talkpolitics | The Road To Derpdom

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When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.

—Bastiat

I just heard a fascinating interview over at From Alpha 2 Omega with Philip Pilkington. Mr. Pilkington has recently finished a fine debunking of Friedrich Hayek. The problems with Hayek were many, and noted not just by Pilkington but by many, many others. At first, Hayek focused on "pure" economic theory, often exchanging ideas with the biggest name in economics at the time, John Maynard Keynes. The two would exchange ideas in both letters and by publishing articles in economic journals, such as Economica:

Cooler heads than Hayek and Keynes may have spotted the many similarities between their arguments and concentrated on the interesting differences. Instead, in their sharp exchanges in Economica and in their subsequent private correspondence, Keynes and Hayek became deeply entangled in efforts to determine the meaning of the terms they used in an attempt to decipher what the other was saying. Even for a trained economist with the benefit of decades of hindsight, the differences between the two men are often erudite to the point of impenetrability.

(Nicholas Wapshot, Keynes Hayek: The Clash That Defined Modern Economics, W. W. Norton & Co., Inc., 2011, p. 98.)

It's difficult, if not impossible, to craft economic policy based upon esoteric minutia that no one can understand. For that reason, Hayek, who had less of an affinity to vocalize his theories in ways more could understand (largely hampered by his English, heavily distorted through his Austrian accent), Hayek "turned instead to constructing political philosophies and honing a metaphysics rather than engaging in any substantial way with the new economics that was emerging."

Those metaphysical political philosophies became the meat for his later book, The Road to Serfdom, one of the most influential pieces of fiction ever written.

He became concerned with watery terms like “freedom” and “liberty”, which he then set out to impregnate with a meaning that would support his dreams. The most famous result of this period of conversion, which resembled less St. Paul on the road to Damascus and more so an alcoholic who had hit rock bottom, was Hayek’s 1944 work The Road to Serfdom. In a very real way it was this book that marked the close of Hayek’s career as a serious economic thinker and set him on the path of the political propagandist, agitator and organiser.*

To understand Hayek's argument, it is essential to understand his core, or domain assumption. I covered the three types of assumptions before, but here's a helpful reminder. From Steve Keen, we learn that "[Alan] Musgrave argued [in 1981] that there were three classes of assumptions. . . ." (Steve Keen, Debunking Economics: The Naked Emperor Dethroned?, Palgrave Macmillan, 2011, p. 160.) For the sake of brevity, I'll list them in reverse order of their importance. (More detail can be found in Keen's book, pp. 160-162.)

Negligibility assumption: state that some aspect of reality has little or no effect on the phenomenon under investigation.
Heuristic assumption: one which is known to be false, but which is made as a first step towards a more general theory.
Domain assumption: specifies the conditions under which a particular theory will apply. If those conditions do not apply, then neither does the theory.

All these assumptions have their place in rhetorically describing a theory, but only the final two need be grounded in reality. The final assumption, the Domain Assumption, in fact, must be so grounded to be applicable, for again, "If those conditions do not apply, then neither does the theory."

In another essay, Pilkington expands the use of theory and assumption to point out that many assumptions are based not on reality, but on how our psyches respond to reality. A sailor might view unexplored and uncharted areas as filled with monsters. We regular folks might regard certain places or practices as not hygenic, literally as unclean. Pilkington takes these examples and writes,

The function of myth, then, is to structure our world – at both a macro or social and a micro or perceptual level, with one feeding into the other. But against what is it structuring our world? Well, to look again at our two examples should prove instructive. In both of these examples the myths structure the world in such a way that anxiety is avoided. This anxiety may take the form of outright terror, as it does in the case of our sailor, or disgust, as it does in the case of our toilet seat; indeed it could take many other forms, but at the end of the day it is always some form of anxiety that is being avoided through mythic construction.

(I underlined for emphasis.)

With that understood, what anxiety was Hayek avoiding by writing the assumptions that back his argument—his myth—in The Road to Serfdom? Back to Wapshott:

Keynes believed that man had been placed in charge of his own destiny, while Hayek, with some reluctance, believed that man was destined to live by the natural laws of economics as he was obliged to live by all other natural laws. Thus the two men came to represent two alternative views of life and government, Keynes adopting an optimistic view that life need not be as hard as it was if only those in positions of power made the right decisions, and Hayek subscribing to the pessimistic notion that there were strict limits placed on human endeavor and that attempts to alter the laws of nature, however well intended, were bound to lead at best to unintended consequences.

(Wapshott, ibid., p. 44.)

And what were these "natural laws of economics" that motivated him? Hayek based them largely on his experience learning and working in Austria during the post-WWI hyperinflation, the cause of which he interpreted with help from fellow Austrian economist Ludwig Mises:

Mises's principal objection to a communist or socialist society was that it ignored the price mechanism he believed essential for any economy to operate efficiently. . . . He claimed that "every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics." Mises's arguments went to the core of the debate that was to ensue between Keynes and Hayek, and the presaged one of Hayek's eventual contentions, that by ignoring prices socialism deprives individuals of their unique contribution to society—to express, through their willingness to pay a price, their opinion of the worth of an object or service. Central planning, Hayek would argue, deprives individuals of a fundamental freedom.

(Wapshott, ibid., pp. 29-30, I again underlined.)

Here is where we get to the "watery terms" Pilkington noted. "Hayek thought that all totalitarianisms had their origins in forms of economic planning. Economic planning was the cause of totalitarianism for Hayek, rather than the being just a feature of it." It's a bit of a flimsy argument, since its core assumption—again, its Domain assumption—it relies on a very narrow reading of history that, once expanded, can be called into question.

