How The ‘Austrian School’ Economists Saved Civilization Via The Publication Of F.A. Hayek’s ‘The Road To Serfdom’ And The Need For A Repeat.
PUBLISHED NOVEMBER 18, 2022 · UPDATED MAY 13, 2023
In this article we want to summarize arguably one of the most important, yet little-known and appreciated achievements of all time. The temporary defeat of the disastrous Socialist/Communist ideology, not just intellectually, but also politically. Socialist ideology is once again growing rapidly and hopefully enough people realize how all we have to do is learn from the men who already saved us in the past.
The disastrous Communist ideological expansion which accelerated when Vladimir Lenin and his ‘Bolsheviks’ created the Soviet Union, was to an overwhelming degree stopped by a relatively small number of people who had a profound understanding of how numerous economic fallacies where the main driver of Socialism/Communism, and worked tirelessly and cleverly to educate enough of the public and leaders to stop the intellectual disaster. These men are loosely referred to as ‘Austrian School’ economists, and for brevity’s sake we will focus on the achievements of Ludwig von Mises, 1974 Nobel Laureate in Economics F.A. Hayek, Henry Hazlitt, and Max Eastman.
We have to begin with a very brief (3 minute) introduction to some vital economic concepts.
The information that coordinates the global social order with its nearly 8 billion human beings inadvertently emerges from the tradition of private property. Private property means that wealth is under the exclusive control or ownership of a single person-mind-CPU. Each person is motivated to discover the best information with which to transform or reorder their private property in a way that increases its value or utility. Most of us transform the trillions of atoms that make up our bodies in a manner that maximizes the value-utility of the labor we produce and then trade with other people or companies. Some transform bread and beef to increase their value as hamburgers which are then traded with others, etc. From our freedom to use-transform our private property emerges the ‘freedom to trade’ it with anyone in the entire planet which inadvertently transforms mankind into a global supercomputer where people via the companies they create are motivated to innovate and learn from each other(competitors) thus inadvertently cooperate to discover and spread superior information and subsequent order. For example, a Honda engineer in Tokyo, Japan, may have invented power doorlocks which thanks to ‘economic competition’ motivated BMW, Ford, and other ‘competitors’ throughout the world to copy and thus spread superior information throughout the world. Why do they do this? Because people in their role as consumers have the ‘freedom to trade’ their life-order-sustaining wealth with the better informed auto-manufacturers(competitors), and as producers, to go into the auto manufacturing business. This in turn motivates all competitors to learn-copy each other lest they not get enough revenue-wealth with which to pay their employees a competitive wage so they use their ‘freedom to trade’ their labor to join the better-informed and thus more productive-efficient orders-companies. Again, this wonderful automatic mechanism of COMPETITIVE KNOWLEDGE DISCOVERY is “turned on” or “emerges” from the simple concept, or better said, tradition of ‘private property’. Just like in the Olympics we can discover the best athletes in the world due to global competition, so does having the ‘freedom to trade’ with everyone in the world allows the best ideas to compete and spread globally thus ensuring the best possible global order. As cost-cutting ideas emerge and inevitably spread via competition leading prices to continuously fall, new profitable ideas easily arise and once again spread via competition in an endless cycle of knowledge generation-innovation. For example, computers were once very expensive, but once the price of making them came down enough, people easily realized that every home could have them, which gave birth to our computerized world and the Internet and all the great things that flow from it. The more wealth is produced, the more wealth has to be offered in exchange for labor as companies-orders compete against each other for the labor they need which helps explain why the economic pie grows for everyone. For example, imagine that after a shipwreck you end up in an island where everyone has a machine that can turn dirt into food. Tom wants your labor to build a home, Mark, to build a boat, and Gina to plant a garden. Competition will motivate them to offer you all the food you want and more.
Morals are simply ways of acting or information which also emerges and spreads via economic competition. It is hard-working, tolerant, courteous people who thanks to competition inevitably motivate everyone else to be likewise. As Hayek writes:
“Competition is, after all, always a process in which a small number makes it necessary for larger numbers to do what they do not like, be it to work harder, to change habits, or to devote a degree of attention, continuous application, or regularity to their work which without competition would not be needed.” (Hayek “Law, Legislation and Liberty, Volume 3: The Political Order of a Free People” 1981, p. 77)
As millions of Britons, Germans, Jews and others from all over the world came to America, it was ultimately the competition which grows from ‘private property’ and thus individual liberty and freedom which stripped these people of their otherwise nationalistic-ethnocentric-tribalistic identities and evolved what came to be seen as the classic American character-ethos of wanting to be seen as a reputable-honest businessman-professional who treats everyone with respect and wears a business suit as opposed to older religious-ethnocentric dress.
