In 1939 Keynes had the option to enter Parliament as an independent MP with the University of Cambridge seat. A by-election for the seat was to be held due to the illness of an elderly Tory, and the master of Magdalene College
had obtained agreement that none of the major parties would field a
candidate if Keynes chose to stand. Keynes declined the invitation as he
felt he would wield greater influence on events if he remained a free
Keynes was a proponent of eugenics. He served as director of the British Eugenics Society
from 1937 to 1944. As late as 1946, shortly before his death, Keynes
declared eugenics to be “the most important, significant and, I would
add, genuine branch of sociology which exists.”
Keynes once remarked that “the youth had no religion save communism and this was worse than nothing.”Marxism “was founded upon nothing better than a misunderstanding of Ricardo“,
and, given time, he (Keynes) “would deal thoroughly with the Marxists”
and other economists to solve the economic problems their theories
“threaten to cause”.
In 1931 Keynes had the following to say on Marxism:
How can I accept the Communist doctrine, which sets up as its bible, above and beyond criticism, an obsolete textbook
which I know not only to be scientifically erroneous but without
interest or application to the modern world? How can I adopt a creed
which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia,
who with all their faults, are the quality of life and surely carry the
seeds of all human achievement? Even if we need a religion, how can we
find it in the turbid rubbish of the red bookshop? It is hard for an
educated, decent, intelligent son of Western Europe to find his ideals
here, unless he has first suffered some strange and horrid process of
conversion which has changed all his values.
Throughout his life, Keynes worked energetically for the benefit both
of the public and his friends; even when his health was poor, he
laboured to sort out the finances of his old college. Helping to set up the Bretton Woods system, he worked to institute an international monetary system that would be beneficial for the world economy. In 1946, Keynes suffered a series of heart attacks, which ultimately proved fatal. They began during negotiations for the Anglo-American loan in Savannah, Georgia,
where he was trying to secure favourable terms for the United Kingdom
from the United States, a process he described as “absolute hell”. A few weeks after returning from the United States, Keynes died of a heart attack at Tilton, his farmhouse home near Firle, East Sussex, England, on 21 April 1946, at the age of 62.
Against his wishes (he wanted for his ashes to be deposited in the
crypt at King’s), his ashes were scattered on the Downs above Tilton.
O’Connor, J.J.; Robertson, E.F. (October 2003). “John Maynard Keynes”. School of Mathematics and Statistics, University of St Andrews, Scotland: MacTutor History of Mathematics. Retrieved 25 January 2014.
Strachey 1994, p. 129.
Moggridge, Donald Edward (1995). Maynard Keynes: an economist’s biography. Routledge. p. 104.
D. E. Moggridge (1992). Maynard Keynes: an economist’s biography. Routledge. p. 395. I again fell very much in love with her. She seemed to me perfect in every way.
The unlikely Lydia LopokovaThe Telegraph, 25 April 2008, Rupert Christiansen
“The firebird of Gordon Square” Kathryn Hughes, The Guardian, 19 April 2008
Justin Wintle (2002). “Keynes, John Maynard”. Makers of Modern Culture. 1. Psychology Press. p. 270. ISBN978-0-415-26583-6.
“Keynes, John Maynard (1883–1946)”. glbtq. Archived from the original on 2 October 2012. Retrieved 21 November 2008.
Lady Talky, Alison Light, London Review of Books, Vol. 30 No. 24, 18 December 2008
Keynes and the Celestial Dancer”, by Anand Chandavarkar, Reviewed
work(s): Lydia and Maynard: Letters between Lydia Lopokova and Maynard
Keynes by Polly Hill; Richard Keynes, Economic and Political Weekly,
Vol. 25, No. 34 (25 August 1990), p. 1896
Polly Hill; Richard Keynes, eds. (1989). Lydia and Maynard: letters between Lydia Lopokova and John Maynard Keynes. André Deutsch. p. 97.
E.M. Forster (1987). Commonplace Book. p. 195. Lydia
Keynes, every whose word should be recorded, said to me as I was
leaving her flat the other night: “You know I once tumbled from the
stairs and believe me I paid the price.” I took the sentence down before
I forgot it.
“Tilton House homepage”. Tiltonhouse.co.uk. Retrieved 2 October 2013.
Quentin Bell. Virginia Wolf, A Biography. 2 (revised Edition 1996 ed.). The Hogarth Press. 1972. p. 177.
Skidelsky, Robert (1 January 1994). John Maynard Keynes: Volume 1: Hopes Betrayed 1883–1920. Penguin Books. p. 86. ISBN014023554X.
Lubenow, William C (1998). The Cambridge Apostles, 1820–1914. Cambridge University Press. ISBN0-521-57213-4.
See John Maynard Keynes
by Skidelsky (2003), pp. 520–21, p. 563 and especially p. 565 where
Keynes is quoted as “It is the duty of a serious investor to accept the
depreciation of his holding with equanimity … any other policy is
anti-social, destructive of confidence and incompatible with the working
of the economic system.”
Keynes, John Maynard (1956). James R. Newman (ed.). The World of Mathematics (2000 ed.). Dover. p. 277. ISBN0-486-41153-2.
Chambers, David; Dimson, Elroy (Summer 2013). “Retrospectives: John Maynard Keynes, Investment Innovator”. Journal of Economic Perspectives. American Economic Association. 27 (3): 213–228. doi:10.1257/jep.27.3.213.
Keynes, John Maynard (1946). “The Galton lecture, 1946: Presentation of the society’s gold medal”. Eugenics Review. 38 (1): 39–40. PMC2986310. PMID21260495. On
February I4th, I946, before a large gathering of Fellows, Members and
guests at Manson house, London, Lord Keynes, On behalf of the Eugenics
Society, presented the first Galton Medal… Opening the proceedings,
Lord Keynes said: It is a satisfaction to take part in the presentation
of the first Galton Gold Medal, both in piety to the memory of the great
Galton and in recognition of a worthy and appropriate recipient of a
medal established in his name.
Keynes, John Maynard (1931). Essays in Persuasion. New York, W.W. Norton & Co. ISBN0-393-00190-3.
Fraser, Nick (8 November 2008). “John Maynard Keynes: Can the great economist save the world?”. The Independent. United Kingdom. Retrieved 20 November 2008.
Marr, Andrew (2007). A history of modern Britain. London: Macmillan. p. 12. ISBN978-1-4050-0538-8.
“Lord Keynes Dies of Heart Attack. Noted Economist Exhausted by Strain of Recent Savannah Monetary Conference”. The New York Times. 22 April 1946. Retrieved 10 February 2010. John
Maynard Lord Keynes, distinguished economist, whose work for restoring
the economic structure of a world twice shattered by war brought him
world-wide influence, died of a heart attack today at his home in Firle,
Sussex. His age was 63.
Wilson, Scott. Resting Places: The Burial Sites of More Than 14,000 Famous Persons, 3d ed.: 2 (Kindle Location 25430). McFarland & Company, Inc., Publishers. Kindle Edition.
Friedrich August von Hayek was born in Vienna to August von Hayek and Felicitas Hayek (née
von Juraschek). His father, from whom he received his middle name, was
born in 1871 also in Vienna. He was a medical doctor employed by the
municipal ministry of health with a passion for botany, about which he wrote a number of monographs. August von Hayek was also a part-time botany lecturer at the University of Vienna.
His mother was born in 1875 to a wealthy conservative and land-owning
family. As her mother died several years prior to Hayek’s birth,
Felicitas received a significant inheritance, which provided as much as
half of her and her husband’s income during the early years of their
marriage. Hayek was the oldest of three brothers, Heinrich (1900–1969)
and Erich (1904–1986), who were one-and-a-half and five years younger
His father’s career as a university professor influenced Hayek’s goals later in life. Both of his grandfathers, who lived long enough for Hayek to know them, were scholars. Franz von Juraschek was a leading economist in Austria-Hungary and a close friend of Eugen Böhm von Bawerk, one of the founders of the Austrian School of Economics. Hayek’s paternal grandfather, Gustav Edler von Hayek, taught natural sciences at the Imperial Realobergymnasium (secondary school) in Vienna. He wrote works in the field of biological systematics, some of which are relatively well known.