It must be understood that Hayek’s argument had no factual basis. Only a polemicist could argue that the two totalitarianisms that existed in this period – namely, Hitler’s Germany and Stalin’s Soviet Union – had formed because a naïve democratic government had engaged in some economic planning that then got out of hand and resulted in tyranny. But Hayek’s motivations probably lay somewhat deeper – probably so deep that he himself could not properly recognise them.

To understand these motivations and the anxiety behind them, we must understand the causes of hyperinflation which is, I doubt, something anyone understands completely. Pilkington at first notes that Germany's economic troubles were leavened by "loans from the United States," something nobody discussing hyperinflation mentions. Those loans, however, ended when the Great Depression struck. "Unemployment soared in Germany and the government, like so many others across the world, engaged in severe austerity in order to attempt to balance the budget. They believed that this would return the country to economic prosperity."

In retrospect it is quite obvious that Hitler’s immediate rise to power was due to the economic downturn and the government’s deflationary policy response. In 1930 the Nazis had become the second largest party, obtaining 18.3% of the votes. When compared with the 2.8% of the vote they received in 1928 during an era of high employment and an economically optimistic outlook it quickly becomes obvious what the underlying forces driving Hitler’s election actually were.

That the economic policies the Weimar government had engaged in had led to the election of Hitler was and is obvious to any unbiased observer. But there were many who actively repressed this fact. The liberals that had supported the government’s austerity measures no doubt felt some burden, whether unconscious or otherwise, of guilt.

(More of my underlining.)

One of those austerity-supporting liberals was Friedrich Hayek.

Here, we should backtrack a bit and review key domain assumptions in Hayek's philosophy. A great deal of his theory relies on Mises observation of price signals, and how without price signals the buyers and sellers cannot properly evaluate the cost of goods. Without considering the American loans to the Weimar banks, Hayek likely misses a key manipulation in the monetary system; since this manipulation was fairly brief, the biggest change would have been that of the "Chancellor who presided over the [following] austerity, Heinrich Brüning." As another essayist points out, though:

After just two years of “austerity” measures, Germany’s economy had completely collapsed: unemployment doubled from 15% in 1930 to 30% in 1932, protests spread, and Brüning was finally forced out. Just two years of austerity, and Germany was willing to be ruled by anyone or anything except for the kinds of democratic politicians that administered “austerity” pain. So in 1932’s elections, the Nazis and the Communists came out on top—and by early 1933, with Hitler in charge, Germany’s fledgling democracy was shut down for good.

If austerity caused the rise of Hitler, as it seemingly did under Chancellor Heinrich Brüning, then nothing a "free" market did bettered the lives of Germans. Hitler, though, took a very active hand in regulating the economy, which helped it recover. That made him very popular just two years later with the German voters.

And here we find the first fruits of denial. Earlier in his essay on myth, Pilkington notes that the toilet seat "is generally the cleanest place in the bathroom and yet it is viewed as a space that arouses disgust and caution in most." For Hitler to have done any right through regulation must have, given later events in history, filled Hayek with outright disgust. Which led, seemingly, to what psychologists call cognitive dissonance. Back to the Ames essay, we read:

That should have sealed the coffin on “austerity” and “Austrian Economics,” but somehow von Hayek and his fellow Austrian aristocrats who were forced to flee from the fruits of their economic programs, did a complete revision of history and retold that same story as if the very opposite of reality had happened. Once they were safely in England and America, sponsored and funded by oligarch grants, hacks like von Mises and von Hayek started pushing a revisionist history of the collapse of Weimar Germany blaming not their austerity measures, but rather big-spending liberals who were allegedly in charge of Germany’s last government.

The "big-spending liberals" who caused the hyperinflation became the pain, not the US loans or the subsequent post-Great Depression loss of that money, nor of course the austerity that followed. The austerity ended the hyperinflation in this confused view of history, rather than bring the biggest and most disastrous dictator in recent history directly to power.

That his fringe ideology kept Hayek in the fringes for decades should cause no one any surprise. As Pilkington noted, Hayek's "cult was largely fringe."

Although it did command some respect among neoliberals in the Thatcher and Reagan administrations, it was the respect accorded to the eccentric rather than that accorded to the practical man. Lip service was paid to the doctrines of Hayek and the Austrians, but their extremist and impractical economic policy implications were sterilised and kept out of immediate contact with the levers of power.

As all of us know, however, this fringe nuttery, completely unhinged from either history or empirical reality, did not stay fringe. How Hayek's cognitive dissonance became mainstream I hope to tackle in a later piece.

*I've decided to keep Mr. Pilkington's European spelling intact.

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From:

american-geist.livejournal.com

Reminds me a bit of this quote from Anthony Trollope:

If dishonesty can live in a gorgeous palace with pictures on all its walls, and gems in all its cupboards, with marble and ivory in all its corners, and can give Apician dinners, and get into Parliament, and deal in millions, then dishonesty is not disgraceful, and the man dishonest after such a fashion is not a low scoundrel. Instigated, I say, by some such reflections as these, I sat down in my new house to write The Way We Live Now.

From:

peristaltor.livejournal.com

Nice.

From:

the-rukh.livejournal.com

And as long as we hold those sort of values as a community we really need to stop being perplexed when other people shit on us for minimal gain.

A place to discuss politics without egomaniacal mods.

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