Grasp the
Nettle
Nobel Prize
winner F. A. Hayek saw and addressed political predicaments
similar to those facing Nevada business
By Steven
Miller
BusinessNevada
Friedrich Hayek,
a deeply insightful thinker and economist, had, by early in
the 20th Century, clearly identified why socialism,
as an economic system, was bound to fail.
From the 1920s through the ’40s, he—and Ludwig von Mises, his
fellow Austrian—pointed out in innumerable books and papers
that only free market prices can provide the economic
information that a modern, viable society requires to
function. Because a socialist order lacks market pricing, they
noted, the best that such an economy can do is to always
remain parasitic on outside, capitalist economies.
Hayek, teaching at the prestigious London School of Economics
in the 1930s and the ’40s, became very well-known. Often
publicly debating the fundamental questions of economic policy
with his friend, John Maynard Keynes—world-famous as the
author of the 1936 General Theory of Employment, Interest
and Money—Hayek was soon second in fame only to Keynes
himself.
Nevertheless, the political winds of the day were against him.
Even as his fellow economists were hailing his 1945 essay on
market pricing as a rational economy’s indispensable signaling
function, socialism was triumphing politically everywhere
around him—left, right and center.
Soon Hayek was being seen, wrote Thomas W. Hazlett in a 1992
feature for Reason magazine, as “an academic outcast, a
throwback, a marginal character whose ideas had been neatly
disproven to all reasonable men in the scientific journals of
his day.” In 1950, the University of Chicago would not offer
him an appointment in economics, but—recognizing the breadth
of his intellect—made him chair of its Committee on Social
Thought. In 1962, Hayek returned to posts at European
universities and continued to break new ground. His focus,
however, remained outside economics; his new writings were
works in psychology, political theory and law.
Notwithstanding demagoguery from politicians, or ignorant
cupidity from voters, reality remains reality. And it was not
done with Hayek the economist. For “the late 20th century,” as
Hazlett put it, had “decided to provide a reality check on the
academic scribblers.”
In the very countries that had so enthusiastically embraced
the dogmas of Keynesianism, inflation spiraled skyward while
stagnation spread throughout the economy like kudzu.
Supercilious government-employed economists suddenly began
learning humility as their conventional economic wisdom proved
fatuous.
“The macro models of Cambridge, Harvard, Berkeley, and MIT
fell apart,” wrote Hazlett, “and by the 1980s the very
solutions that Keynes had hustled were being painfully
thwacked as precisely the root of our troubles.” And so the
old became new again. The classical economic
medicines—savings, investment, balanced budgets, competition,
and productivity growth—received new respect. Even the pols,
always so eager to receive Keynes’s justifications for
government spending, abandoned Keynesianism (publicly, at
least).
Then out of the blue in 1974, Hayek was awarded a Nobel Prize
in Economics. “Quickly,” wrote Hazlett, “he was transformed
from goofball to guru.”
But events would soon prove again that Hayek’s profound
insight 30 and 40 years before had been no temporary fluke.
Sitting for a wide-ranging interview in 1977, he continued to
bring prescient analytic power to the plight of nations and
the important policy shifts they needed.
Asked whether Britain was “irrevocably on the road to
serfdom,” he answered, “No, not irrevocably,” and pointed out
that his most famous book, The Road to Selfdom, had
been meant as a warning: “‘Unless you mend your ways, you’ll
go to the devil.’ And you can always mend your ways,” he said.
Asked, “What policy measures are currently possible to reverse
the trend in Britain,” Hayek succinctly described both the
underlying problem—one prominent in contemporary Nevada,
incidentally—and the solution.
The problem was that “one body of organized interests, namely
the trade unions, [had been given] specific powers to use
force to get a larger share of the market… And this [was]
supported by the public because of the historic belief that in
past the trade unions have done so much to raise the standard
of living of the poor that you must be kind to them. So long
as this view is prevalent, I don’t believe there is any hope.”
“But,” added Hayek, “you can induce change. We must now put
our hope in a change of attitude.”
While many of his British friends still believed that the
existing moral convictions of the English would protect them,
such a view, said Hayek, was nonsense.
“The character of a people is as much made by the institutions
as the institutions are made by the character of the people….
You must create institutions in which the old kinds of
attitudes will be revived which are rapidly disappearing under
the present system.”
That was going on in Britain as Hayek spoke, as the
free-market Institute for Economic Affairs, supported by a few
far-sighted business people, was laying the groundwork for an
improved public understanding of the requirements of a free
society.
Just two years later, Margaret Thatcher became Britain’s first
woman Prime Minister. Her firm ideas—though not fully embraced
by the electorate—stood in stark contrast to the Labour
Party’s confused captivity under labor unions and the welfare
state. Though Thatcher’s early years as Prime Minister were
filled with controversy and tumult as she fought and defeated
the unions, when she departed Number 10 Downing in 1990, she
left a sound economy and a confident and well-ordered society.
Hayek also pointed to the potential power for liberty of the
democratic initiative and referendum process. “Switzerland,”
he said, “is a marvelous example where, when the politicians
become too progressive, the people hold a referendum and
promptly say, ‘No!’” Similarly, here in Nevada, the initiative
process is without doubt the business community’s best
opportunity to restore some degree of institutional
protections for the rights of property and economic liberty.
Currently in Nevada, the political initiative still rests with
the labor union political operatives who dominate the state
Assembly. Virtually all the most egregious “Legislative
Stinker” citations on the BusinessNevada website originated
with these unions or their legislative allies. Across the
legislative board they have pushed for measures directly out
of the modern socialist toolkit. Among the most flagrant this
session have been the minimum wage bill, the Perkins
legislation to require the “charitable” redistribution of 4
percent of hospital revenues, and the permanent,
unconstitutional imposition on Nevada business of a split-role
property tax. In every case, the unions and their allies seek
to change important Silver State institutions so that
political pull—theirs—gets substituted for the objective,
efficient and beneficial dynamics of market pricing.
Were Hayek still alive, he would point out that the ideology
operating here is the sort that, given full reign, would
reduce the booming Nevada economy to some miserable guild-like
mess out of the Middle Ages. In that anti-markets era,
starvation was the economy’s method of adjusting demand to
supply.
Today, of course, Silver State voters would rise in furious
rebellion long before such a nadir even threatened. But given
their present state of economic ignorance, which direction
will they turn? Will they make the situation worse, embracing
the demagoguery that already is endangering the Nevada
business community?
Clearly, this state needs a massive education campaign that
addresses this growing tyranny now, rather than later.
Otherwise, “later” will be even worse.
It is time to grasp the nettle—and come to the defense of your
company, your employees, your families and your dreams.
Steven Miller
is policy director for the Nevada Policy Research Institute.