On his mother’s side, Hayek was second cousin to the philosopher Ludwig Wittgenstein.
His mother often played with Wittgenstein’s sisters and had known him
well. As a result of their family relationship, Hayek became one of the
first to read Wittgenstein’s Tractatus Logico-Philosophicus
when the book was published in its original German edition in 1921.
Although he met Wittgenstein on only a few occasions, Hayek said that
Wittgenstein’s philosophy and methods of analysis had a profound
influence on his own life and thought. In his later years, Hayek recalled a discussion of philosophy with Wittgenstein when both were officers during World War I.
After Wittgenstein’s death, Hayek had intended to write a biography of
Wittgenstein and worked on collecting family materials and later
assisted biographers of Wittgenstein. He was related to Wittgenstein on the non-Jewish side of the Wittgenstein family.
Since his youth, Hayek frequently socialized with Jewish intellectuals
and he mentions that people often speculated whether he was also of
Jewish ancestry. That made him curious, so he spent some time
researching his ancestors and found out that he has no Jewish ancestors
within five generations. The Surname Hayek uses the German spelling of the Czech surname Hájek.
Hayek displayed an intellectual and academic bent from a very young age. He read fluently and frequently before going to school. At his father’s suggestion, as a teenager he read the genetic and evolutionary works of Hugo de Vries and August Weismann and the philosophical works of Ludwig Feuerbach. In school, Hayek was much taken by one instructor’s lectures on Aristotle’s ethics.
In his unpublished autobiographical notes, Hayek recalled a division
between him and his younger brothers who were only a few years younger
than him, but he believed that they were somehow of a different
generation. He preferred to associate with adults.
In 1917, Hayek joined an artillery regiment in the Austro-Hungarian Army and fought on the Italian front.
Much of Hayek’s combat experience was spent as a spotter in an
aeroplane. Hayek suffered damage to his hearing in his left ear during
the war and was decorated for bravery. During this time, Hayek also survived the 1918 flu pandemic.
Hayek then decided to pursue an academic career, determined to
help avoid the mistakes that had led to the war. Hayek said of his
experience: “The decisive influence was really World War I. It’s bound to draw your attention to the problems of political organization”. He vowed to work for a better world.
Education and career
University of Vienna’s main building seen from across the Ringstraße
At the University of Vienna,
Hayek earned doctorates in law and political science in 1921 and 1923
respectively and also studied philosophy, psychology and economics. For a
short time, when the University of Vienna closed he studied in Constantin von Monakow‘s Institute of Brain Anatomy, where Hayek spent much of his time staining brain cells. Hayek’s time in Monakow’s lab and his deep interest in the work of Ernst Mach inspired his first intellectual project, eventually published as The Sensory Order
(1952). It located connective learning at the physical and neurological
levels, rejecting the “sense data” associationism of the empiricists and logical positivists. Hayek presented his work to the private seminar he had created with Herbert Furth called the Geistkreis.
During Hayek’s years at the University of Vienna, Carl Menger‘s work on the explanatory strategy of social science and Friedrich von Wieser‘s commanding presence in the classroom left a lasting influence on him. Upon the completion of his examinations, Hayek was hired by Ludwig von Mises on the recommendation of Wieser as a specialist for the Austrian government working on the legal and economic details of the Treaty of Saint Germain. Between 1923 and 1924, Hayek worked as a research assistant to Professor Jeremiah Jenks of New York University, compiling macroeconomic data on the American economy and the operations of the Federal Reserve.
Initially sympathetic to Wieser’s democratic socialism, Hayek’s economic thinking shifted away from socialism and toward the classical liberalism of Carl Menger after reading von Mises’ book Socialism. It was sometime after reading Socialism that Hayek began attending von Mises’ private seminars, joining several of his university friends, including Fritz Machlup, Alfred Schutz, Felix Kaufmann and Gottfried Haberler,
who were also participating in Hayek’s own more general and private
seminar. It was during this time that he also encountered and befriended
noted political philosopher Eric Voegelin, with whom he retained a long-standing relationship.
LSE’s Old Building
With the help of Mises, in the late 1920s he founded and served as director of the Austrian Institute for Business Cycle Research before joining the faculty of the London School of Economics (LSE) in 1931 at the behest of Lionel Robbins.
Upon his arrival in London, Hayek was quickly recognised as one of the
leading economic theorists in the world and his development of the
economics of processes in time and the co-ordination function of prices
inspired the ground-breaking work of John Hicks, Abba P. Lerner and many others in the development of modern microeconomics.
In 1932, Hayek suggested that private investment in the public
markets was a better road to wealth and economic co-ordination in
Britain than government spending programs as argued in an exchange of
letters with John Maynard Keynes, co-signed with Lionel Robbins and others in The Times. The nearly decade long deflationary depression in Britain dating from Winston Churchill‘s decision in 1925 to return Britain to the gold standard
at the old pre-war and pre-inflationary par was the public policy
backdrop for Hayek’s dissenting engagement with Keynes over British
monetary and fiscal policy. Well beyond that single public conflict,
regarding the economics of extending the length of production to the
economics of labour inputs, Hayek and Keynes disagreed on many essential
economics matters. Their economic disagreements were both practical and
fundamental in nature. Keynes called Hayek’s book Prices and Production
“one of the most frightful muddles I have ever read”, famously adding:
“It is an extraordinary example of how, starting with a mistake, a
remorseless logician can end in Bedlam”. Many other notable economists have also been staunch critics of Hayek, including John Kenneth Galbraith and later Paul Krugman, who wrote that “the Hayek thing is almost entirely about politics rather than economics”.
Unwilling to return to Austria after the Anschluss brought it under the control of Nazi Germany in 1938, Hayek remained in Britain. Hayek and his children became British subjects in 1938.
He held this status for the remainder of his life, but he did not live
in Great Britain after 1950. He lived in the United States from 1950 to
1962 and then mostly in Germany, but also briefly in Austria.
Hayek was concerned about the general view in Britain’s academia that fascism was a capitalist reaction to socialism and The Road to Serfdom
arose from those concerns. It was written between 1940 and 1943. The
title was inspired by the French classical liberal thinker Alexis de Tocqueville‘s writings on the “road to servitude”. It was first published in Britain by Routledge
in March 1944 and was quite popular, leading Hayek to call it “that
unobtainable book” also due in part to wartime paper rationing.
When it was published in the United States by the University of Chicago
in September of that year, it achieved greater popularity than in
Britain. At the instigation of editor Max Eastman, the American magazine Reader’s Digest also published an abridged version in April 1945, enabling The Road to Serfdom to reach a far wider audience than academics. The book is widely popular among those advocating individualism and classical liberalism.
In 1950, Hayek left the London School of Economics. After spending the 1949–1950 academic year as a visiting professor at the University of Arkansas, Hayek was brought on by the University of Chicago, where he became a professor in the Committee on Social Thought. Hayek’s salary was funded not by the university, but by an outside foundation, the William Volker Fund.
Hayek had made contact with many at the University of Chicago in the 1940s, with Hayek’s The Road to Serfdom playing a seminal role in transforming how Milton Friedman and others understood how society works.
Hayek conducted a number of influential faculty seminars while at the
University of Chicago and a number of academics worked on research
projects sympathetic to some of Hayek’s own, such as Aaron Director, who was active in the Chicago School in helping to fund and establish what became the “Law and Society” program in the University of Chicago Law School. Hayek, Frank Knight, Friedman and George Stigler worked together in forming the Mont Pèlerin Society, an international forum for neoliberals. Hayek and Friedman cooperated in support of the Intercollegiate Society of Individualists, later renamed the Intercollegiate Studies Institute, an American student organisation devoted to libertarian ideas.
Hayek’s first class at Chicago was a faculty seminar on the
philosophy of science attended by many of the University of Chicago’s
most notable scientists of the time, including Enrico Fermi, Sewall Wright and Leó Szilárd. During his time at Chicago, Hayek worked on the philosophy of science, economics, political philosophy and the history of ideas. Hayek’s economics notes from this period have yet to be published. Hayek received a Guggenheim Fellowship in 1954.