The role of governments or coercion should be minimized because governmental or ‘public sector’ bureaucracies, being COERCIVE MONOPOLIES which get their life or order-sustaining wealth through taxes-compulsion are immune to the competitive-information-spreading incentives-pressures which motivate private sector entities to keep up with the competition in terms of information and hustle. Central-government plans can’t work if people are free to not go along with them so they inevitably require compulsion-tyranny. The former Soviet Union had plenty of highly educated scientists-“experts” whose plans required the coercion of millions, but they were thoroughly crushed by relatively freer Americans and their resulting superior “competitive knowledge discovery”. The “classic” image below helps explain the difference between competitive-private-free orders(South Korea) and monopolistic-government-coerced orders (North Korea). Keep your eye on how information arises-spreads via competition and continuously restructures the social order as people trade-exchange-move-reorder property-wealth in a manner where more wealth is produced than consumed thus being profitable and thus increasing the economic pie and socioeconomic order.
Government regulations are just top-down-monopolistic-competition-immune information which then paralyzes-retards ‘competitive knowledge discovery’ driving up costs (more lawyers/regulators/bureaucrats). Compare the increasingly regulated/paralyzed healthcare sector which has grown from consuming less than 5% of the economic pie in 1960 to over 20% today, to the free/competitive IT sector where even the poorest of Americans can afford rapidly improving amazing cell phones and technology. What a person must learn in order to legally offer medical advice via licensing of doctors, where he must learn it via licensing of medical schools, what chemical compounds can be legally consumed, how to test drugs, how the medical insurance industry should work, and countless other gigantic bodies of knowledge/information are dictated by monopolistic competition-less bureaucracies like the American Medical Association (AMA), the Food And Drug Administration (FDA), CDC and numerous others leading to the spectacular CovidMania tyranny. By comparison, the Information Technology sector has very few government regulations so competition motivates the discovery and spread of superior information at breakneck speed and is obviously transforming the world right before our eyes.
Ok! We are done with the economics lesson! Thus we can see how from freedom and the tradition of private property emerges the ‘freedom to trade’ which leads to the emergence of ‘competitive knowledge discovery’ which creates and spreads the information that coordinates the socioeconomic order, civilizes our morals, and discovers the truth.
As the social order was getting bewilderingly complex, as the Industrial Revolution led people to move from easy-to-understand small towns to growing and increasingly complex cities, the mistaken idea that society could be improved by having “experts” in government coordinate society, in other words, ‘central economic planning’/Socialism, spread very quickly. Eventually an arrogant and misguided ideologue, Karl Marx, wrote a small book titled ‘The Communist Manifesto’ which packaged various fallacies in a convincing manner and led them to spread very quickly leading to Socialist/Communist revolutions all over the world. In his book he writes:
“the theory of the Communists may be summed up in the single sentence: Abolition of private property”
Thus the inadvertent destruction of everything that emerged from it like ‘freedom to trade’ and the resulting ‘competitive knowledge discovery’ that created the social order.
Unfortunately criticisms of Socialism/‘Central Planning’, as well as the vital focus on economic education as a means to overcome the fallacies and resulting disasters just did not exist much at the time, until Ludwig von Mises came along. Mises drove the intellectual stake through Socialist ideology by showing via his 1920 essay “Economic Calculation in the Socialist Commonwealth” that all-around Socialist central planning by “experts”, regardless of how smart of well-intentioned they may be, would always lead to the destruction of the social order. He also persuaded Austrian politicians away from Communism in the early 1920s when the Bolshevik-Socialist revolution was rapidly expanding thus helping stop the falling dominoes in Europe. Mises recalls:
“There were few who recognized the state of affairs clearly. People were so convinced of the inevitability of Bolshevism that their main concern was securing a favorable place for themselves in the new order. The Catholic Church and its followers, the Christian Social Party, were prepared to befriend the Bolshevists with the same eagerness with which the bishops and archbishops would embrace National Socialism 20 years later.…I knew what was at stake. Bolshevism would lead Vienna to starvation and terror within a few days. Plundering hordes would take to the streets and a second blood bath would destroy what was left of Viennese culture.”.. “The most important task I undertook…was the forestalling of a Bolshevist takeover… The fact that events did not lead to such a regime in Vienna was my success and mine alone.” –Mises (Memoirs)
In 1922 Mises wrote what is arguably still one of the greatest books of all time, ‘Socialism: An Economic and Sociological Analysis’, where he explains how the social order works and evolved, countless factors leading to erroneous Socialist mythology and more. Hayek elaborates:
When Socialism first appeared in 1922, its impact was profound. It…altered the outlook of many of the young idealists returning to their studies after the First World War. I know, for I was one of them.
