Wednesday, August 28, 2019

Friedrich Hayek: Why Intellectuals Drift Towards Socialism

If there is one thing that the Democratic presidential candidates don't get, I would say it is the point made below by Nobel Prize-winning economist Friedrich Hayek that it is impossible to design social institutions.

 In other words, every time Elizabeth Warren says, "I have a plan for that," she is really saying "I don't understand Hayek's observation about the impossibility of societal central plans being successful."




  1. People who are smart tend to believe they can engineer others' actions to a better outcome. However, since they don't have the sensibilities of the others -- i.e. most of economics is about WANT, not NEED -- they fail miserably.

    The free market is a neural network, and intellectuals try to apply sequential programming to it. It's like trying to replace your brain with an IBM chip running Microsoft. It's the wrong architecture.

    1. Herbert Hoover was a good example of someone “smart” thinking he could engineer a solution to an economic problem. A mining engineer, he specialized in restoring troubled mines to profitability; Hoover thought himself to be a “doctor of sick mines.” His signing of the Smoot-Hayley Tariff on June 17, 1930 helped make the Depression Great.

  2. Part one of two comments. The clip below is from the same episode of "Firing Line", November 1977. Hayek explains that Keynesianism was nothing but a ruse intended by Keynes to repair prior interventions - it was not an attempt to repair a prior "market failure"

    In 1977, Hayek explained to Bill Buckley that Keynes' "General Theory" was an ad hoc policy designed to reduce wage rates that were artificially too high as the result of prior government intervention regarding the value of the British pound and non-market privileges granted to labor unions:

    Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?

    Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.

    Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way. Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.

  3. Part two of two comments:

    Hayek: Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

    “Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.

    Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.

    Mr. Buckley: It was an ad hoc.......?

    Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

    Mr. Buckley: Like Nixon.

    Mr. Hayek: No, no. (laughter).

  4. Because as Vladimir Ilyich Lenin once famously remarked: "Intelligentia is not the brain (of the nation), it is shit."

    "Intellectual" is a fancy term for a professional bullshitter.