After editing a book on John Stuart Mill‘s letters he planned to publish two books on the liberal order, The Constitution of Liberty and “The Creative Powers of a Free Civilization” (eventually the title for the second chapter of The Constitution of Liberty). He completed The Constitution of Liberty
in May 1959, with publication in February 1960. Hayek was concerned
that “with that condition of men in which coercion of some by others is
reduced as much as is possible in society”. Hayek was disappointed that the book did not receive the same enthusiastic general reception as The Road to Serfdom had sixteen years before.
Freiburg, Los Angeles and Salzburg
Freiburg around 1900
From 1962 until his retirement in 1968, he was a professor at the University of Freiburg, West Germany, where he began work on his next book, Law, Legislation and Liberty. Hayek regarded his years at Freiburg as “very fruitful”. Following his retirement, Hayek spent a year as a visiting professor of philosophy at the University of California, Los Angeles, where he continued work on Law, Legislation and Liberty,
teaching a graduate seminar by the same name and another on the
philosophy of social science. Preliminary drafts of the book were
completed by 1970, but Hayek chose to rework his drafts and finally
brought the book to publication in three volumes in 1973, 1976 and 1979.
University of Salzburg (below, foreground) since the mid 1980s as seen from city center
Hayek became a professor at the University of Salzburg
from 1969 to 1977 and then returned to Freiburg, where he spent the
rest of his days. When Hayek left Salzburg in 1977, he wrote: “I made a
mistake in moving to Salzburg”. The economics department was small and
the library facilities were inadequate.
Nobel Memorial Prize Winner
On 9 October 1974, it was announced that Hayek would be awarded the Nobel Memorial Prize in Economics along with Swedish economist Gunnar Myrdal. The reasons for the two of them winning the prize are described in the Nobel committee’s press release.
He was surprised at being given the award and believed that he was
given it with Myrdal to balance the award with someone from the opposite
side of the political spectrum.
During the Nobel ceremony in December 1974, Hayek met the Russian dissident Aleksandr Solzhenitsyn. Hayek later sent him a Russian translation of The Road to Serfdom. He spoke with apprehension at his award speech about the danger the authority of the prize would lend to an economist,
but the prize brought much greater public awareness to the then
controversial ideas of Hayek and has been described by his biographer as
“the great rejuvenating event in his life”.
In February 1975, Margaret Thatcher was elected leader of the British Conservative Party. The Institute of Economic Affairs arranged a meeting between Hayek and Thatcher in London soon after. During Thatcher’s only visit to the Conservative Research Department
in the summer of 1975, a speaker had prepared a paper on why the
“middle way” was the pragmatic path the Conservative Party should take,
avoiding the extremes of left and right. Before he had finished,
Thatcher “reached into her briefcase and took out a book. It was Hayek’s
The Constitution of Liberty. Interrupting our pragmatist, she
held the book up for all of us to see. ‘This’, she said sternly, ‘is
what we believe’, and banged Hayek down on the table”.
In 1977, Hayek was critical of the Lib–Lab pact in which the British Liberal Party agreed to keep the British Labour government in office. Writing to The Times,
Hayek said: “May one who has devoted a large part of his life to the
study of the history and the principles of liberalism point out that a
party that keeps a socialist government in power has lost all title to
the name ‘Liberal’. Certainly no liberal can in future vote ‘Liberal'”. Hayek was criticised by Liberal politicians Gladwyn Jebb and Andrew Phillips, who both claimed that the purpose of the pact was to discourage socialist legislation.
In 1978, Hayek came into conflict with Liberal Party leader David Steel,
who claimed that liberty was possible only with “social justice and an
equitable distribution of wealth and power, which in turn require a
degree of active government intervention” and that the Conservative
Party were more concerned with the connection between liberty and
private enterprise than between liberty and democracy. Hayek claimed
that a limited democracy might be better than other forms of limited
government at protecting liberty, but that an unlimited democracy was
worse than other forms of unlimited government because “its government
loses the power even to do what it thinks right if any group on which
its majority depends thinks otherwise”.
Hayek stated that if the Conservative leader had said “that free
choice is to be exercised more in the market place than in the ballot
box, she has merely uttered the truism that the first is indispensable
for individual freedom while the second is not: free choice can at least
exist under a dictatorship that can limit itself but not under the
government of an unlimited democracy which cannot”.
Influence on central European politics
President Ronald Reagan
listed Hayek as among the two or three people who most influenced his
philosophy and welcomed Hayek to the White House as a special guest.
In the 1970s and 1980s, the writings of Hayek were also a major
influence on some of the future postsocialist economic and political
elites in Central and Eastern Europe. Supporting examples include the
There is no figure who had more of
an influence, no person had more of an influence on the intellectuals
behind the Iron Curtain than Friedrich Hayek. His books were translated
and published by the underground and black market editions, read widely,
and undoubtedly influenced the climate of opinion that ultimately
brought about the collapse of the Soviet Union.
— Milton Friedman (Hoover Institution)
The most interesting among the
courageous dissenters of the 1980s were the classical liberals,
disciples of F.A. Hayek, from whom they had learned about the crucial
importance of economic freedom and about the often-ignored conceptual
difference between liberalism and democracy.
— Andrzej Walicki (History, Notre Dame)
Estonian Prime MinisterMart Laar
came to my office the other day to recount his country’s remarkable
transformation. He described a nation of people who are harder-working,
more virtuous – yes, more virtuous, because the market punishes
immorality – and more hopeful about the future than they’ve ever been in
their history. I asked Mr. Laar where his government got the idea for
these reforms. Do you know what he replied? He said, “We read Milton
Friedman and F.A. Hayek.”
— United States Representative Dick Armey
I was 25 years old and pursuing my
doctorate in economics when I was allowed to spend six months of
post-graduate studies in Naples, Italy. I read the Western economic
textbooks and also the more general work of people like Hayek. By the
time I returned to Czechoslovakia, I had an understanding of the
principles of the market. In 1968, I was glad at the political
liberalism of the Dubcek Prague Spring, but was very critical of the
Third Way they pursued in economics.
— Václav Klaus (former President of the Czech Republic)
In 1980, Hayek, a non-practising Roman Catholic, was one of twelve Nobel laureates to meet with Pope John Paul II “to dialogue, discuss views in their fields, communicate regarding the relationship between Catholicism
and science, and ‘bring to the Pontiff’s attention the problems which
the Nobel Prize Winners, in their respective fields of study, consider
to be the most urgent for contemporary man'”.
Hayek was appointed a Companion of Honour (CH) in the 1984 Birthday Honours by Elizabeth II on the advice of British Prime Minister Margaret Thatcher for his “services to the study of economics”. Hayek had hoped to receive a baronetcy
and after being awarded the CH sent a letter to his friends requesting
that he be called the English version of Friedrich (i.e. Frederick) from
now on. After his twenty-minute audience with the Queen, he was
“absolutely besotted” with her according to his daughter-in-law Esca
Hayek. Hayek said a year later that he was “amazed by her. That ease and
skill, as if she’d known me all my life”. The audience with the Queen
was followed by a dinner with family and friends at the Institute of Economic Affairs. When later that evening Hayek was dropped off at the Reform Club, he commented: “I’ve just had the happiest day of my life”.
Hayek’s principal investigations in economics concerned capital, money and the business cycle. Ludwig von Mises had earlier applied the concept of marginal utility to the value of money in his Theory of Money and Credit (1912) in which he also proposed an explanation for “industrial fluctuations” based on the ideas of the old British Currency School and of Swedish economist Knut Wicksell.
Hayek used this body of work as a starting point for his own
interpretation of the business cycle, elaborating what later became
known as the Austrian theory of the business cycle.
Hayek spelled out the Austrian approach in more detail in his book,
published in 1929, an English translation of which appeared in 1933 as Monetary Theory and the Trade Cycle. There, Hayek argued for a monetary approach to the origins of the cycle. In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank‘s inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates.