In September 1944, as WWII was still raging, Hayek published a book where he tried to show how the same socialist fallacies that led to Socialism of the German and Soviet style, also increasingly dominated the thinking of the freer democracies like England, and would inevitably lead to, as his book was titled, ‘The Road To Serfdom”. Properly identifying socialist ideology as an understandable error he dedicated the book ‘to socialists of all parties’. Fellow freemarketeer and disciple of Mises, Henry Hazlitt, who was working at The New York Times loved the book, wrote a glowing review which began as “In “The Road to Serfdom” Friedrich A. Hayek has written one of the most important books of our generation.” And had the review placed in the front page on The Times’ Book Review Section. The book became an instant sensation among The Times’ book readers. However, at over 250 pages its wisdom remained less accessible to a mass audience. Enter Max Eastman. Max Eastman had been one of America’s most ardent Socialists. He had traveled to the Soviet Union, befriended men like Leon Trotsky and even translated several of his works into English. But eventually the inevitable economics chaos and tyranny of Socialism led him to stumble upon the writings of Mises and Hayek, made an intellectual 180 and became a passionate defender of freedom-Capitalism. Max’s monumental contribution came when he created a brilliantly written ‘condensed’ version of Hayek’s book which was less than 40 pages, which with the help of The Reader’s Digest magazine was eventually sold to over one million American homes. By the time Hayek came to the US in April 1945 to go on a speaking tour, instead of giving small talks at university departments, his first event “drew an overflow crowd of more than 3,000 listeners and was broadcast over the radio.”
Hayek’s book and Eastman’s condensation were a great antidote to Marx’s short and viral ‘Communist Manifesto’. Instead of inspiring Socialist ideologues, it inspired freedom ones like Margaret Thatcher who read the book while an 18-year-old undergraduate at Oxford, and countless others like 3-time presidential candidate Dr. Ron Paul who writes:
“My introduction to Austrian economics came when I was studying medicine at Duke University and came across a copy of Hayek’s The Road to Serfdom. After devouring this, I was determined to read whatever I could find on what I thought was this new school of economic thought — especially the works of Mises”
There are countless things we can learn from these men’s achievements. They had a laser-like focus on the very root of mankind’s problems. The economic ignorance that leads to the massive-coercive-competition-immune governments and resulting calamities. They believed that the public and average citizens could and should understand basic economics. As Mises writes:
“Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”
Without this belief, the effort to educate would not exist so the government-created calamities would continue and as Mises tells us “then there is no hope left for mankind’s future.”
The great freemarketeer Thomas Sowell once tweeted:
“People will forgive you for being wrong, but they will never forgive you for being right — especially if events prove you right while proving them wrong.”
People, especially “intellectuals” whose sense of identity, self-worth, and oftentimes paycheck since many work for the government, are soo deeply tied to the ideas they preach, that most are extremally negligent or hostile to superior ideas, thus causing the ideas to move very slowly. Here Max Eastman provides a great example of someone who was about as disastrously wrong as one can be and devoted much of his life to an error, completely turn it around in a spectacular way.
As dangerous and malicious as some popular politicians and ideologues can become, they focused, not on ill intent or malice by politicians or ideologues, but on economic ignorance and misunderstandings. Hayek elaborates:
“When I stressed that is genuine intellectual error that we have to fight, what I meant to bring out is that we ought to remain aware that our opponents are often high-minded idealists whose harmful teachings are inspired by very noble ideals. It seems to me that the worst mistake a fighter for our ideals can make is to ascribe to our opponents dishonest or immoral aims.
I know it is sometimes difficult not to be irritated into a feeling that most of them are a bunch of irresponsible demagogues who ought to know better. But though many of the followers of what we regard as the wrong prophets are neither just plain silly, or merely mischievous troublemakers, we ought to realise that their conceptions derive from serious thinkers whose ultimate ideals are not so very different from our own and with whom we differ not so much on ultimate values, but on the effective means of achieving them.
I am indeed profoundly convinced that there is much less difference between us and our opponents on the ultimate values to be achieved than is commonly believed, and that the differences between us are chiefly intellectual differences. We at least believe that we have attained an understanding of the forces which have shaped civilisation which our opponents lack. Yet if we have not yet convinced them, the reason must be that our arguments are not yet quite good enough, that we have not yet made explicit some of the foundations on which our conclusions rest. Our chief task therefore must still be to improve the argument on which our case for a free society rests.”
We obviously need a repeat.