Hayek claimed that “the past instability of the market economy is the
consequence of the exclusion of the most important regulator of the
market mechanism, money, from itself being regulated by the market
Hayek’s analysis was based on Eugen Böhm von Bawerk‘s concept of the “average period of production”
and on the effects that monetary policy could have upon it. In
accordance with the reasoning later outlined in his essay “The Use of
Knowledge in Society” (1945), Hayek argued that a monopolistic
governmental agency like a central bank can neither possess the relevant
information which should govern supply of money, nor have the ability
to use it correctly.
In 1929, Lionel Robbins assumed the helm of the London School of Economics
(LSE). Eager to promote alternatives to what he regarded as the narrow
approach of the school of economic thought that then dominated the
English-speaking academic world (centred at the University of Cambridge and deriving largely from the work of Alfred Marshall),
Robbins invited Hayek to join the faculty at LSE, which he did in 1931.
According to Nicholas Kaldor, Hayek’s theory of the time-structure of
capital and of the business cycle initially “fascinated the academic
world” and appeared to offer a less “facile and superficial”
understanding of macroeconomics than the Cambridge school’s.
Also in 1931, Hayek critiqued John Maynard Keynes‘s Treatise on Money (1930) in his “Reflections on the pure theory of Mr. J.M. Keynes” and published his lectures at the LSE in book form as Prices and Production.
For Keynes, unemployment and idle resources are caused by a lack of
effective demand, but for Hayek they stem from a previous unsustainable
episode of easy money and artificially low interest rates. Keynes asked
his friend Piero Sraffa
to respond. Sraffa elaborated on the effect of inflation-induced
“forced savings” on the capital sector and about the definition of a
“natural” interest rate in a growing economy (see Sraffa–Hayek debate). Others who responded negatively to Hayek’s work on the business cycle included John Hicks, Frank Knight and Gunnar Myrdal. Kaldor later wrote that Hayek’s Prices and Production
had produced “a remarkable crop of critics” and that the total number
of pages in British and American journals dedicated to the resulting
debate “could rarely have been equalled in the economic controversies of
Hayek continued his research on monetary and capital theory,
revising his theories of the relations between credit cycles and capital
structure in Profits, Interest and Investment (1939) and The Pure Theory of Capital
(1941), but his reputation as an economic theorist had by then fallen
so much that those works were largely ignored, except for scathing
critiques by Nicholas Kaldor. Lionel Robbins himself, who had embraced the Austrian theory of the business cycle in The Great Depression (1934), later regretted having written the book and accepted many of the Keynesian counter-arguments.
Hayek never produced the book-length treatment of “the dynamics of capital” that he had promised in the Pure Theory of Capital.
After 1941, he continued to publish works on the economics of
information, political philosophy, the theory of law and psychology, but
seldom on macroeconomics. At the University of Chicago,
Hayek was not part of the economics department and did not influence
the rebirth of neoclassical theory that took place there (see Chicago school of economics).
When in 1974 he shared the Nobel Memorial Prize in Economics with
Myrdal, the latter complained about being paired with an “ideologue”. Milton Friedman declared himself “an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time”.
Building on the earlier work of Mises and others, Hayek also argued
that while in centrally planned economies an individual or a select
group of individuals must determine the distribution of resources, these
planners will never have enough information to carry out this
allocation reliably. This argument, first proposed by Max Weber, says that the efficient exchange and use of resources can be maintained only through the price mechanism in free markets (see economic calculation problem).
In 1935, Hayek published Collectivist Economic Planning, a
collection of essays from an earlier debate that had been initiated by
Mises. Hayek included Mises’s essay in which Mises argued that rational
planning was impossible under socialism.
Some socialists such as H. D. Dickinson and Oskar Lange responded by invoking general equilibrium theory,
which they argued disproved Mises’s thesis. They noted that the
difference between a planned and a free market system lay in who was
responsible for solving the equations. They argued that if some of the
prices chosen by socialist managers were wrong, gluts or shortages would
appear, signalling them to adjust the prices up or down, just as in a
free market. Through such a trial and error, a socialist economy could
mimic the efficiency of a free market system while avoiding its many
Hayek challenged this vision in a series of contributions. In
“Economics and Knowledge” (1937), he pointed out that the standard
equilibrium theory assumed that all agents have full and correct
information. However, in the real world different individuals have
different bits of knowledge and furthermore some of what they believe is
In “The Use of Knowledge in Society”
(1945), Hayek argued that the price mechanism serves to share and
synchronise local and personal knowledge, allowing society’s members to
achieve diverse and complicated ends through a principle of spontaneous self-organization.
He contrasted the use of the price mechanism with central planning,
arguing that the former allows for more rapid adaptation to changes in
particular circumstances of time and place. Thus, Hayek set the stage for Oliver Williamson‘s later contrast between markets and hierarchies as alternative co-ordination mechanisms for economic transactions. He used the term catallaxy
to describe a “self-organizing system of voluntary co-operation”.
Hayek’s research into this argument was specifically cited by the Nobel
Committee in its press release awarding Hayek the Nobel prize.
Criticism of collectivism
Front cover art for Hayek’s book Individualism and Economic Order, 1948
Hayek was one of the leading academic critics of collectivism in the
20th century. Hayek argued that all forms of collectivism (even those
theoretically based on voluntary co-operation) could only be maintained
by a central authority of some kind. In Hayek’s view, the central role
of the state should be to maintain the rule of law, with as little arbitrary intervention as possible. In his popular book The Road to Serfdom
(1944) and in subsequent academic works, Hayek argued that socialism
required central economic planning and that such planning in turn leads
In The Road to Serfdom, Hayek wrote:
our modern socialists’ promise of greater freedom is genuine and
sincere, in recent years observer after observer has been impressed by
the unforeseen consequences of socialism, the extraordinary similarity
in many respects of the conditions under “communism” and “fascism”.
Hayek posited that a central planning authority would have to be
endowed with powers that would impact and ultimately control social life
because the knowledge required for centrally planning an economy is
inherently decentralised, and would need to be brought under control.
Though Hayek did argue that the state should provide law
centrally, others have pointed out that this contradicts his arguments
about the role of judges in “discovering” the law, suggesting that Hayek
would have supported decentralized provision of legal services.
Hayek also wrote that the state can play a role in the economy, specifically in creating a safety net, saying:
is no reason why, in a society which has reached the general level of
wealth ours has, the first kind of security should not be guaranteed to
all without endangering general freedom; that is: some minimum of food,
shelter and clothing, sufficient to preserve health. Nor is there any
reason why the state should not help to organize a comprehensive system
of social insurance in providing for those common hazards of life
against which few can make adequate provision.
“The Denationalization of Money” is one of his literary works, in
which he advocated the establishment of competitions in issuing moneys.
Investment and choice
Perhaps more fully than any other economist, Hayek investigated the choice theory
of investment. He examined the inter-relations between non-permanent
production goods and “latent” or potentially economic permanent
resources, building on the choice theoretical insight that “processes
that take more time will evidently not be adopted unless they yield a
greater return than those that take less time”.
Hayek’s work on the microeconomics
of the choice theoretics of investment, non-permanent goods, potential
permanent resources and economically-adapted permanent resources mark a
central dividing point between his work in areas of macroeconomics and that of almost all other economists. Hayek’s work on the macroeconomic subjects of central planning,
trade cycle theory, the division of knowledge and entrepreneurial
adaptation especially, differ greatly from the opinions of macroeconomic
“Marshallian” economists who follow the tradition of John Maynard Keynes and the microeconomic “Walrasian” economists who follow the tradition of Abba Lerner.
During World War II, Hayek began the Abuse of Reason project. His
goal was to show how a number of then-popular doctrines and beliefs had a
common origin in some fundamental misconceptions about the social
science. In his philosophy of science, which has much in common with that of his good friend Karl Popper, Hayek was highly critical of what he termed “scientism“,
a false understanding of the methods of science that has been
mistakenly forced upon the social sciences, but that is contrary to the
practices of genuine science. Usually, scientism involves combining the
philosophers’ ancient demand for demonstrative justification with the
associationists’ false view that all scientific explanations are simple
two-variable linear relationships.
Hayek points out that much of science involves the explanation of complex multivariable and nonlinear phenomena
and the social science of economics and undesigned order compares
favourably with such complex sciences as Darwinian biology. These ideas
were developed in The Counter-Revolution of Science
in 1952 and in some of Hayek’s later essays in the philosophy of
science such as “Degrees of Explanation” (1955) and “The Theory of
Complex Phenomena” (1964).
In Counter-Revolution, for example, Hayek observed that the hard
sciences attempt to remove the “human factor” to obtain objective and
strictly controlled results:
persistent effort of modern Science has been to get down to “objective
facts,” to cease studying what men thought about nature or regarding the
given concepts as true images of the real world, and, above all, to
discard all theories which pretended to explain phenomena by imputing to
them a directing mind like our own. Instead, its main task became to
revise and reconstruct the concepts formed from ordinary experience on
the basis of a systematic testing of the phenomena, so as to be better
able to recognize the particular as an instance of a general rule.
— Friedrich Hayek, The Counter-Revolution of Science (Chapter II, “The Problem and the Method of the Natural Sciences”)
social sciences in the narrower sense, i.e., those which used to be
described as the moral sciences, are concerned with man’s conscious or
reflected action, actions where a person can be said to choose between
various courses open to him, and here the situation is essentially
different. The external stimulus which may be said to cause or occasion
such actions can of course also be defined in purely physical terms. But
if we tried to do so for the purposes of explaining human action, we
would confine ourselves to less than we know about the situation.
— Friedrich Hayek, The Counter-Revolution of Science (Chapter III, “The Subjective Character of the Data of the Social Sciences”)
He notes that these are mutually exclusive and that social sciences should not attempt to impose positivist methodology, nor to claim objective or definite results:
In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), Hayek independently developed a “Hebbian learning”
model of learning and memory—an idea he first conceived in 1920 prior
to his study of economics. Hayek’s expansion of the “Hebbian synapse”
construction into a global brain theory has received attention in
neuroscience, cognitive science, computer science, behavioural science and evolutionary psychology by scientists such as Gerald Edelman and Joaquin Fuster.
The Sensory Order can be viewed as a development of his
attack on scientism. Hayek posited two orders, namely the sensory order
that we experience and the natural order that natural science has
revealed. Hayek thought that the sensory order actually is a product of
the brain. He described the brain as a very complex yet self-ordering
hierarchical classification system, a huge network of connections.
Because of these nature of the classifier system, richness of our
sensory experience can exist. Hayek’s description posed problems to behaviorism, whose proponents took the sensory order as fundamental.
Social and political philosophy
In the latter half of his career, Hayek made a number of contributions to social and political philosophy which he based on his views on the limits of human knowledge
and the idea of spontaneous order in social institutions. He argues in
favour of a society organised around a market order in which the
apparatus of state is employed almost (though not entirely) exclusively
to enforce the legal order (consisting of abstract rules and not
particular commands) necessary for a market of free individuals to
function. These ideas were informed by a moral philosophy derived from epistemological
concerns regarding the inherent limits of human knowledge. Hayek argued
that his ideal individualistic and free-market polity would be
self-regulating to such a degree that it would be “a society which does
not depend for its functioning on our finding good men for running it”.
Although Hayek believed in a society governed by laws, he disapproved of the notion of “social justice“. He compared the market to a game in which “there is no point in calling the outcome just or unjust” and argued that “social justice is an empty phrase with no determinable content”.
Likewise, “the results of the individual’s efforts are necessarily
unpredictable, and the question as to whether the resulting distribution
of incomes is just has no meaning”.
He generally regarded government redistribution of income or capital as
an unacceptable intrusion upon individual freedom, saying that “the
principle of distributive justice, once introduced, would not be
fulfilled until the whole of society was organized in accordance with
it. This would produce a kind of society which in all essential respects
would be the opposite of a free society”.
Hayek viewed the free price system
not as a conscious invention (that which is intentionally designed by
man), but as spontaneous order or what Scottish philosopher Adam Ferguson referred to as “the result of human action but not of human design”. For instance, Hayek put the price mechanism on the same level as language.
Hayek’s concept of the market as a spontaneous order has been
recently applied to ecosystems to defend a broadly non-interventionist
Like the market, ecosystems contain complex networks of information,
involve an ongoing dynamic process, contain orders within orders and the
entire system operates without being directed by a conscious mind.
On this analysis, species takes the place of price as a visible element
of the system formed by a complex set of largely unknowable elements.
Human ignorance about the countless interactions between the organisms
of an ecosystem limits our ability to manipulate nature. Since humans rely on the ecosystem to sustain themselves, we have a prima facie
obligation to not disrupt such systems. This analysis of ecosystems as
spontaneous orders does not rely on markets qualifying as spontaneous
orders. As such, one need not endorse Hayek’s analysis of markets to
endorse ecosystems as spontaneous orders.
Hayek’s views on social safety nets
With regard to a social safety net,
Hayek advocated “some provision for those threatened by the extremes of
indigence or starvation due to circumstances beyond their control” and
argued that 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”. Summarizing Hayek’s views on the topic, journalist Nicholas Wapshott
has argued that “[Hayek] advocated mandatory universal health care and
unemployment insurance, enforced, if not directly provided, by the
state”.Critical theoristBernard Harcourt has argued further that “Hayek was adamant about this”. In 1944, Hayek wrote in The Road to Serfdom:
is no reason why in a society which has reached the general level of
wealth which ours has attained [that security against severe physical
privation, the certainty of a given minimum of sustenance for all; or
more briefly, the security of a minimum income]
should not be guaranteed to all without endangering general freedom.
There are difficult questions about the precise standard which should
thus be assured… but there can be no doubt that some minimum of food,
shelter, and clothing, sufficient to preserve health and the capacity to
work, can be assured to everybody. Indeed, for a considerable part of
the population of England this sort of security has long been achieved.
Nor is there any reason why the state should not assist…
individuals in providing for those common hazards of life against which,
because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident,
neither the desire to avoid such calamities nor the efforts to overcome
their consequences are as a rule weakened by the provision of
assistance – where, in short, we deal with genuinely insurable risks –
the case for the state’s helping to organize a comprehensive system of social insurance
is very strong…. [And] there is no incompatibility in principle
between the state’s providing greater security in this way and the
preservation of individual freedom.
Wherever communal action can mitigate disasters against which the
individual can neither attempt to guard himself nor make the provision
for the consequences, such communal action should undoubtedly be taken.
is no reason why in a free society government should not assure to all,
protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need to descend.
To enter into such an insurance against extreme misfortune may well be
in the interest of all; or it may be felt to be a clear moral duty of
all to assist, within the organised community, those who cannot help
themselves. So long as such a uniform minimum income is provided
outside the market to all those who, for any reason, are unable to earn
in the market an adequate maintenance, this need not lead to a
restriction of freedom, or conflict with the Rule of Law.
Hayek’s liberalism and skepticism
Arthur M. Diamond argues Hayek’s problems arise when he goes beyond
claims that can be evaluated within economic science. Diamond argued:
human mind, Hayek says, is not just limited in its ability to
synthesize a vast array of concrete facts, it is also limited in its
ability to give a deductively sound ground to ethics. Here is where the
tension develops, for he also wants to give a reasoned moral defense of
the free market. He is an intellectual skeptic who wants to give
political philosophy a secure intellectual foundation. It is thus not
too surprising that what results is confused and contradictory.
argues that Hayek’s defence of liberalism is unsuccessful because it
rests on presuppositions that are incompatible. The unresolved dilemma
of his political philosophy is how to mount a systematic defence of
liberalism if one emphasizes the limited capacity of reason.Norman P. Barry
similarly notes that the “critical rationalism” in Hayek’s writings
appears incompatible with “a certain kind of fatalism, that we must wait
for evolution to pronounce its verdict”.Milton Friedman and Anna Schwartz
argue that the element of paradox exists in the views of Hayek. Noting
Hayek’s vigorous defense of “invisible hand” evolution that Hayek
claimed has created better economic institutions than could be created
by rational design, Friedman pointed out the irony that Hayek was then
proposing to replace the monetary system thus created with a deliberate
construct of his own design.John N. Gray
summarized this view as “his scheme for an ultra-liberal constitution
was a prototypical version of the philosophy he had attacked”.Bruce Caldwell
wrote that “[i]f one is judging his work against the standard of
whether he provided a finished political philosophy, Hayek clearly did
not succeed”, although he thinks that “economists may find Hayek’s
political writings useful”.
Hayek sent António de Oliveira Salazar a copy of The Constitution of Liberty
(1960) in 1962. Hayek hoped that his book—this “preliminary sketch of
new constitutional principles”—”may assist” Salazar “in his endeavour to
design a constitution which is proof against the abuses of democracy”.
Asked about the liberal non-democratic rule by a Chilean interviewer, Hayek is translated from German to Spanish to English as having said the following:
long term institutions, I am totally against dictatorships. But a
dictatorship may be a necessary system for a transitional period. […]
Personally I prefer a liberal dictatorship to democratic government
devoid of liberalism. My personal impression – and this is valid for
South America – is that in Chile, for example, we will witness a
transition from a dictatorial government to a liberal government.
In a letter to the London Times,
he defended the Pinochet regime and said that he had “not been able to
find a single person even in much maligned Chile who did not agree that
personal freedom was much greater under Pinochet than it had been under Allende“.
Hayek admitted that “it is not very likely that this will succeed, even
if, at a particular point in time, it may be the only hope there is”,
but he explained that “[i]t is not certain hope, because it will always
depend on the goodwill of an individual, and there are very few
individuals one can trust. But if it is the sole opportunity which
exists at a particular moment it may be the best solution despite this.
And only if and when the dictatorial government is visibly directing its
steps towards limited democracy”.
For Hayek, the distinction between authoritarianism and
totalitarianism has much importance and he was at pains to emphasise his
opposition to totalitarianism, noting that the concept of transitional
dictatorship which he defended was characterised by authoritarianism,
not totalitarianism. For example, when Hayek visited Venezuela in May
1981, he was asked to comment on the prevalence of totalitarian regimes
in Latin America. In reply, Hayek warned against confusing
“totalitarianism with authoritarianism” and said that he was unaware of
“any totalitarian governments in Latin America. The only one was Chile
under Allende”. For Hayek, the word “totalitarian” signifies something
very specific, namely the intention to “organize the whole of society”
to attain a “definite social goal” which is stark in contrast to
“liberalism and individualism”.
Influence and recognition
influence on the development of economics is widely acknowledged. With
regard to the popularity of his Nobel acceptance lecture, Hayek is the
second-most frequently cited economist (after Kenneth Arrow)
in the Nobel lectures of the prize winners in economics. Hayek wrote
critically there of the field of orthodox economics and neo-classical
modelisation. A number of Nobel Laureates in economics, such as Vernon Smith and Herbert A. Simon, recognise Hayek as the greatest modern economist. Another Nobel winner, Paul Samuelson,
believed that Hayek was worthy of his award, but nevertheless claimed
that “there were good historical reasons for fading memories of Hayek
within the mainstream last half of the twentieth century economist
fraternity. In 1931, Hayek’s Prices and Production had enjoyed an
ultra-short Byronic success. In retrospect hindsight tells us that its
mumbo-jumbo about the period of production grossly misdiagnosed the
macroeconomics of the 1927–1931 (and the 1931–2007) historical scene”.
Despite this comment, Samuelson spent the last 50 years of his life
obsessed with the problems of capital theory identified by Hayek and
Böhm-Bawerk, and Samuelson flatly judged Hayek to have been right and
his own teacher Joseph Schumpeter
to have been wrong on the central economic question of the 20th
century, the feasibility of socialist economic planning in a production
goods dominated economy.
Hayek is widely recognised for having introduced the time
dimension to the equilibrium construction and for his key role in
helping inspire the fields of growth theory, information economics and the theory of spontaneous order. The “informal” economics presented in Milton Friedman‘s massively influential popular work Free to Choose
(1980) is explicitly Hayekian in its account of the price system as a
system for transmitting and co-ordinating knowledge. This can be
explained by the fact that Friedman taught Hayek’s famous paper “The Use
of Knowledge in Society” (1945) in his graduate seminars.
Harvard economist and former Harvard University President Lawrence Summers
explains Hayek’s place in modern economics: “What’s the single most
important thing to learn from an economics course today? What I tried to
leave my students with is the view that the invisible hand is more
powerful than the [un]hidden hand. Things will happen in well-organized
efforts without direction, controls, plans. That’s the consensus among
economists. That’s the Hayek legacy”.
Hayek had a long-standing and close friendship with philosopher of science Karl Popper,
who was also from Vienna. In a letter to Hayek in 1944, Popper stated:
“I think I have learnt more from you than from any other living thinker,
except perhaps Alfred Tarski“. Popper dedicated his Conjectures and Refutations to Hayek. For his part, Hayek dedicated a collection of papers, Studies in Philosophy, Politics, and Economics, to Popper and in 1982 said that “ever since his Logik der Forschung first came out in 1934, I have been a complete adherent to his general theory of methodology”.
Popper also participated in the inaugural meeting of the Mont Pelerin
Society. Their friendship and mutual admiration do not change the fact
that there are important differences between their ideas.
Hayek also played a central role in Milton Friedman’s intellectual development. Friedman wrote:
interest in public policy and political philosophy was rather casual
before I joined the faculty of the University of Chicago. Informal
discussions with colleagues and friends stimulated a greater interest,
which was reinforced by Friedrich Hayek’s powerful book The Road to
Serfdom, by my attendance at the first meeting of the Mont Pelerin
Society in 1947, and by discussions with Hayek after he joined the
university faculty in 1950. In addition, Hayek attracted an
exceptionally able group of students who were dedicated to a libertarian
ideology. They started a student publication, The New Individualist
Review, which was the outstanding libertarian journal of opinion for
some years. I served as an adviser to the journal and published a number
of articles in it….
Hayek’s greatest intellectual debt was to Carl Menger, who pioneered an approach to social explanation similar to that developed in Britain by Bernard Mandeville and the Scottish moral philosophers in the Scottish Enlightenment.
He had a wide-reaching influence on contemporary economics, politics,
philosophy, sociology, psychology and anthropology. For example, Hayek’s
discussion in The Road to Serfdom (1944) about truth, falsehood and the use of language influenced some later opponents of postmodernism.
Hayek wrote an essay, “Why I Am Not a Conservative” (included as an appendix to The Constitution of Liberty)
In it he disparaged conservatism for its inability to adapt to changing
human realities or to offer a positive political program, remarking:
“Conservatism is only as good as what it conserves”. Although he noted
that modern day conservatism shares many opinions on economics with classical liberals, particularly a belief in the free market, he believed it is because conservatism wants to “stand still” whereas liberalism
embraces the free market because it “wants to go somewhere”. Hayek
identified himself as a classical liberal, but noted that in the United
States it had become almost impossible to use “liberal” in its original
definition and the term “libertarian” has been used instead. In this text, Hayek also opposed conservatism for “its hostility to internationalism and its proneness to a strident nationalism“, with its frequent association with imperialism.
Hayek also found libertarianism a term “singularly unattractive” and offered the term “Old Whig” (a phrase borrowed from Edmund Burke)
instead. In his later life, he said: “I am becoming a Burkean Whig”.
However, Whiggery as a political doctrine had little affinity for
classical political economy, the tabernacle of the Manchester School and
His essay has served as an inspiration to other liberal-minded
economists wishing to distinguish themselves from conservative thinkers,
for example James M. Buchanan‘s essay “Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism”.
His opponents have attacked Hayek as a leading promoter of neoliberalism. A British journalist, Samuel Brittan, concluded in 2010 that “Hayek’s book [The Constitution of Liberty]
is still probably the most comprehensive statement of the underlying
ideas of the moderate free market philosophy espoused by neoliberals”. Brittan adds that although Raymond Plant (2009) comes out in the end against Hayek’s doctrines, Plant gives The Constitution of Liberty a “more thorough and fair-minded analysis than it has received even from its professed adherents”.
In Why F A Hayek is a Conservative, British policy analyst Madsen Pirie
claims Hayek mistakes the nature of the conservative outlook.
Conservatives, he says, are not averse to change, but like Hayek they
are highly averse to change being imposed on the social order by people
in authority who think they know how to run things better. They wish to
allow the market to function smoothly and give it the freedom to change
and develop. It is an outlook, says Pirie, that Hayek and conservatives
Hayek and policy discussions
ideas on spontaneous order and the importance of prices in dealing with
the knowledge problem has inspired a debate on economic development and
transition economies after the fall of the Berlin wall. For instance,
economist Peter Boettke elaborated in detail on why reforming socialism failed and the Soviet Union broke down. Economist Ronald McKinnon uses Hayekian ideas to describe the challenges of transition from a centralized state and planned economy to a market economy. Former World Bank Chief Economist William Easterly emphasizes why foreign aid tends to have no effect at best in books such as The White Man’s Burden.
Since the 2007–2008 financial crisis,
there is a renewed interest in Hayek’s core explanation of
boom-and-bust cycles, which serves as an alternative explanation to that
of the savings glut as launched by economist and former Federal Reserve ChairBen Bernanke. Economists at the Bank for International Settlements, e.g. William R. White,
emphasize the importance of Hayekian insights and the impact of
monetary policies and credit growth as root causes of financial cycles.
Andreas Hoffmann and Gunther Schnabl provide an international
perspective and explain recurring financial cycles in the world economy
as consequence of gradual interest rate cuts led by the central banks in
the large advanced economies since the 1980s. Nicolas Cachanosky outlines the impact of American monetary policy on the production structure in Latin America.
In line with Hayek, an increasing number of contemporary
researchers sees expansionary monetary policies and too low interest
rates as mal-incentives and main drivers of financial crises in general
and the subprime market crisis in particular.
To prevent problems caused by monetary policy, Hayekian and Austrian
economists discuss alternatives to current policies and organizations.
For instance, Lawrence H. White has argued in favor of free banking in the spirit of Hayek’s “Denationalization of Money”. Along with market monetarist economist Scott Sumner, White has also noted that the monetary policy norm that Hayek prescribed, first in Prices and Production (1931) and as late as the 1970s, was the stabilization of nominal income.
Hayek’s ideas find their way into the discussion of the post-Great Recession issues of secular stagnation.
Monetary policy and mounting regulation are argued to have undermined
the innovative forces of the market economies. Quantitative easing
following the financial crises is argued to have not only conserved
structural distortions in the economy, leading to a fall in
trend-growth. It also created new distortions and contributes to
August 1926, Hayek married Helen Berta Maria von Fritsch (1901–1960), a
secretary at the civil service office where Hayek worked, on the
rebound upon hearing of his cousin’s marriage. They had two children
Upon the close of World War II, Hayek restarted a relationship with
his cousin, who had married since they first met, but kept it secret
until 1948. Hayek and Fritsch divorced in July 1950 and he married his
cousin Helene Bitterlich (1900–1996) just a few weeks later after moving to Arkansas to take advantage of permissive divorce laws.
His wife and children were offered settlement and compensation for
accepting a divorce. The divorce caused some scandal at LSE where
certain academics refused to have anything to do with Hayek.
In a 1978 interview to explain his actions, Hayek stated that he was
unhappy in his first marriage and as his wife would not grant him a
divorce he had to enforce it. He rarely visited his children after the divorce.
Even after his death, Hayek’s intellectual presence is noticeable,
especially in the universities where he had taught, namely the London
School of Economics, the University of Chicago and the University of
Freiburg. A number of tributes have resulted, many established
The Hayek Fund for Scholars of the Institute for Humane Studies provides financial awards for academic career activities of graduate students and untenured faculty members.
The Ludwig von Mises Institute
holds a lecture named after Hayek every year at its Austrian Scholars
Conference and invites notable academics to speak about subjects
relating to Hayek’s contributions to the Austrian School.
1994: The FA Hayek Scholarship in Economics or Political Science, University of Canterbury.
The scholarship supports students toward study for an honours or
master’s degree in the Economics or Political Science at the University.
It was established in 1994 by a gift from entrepreneur Alan Gibbs.
Volume II. The Mirage of Social Justice, 1976.
Volume III. The Political Order of a Free People, 1979.
The Fatal Conceit: The Errors of Socialism, 1988. Note that the authorship of The Fatal Conceit is under scholarly dispute. The book in its published form may actually have been written entirely by its editor W. W. Bartley III and not by Hayek.
Birner, Jack (2001). “The mind-body problem and social evolution,” CEEL Working Paper 1-02.
Birner, Jack, and Rudy van Zijp, eds. (1994). Hayek: Co-ordination and Evolution: His legacy in philosophy, politics, economics and the history of ideas
Birner, Jack (2009). “From group selection to ecological niches.
Popper’s rethinking of evolutionary theory in the light of Hayek’s
theory of culture”, in S. Parusnikova & R.S. Cohen eds. (Spring
2009). “Rethinking Popper”, Boston Studies in the Philosophy of Science. Vol. 272
Boettke, Peter J. (1995). “Hayek’s the Road to Serfdom Revisited: Government Failure in the Argument against Socialism”. Eastern Economic Journal. 21 (1): 7–26. JSTOR40325611.
Caldwell, Bruce (2005). Hayek’s Challenge: An Intellectual Biography of F.A. Hayek
Caldwell, Bruce (1997). “Hayek and Socialism”. Journal of Economic Literature. 35 (4): 1856–90. JSTOR2729881.
Cohen, Avi J. (2003). “The Hayek/Knight Capital Controversy: the Irrelevance of Roundaboutness, or Purging Processes in Time?” History of Political Economy 35(3): 469–90. ISSN0018-2702 Fulltext: online in Project Muse, Swetswise and Ebsco
Clavé, Francis (2015). “Comparative Study of Lippmann’s and Hayek’s Liberalisms (or neo-liberalisms)”. The European Journal of the History of Economic Thought. 22 (6): 978–99. doi:10.1080/09672567.2015.1093522.
Doherty, Brian (2007). Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement
Vernon, Richard (1976). “The ‘Great Society’ and the ‘Open Society’: Liberalism in Hayek and Popper”. Canadian Journal of Political Science. 9 (2): 261–76. doi:10.1017/s0008423900043717.
Wapshott, Nicholas (2011). Keynes Hayek: The Clash That Defined Modern Economics, (W.W. Norton & Company) 382 pages ISBN978-0393077483; covers the debate with Keynes in letters, articles, conversation, and by the two economists’ disciples
Weimer, W., and Palermo, D., eds. (1982). Cognition and the Symbolic Processes. Lawrence Erlbaum Associates. Contains Hayek’s essay, “The Sensory Order after 25 Years” with “Discussion”
Wolin, Richard. (2004). The Seduction of Unreason: The Intellectual Romance with Fascism from Nietzsche to Postmodernism. Princeton University Press, Princeton.
Boudreaux, Donald J. (2014). The Essential Hayek
Butler, Eamonn (2012). Friedrich Hayek: The Ideas and Influence of the Libertarian Economist
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every aspect of society around life-supporting values of mutual respect
and mutual responsibility, non-violence, equality, empowerment, and
research shows that partnership systems and domination systems are
opposite ends of a spectrum of cultural possibilities for shaping our
relations with ourselves, one another, and nature.
How do partnership systems and domination systems differ?
degree to which a society or group adheres more to a partnership system
or a domination system goes beyond Right-Left, Eastern-Western,
capitalist-socialist, religious-secular, developed-developing, and other
familiar categories. These contrasting social systems are different in
many ways, but they have four key, interactive components:
Family and Social Structure
Gender Roles and Relations
Fear, Abuse and Violence
Domination System Partnership System
1. Family & Social Structure
Authoritarian structure and hierarchies of domination
in family and society. Top-down control of economic resources. Children
observe and experience inequality and inequity as the norm.
Democratic structure and hierarchies of actualization. Caring is economically valued. Egalitarian and equitable adult relations are the norm. Parenting is not authoritarian but authoritative.
2. Gender Roles & Relations
of male half of humanity over female half. Rigid gender stereotypes,
with “masculine” traits and activities such as toughness and conquest
ranked over “feminine” ones such as care giving and nonviolence.
valuing of the male and female halves of humanity, fluid gender roles
with a high valuing of empathy, caring, caregiving, and nonviolence in
women and men, as well as in social and economic policy.
3. Fear, Abuse & Violence
High degree of fear and violence, from child- and wife-beating to abuse by “superiors” in families, workplaces, and society.
degree of fear, abuse, and violence, as they are not needed to maintain
top-down rankings. Respect for diversity and human rights.
Beliefs and stories justify and idealize domination and violence, which are deemed inevitable, moral, and desirable.
Beliefs and stories present empathic, mutually beneficial, nonviolent relations as normal, moral, and desirable.
Five Key Guidelines
The partnership/domination lens helps us see where to focus our energies to build better lives and a for a better world.
No society is a pure partnership system or domination system. The core configuration of the domination system is starkly visible cross-culturally and historically in brutally repressive and violent societies – whether secular, like rightist Nazi Germany in the West or Kim Jong Un’s leftist North Korea in the East, religious, like ISIS in the Middle East or Boko Haram in Africa. More equitable and peaceful societies – whether ancient such as much of our deep nomadic forager past and Çatalhöyük and other prehistoric cultures, or modern such as Sweden, Norway, and Finland – adhere more to the partnership system’s core configuration.
Our brains are shaped by partnership- or domination-oriented environments. Findings from psychology and neuroscience show that the degree of partnership or domination in our foundational human relations — between women and men, and between parents and children — directly affects how our brains develop.
Partnership- or domination-oriented families are a template for politics, economics, and other social institutions. Our experiences as children with either partnership or domination relations impact our whole society. They shape what we believe is “natural” in all spheres, from family and education to politics and economics. These connections explain why a top priority of regressive leaders (whether secular or religious, Eastern or Western) is pushing women into subservient roles in rigidly male-dominated, highly punitive “traditional” families. In these families, children learn it is painful to question orders, no matter how unjust, and that abuse and violence by those in power are normal and moral.
Domination systems are not inevitable. For millennia in our prehistory partnership systems were primary, and for much of modern history social movements have challenged traditions of domination, — from the rule of kings over “subjects,” to men over women, to a “superior” race or religion over “inferior” ones, to the once hallowed “conquest of nature.” However, the movement toward partnership has been countered by fierce resistance, and we are today in a time of regression to the domination end of the social scale. The chart that follows shows four cornerstones of social systems we must change to four core components of partnership and domination systems highlight the actions needed to change our direction and continue the movement from domination to The Partnership System in all aspects of our lives.
The Politics of Partnership:
fear-based parenting to teach unquestioning obedience. Present “spare
the rod and spoil the child” as necessary and moral. Condition people to
emotionally depend on those on top, rather than develop their own
powers of thinking and creating.
Oppose funding for good
nutrition, universal healthcare, and other measures that protect
children and help them develop their potentials.
education and re-impose rote teaching-to-the-test to rank and humiliate
children, teachers, and schools. Squeeze out education that teaches
gender-balance, multiculturalism, peace, and environmental sensitivity.
little or no economic value to the “women’s work” of care giving in
families. Oppose support for childcare, paid parental leave, and other
violence against children as dysfunctional and immoral. Campaign to end
violence and abuse of children. Promote partnership (non-violent,
authoritative rather than authoritarian) parenting that empowers rather
than disempowers children.
Ensure good nutrition and healthcare for all children. Show the personal, economic, environmental, and social benefits of this.
and improve public education. Promote multicultural, gender-balanced,
and environmental education to help young people learn to respect
themselves, others, and the environment and co-create a healthy future.
high quality childcare and caregiver training. Award high status and
economic benefits to the essential work of care giving, whether done by
women or men, in families or the marketplace.
cultural beliefs that women must be controlled by male heads of
families and policy makers. Reinforce the masculinity -domination link
and the femininity-subservience link. Oppose funding for programs that
offer protection from violence to girls and women and the LGBTQ
Reinforce social priorities that value activities
stereotypically associated with men over those associated with women.
Denigrate men who are nonviolent and caring as “sissies” or “wimps.”
curricula that focus on the male half of humanity, reinforcing mindsets
that one kind of person or group is more valuable than another.
policy-making positions with men (and token women) who support those
who have economic control and want to take away rights to family
planning and reproductive choice.
cultural beliefs that men are entitled to control women in families and
societies. Unlink masculinity from domination and violence, and
femininity from subordination and obedience. Unite to stop violence
against girls and women and to protect the LGBTQ community.
social priorities so activities stereotypically associated with women
are valued highly. Teach that caring and nonviolence are essential in
men, women, and social policy for a more peaceful and just world.
gender-balanced education. Support partnership education as
foundational to end sexism, racism, anti-Semitism and other dominator
Elect women leaders and bring partnership-oriented women
and men from diverse racial and ethnic groups into decision-making to
support caring and empathic policies, including family planning and
on costs of environmental and health damage to consumers, taxpayers,
and future generations. Oppose socially and ecologically responsible
business standards under the guise of “free markets” and
“globalization.” Develop organizations, rules, and policies that lack
empathy, such as agencies that cut back social services and maintain
top-down economic control.
Oppose meaningful political campaign
financing reform to maintain control of laws and social and economic
policies by powerful economic interests.
Maintain the devaluation of the “women’s work” of care giving, and oppose caring policies.
Oppose changes in measures of economic productivity that protect socially and environmentally irresponsible practices.
old economic theories such as capitalism and socialism that came out of
early industrial times. Ignore the realities of our post-industrial age
when jobs are increasingly replaced by automation, robotics, and
environmentally and socially responsible business standards and rules.
Work for Partnership Charters for domestic and international
corporations as well as in economic and environmental treaties. Reward
pro-social policies and practices with tax breaks and other benefits and
penalize irresponsible ones.
Enact public campaign financing and
other means of ending economic control of politics, freeing policy
makers to work for an equitable, environmentally sustainable, and caring
Show the economic value of caring for people and nature, and ensure it is adequately rewarded.
new measures of economic productivity (Social Wealth Economic
Indicators) that focus on quality-of-life, human development, and
Form coalitions to support a caring
economics or partnerism to meet the unprecedented technological,
economic, and environmental challenges of our time of technological,
social, economic, and environmental challenges.
Reinforce fragmented thinking through old categories such as religious vs. secular, Eastern vs. Western, and so forth.
cultural beliefs that human nature is selfish and violent, and hence
that people must be rigidly controlled through fear and force. Discredit
partnership -oriented beliefs, attitudes, and narratives as “fantasy,”
and present self-interest and concern for others as opposites rather
than as interconnected.
Use media monopolies and social media to negate partnership possibilities.
Use schools and media to make rankings of domination seem normal, natural, and divinely ordained.
the belief that ranking male over female is divinely or naturally
ordained, as well as gender stereotypes requiring men not to be like
“inferior” women and never to embrace “soft” or “feminine” traits and
activities like caring, care giving, and nonviolence.
often under the guise of religion, a “morality” of fear, scarcity,
intolerance of the “other,” violence, punishment, and the necessity for
Use and spread the social categories of partnership systems and domination systems, plus narratives that promote partnership.
narratives that promote domination. Strengthen the understanding that
human nature is flexible and includes a powerful capacity for empathy,
caring, and creativity. Show that self-interest and concern for others
are not opposites but mutually supporting.
Ensure that the voice of partnership is heard, and counter false stories in social media.
schools and media tools to recognize beliefs, myths, and stories that
promote domination or partnership. Help them understand the consequences
Create and disseminate narratives that support men and
women worldwide in regaining their full spectrum of positive human
capacities and possibilities. Recognize the value of caring, care
giving, and nonviolence in both women and men.
Promote partnership morals and principles. Nurture the spiritual courage required to make partnership a way of life.