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Freidrich Hayek

ANNOUNCER: Brought to you in part by ADM, feeding the world is the biggest challenge of the new century, which is why ADM promotes satellite technology to help the American farmer be even more productive. ADM, supermarket to the world. Additional funding is provided by the John M. Olin Foundation, the Lilly Endowment, theLynde and Harry Bradley Foundation, and the Smith Richardson Foundation.

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MR. WATTENBERG: Hello, I'm Ben Wattenberg. This week, on the 100th anniversary of his birth, Think Tank looks at the life and ideas of arguably one of the most influential thinkers of the 20th Century, Friedrich Hayek. We are joined today by Karen Vaughn, professor of economics at George Mason University, and author of Austrian Economics in America: The Migration of a Tradition; Ronald Hamowy, research fellow at the Independent Institute, and Emeritus professor of history at the University of Alberta; Dean Baker, a senior research fellow at both the Preamble Center and the Century Foundation; and recently Think Tank traveled to San Francisco to discuss Hayek and his legacy with Nobel laureate Milton Friedman at his home by the bay.

MR. FRIEDMAN: 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.

MR. WATTENBERG: The topic before the house, Friedrich Hayek, Away from Serfdom, this week on Think Tank.

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MR. WATTENBERG: Friedrich August Von Hayek was born in Vienna in 1899, the oldest son of a medical doctor. After serving in the Austrian Army during World War I, Hayek entered the University of Vienna. There he came under the influence of a group of scholars and intellectuals collectively known as the Austrian School of Economics. Hayek and the Austrian School launched a scathing attack on socialism and the welfare state. Hayek fleshed out his ideas in a prolific body of scholarly works, but his best known and most controversial book was a polemic that became an international bestseller, 'The Road to Serfdom.' In it, Hayek argued that by embracing big government welfare state programs, Western democracies such as the United States and Britain, were in danger of slowly and unwittingly going down the same totalitarian road as Nazi Germany or Soviet Russia.

MR. FRIEDMAN: The Road to Serfdom which was published in 1944 or'45 in the United States, I think it was in '43 in Britain, was an eye-opener for many people. It was the first real exposition of why it was that socialism, with all its great ideals, inevitably lead, almost inevitably, led to totalitarianism.

MR. WATTENBERG: Hayek, Friedman, and several other like minded intellectuals formed an influential group known as the Montpellieran Society in Switzerland. Members of the society were alarmed by the hostile climate of opinion toward free markets throughout the Westernworld. They sought to combat vigorously the large government initiatives championed by intellectuals such as economist Sir John Maynard Keynes.

MR. FRIEDMAN: It was taken for granted that the ideas of socialism, which are noble ideals, the ideals of equal treatment of people, the ideals of a community of feeling, those are noble ideals. And it was taken for granted that those could be achieved without a loss of personal or individual freedom. And his book, The Road toSerfdom, was a most effective counter to that belief.

MR. WATTENBERG: Through the power of ideas, Hayek and hisdisciples set out to roll back what they saw to be the encroachingsocialism and welfare stateism of Western democracies. His ideas andlegacy remain hotly debated to this day. To find out more, we turnto our expert panel. Lady, gentlemen, thank you for joining us. Let's go quickly around the room and just get a quick take on what itis that Friedrich Hayek was saying, let's begin with you, Ron.

MR. HAMOWY: That's a very hard question to answer, because Hayekcontributed in a very important way to a whole variety ofdisciplines, not only economics but also social and political theory,and psychology. But if there's one underlying principle of most ofhis work, I wouldn't say all of it, but most of it, it is that thediffusion of knowledge in society is such that no one mind or groupof minds can possibly plan either an economy or any other socialinstitution which is viable. It will fall of its own weight. Theseinstitutions have to develop by evolution.

MR. WATTENBERG: He was anti-planning, as we know it?

MS. VAUGHN: More to the point, he was anti-central planning,which was the basic premise of socialism in those days, and centralplanning especially was vulnerable because it tried to centralize allthe millions of decisions that are made by individuals in going abouttheir daily work. They're in the hands of a few people. And thelink, and this is the important link in The Road to Serfdom, was thatwhenever a few people are going to plan for the many, it's theirviews, their desires, their tastes that come to dominate. And theywill have to, just by necessity, just bowl those over the wants anddesires and preferences of the people who they're planning for. Theymust presume they know better, or they're not going to be successfulplanners.

MR. WATTENBERG: Dean, these are two Hayek acolytes here. You area professional non-Hayek acolyte, but did they accurate summarizewhat Hayek writes about?

MR. BAKER: I think so. And I think that Karen's last comment isvery much to the point, because we do want to think about who plans,who controls, and when we think about someone just doing things totheir whims, I think of all the battles I have with my computer andBill Gates. Planning doesn't just take place at the governmentlevel, it takes place at the corporate level. And I think Hayek'sgreat contribution was, on the one hand, a critique of centralplanning very much to the mark. But, secondly, encouraging us tothink, what markets do what we want them to do, and saying that wewant them as a way of transmitting information. That doesn't, to mymind, mean all his political conclusions follow. I think we'll argueabout those, but the point is, we should see markets as a way totransfer information, which is very much against the way mosteconomies actually see markets.

MR. WATTENBERG: Let's cut to the chase right away. MiltonFriedman lives in a nice beautiful apartment house on a hill in SanFrancisco. And he says, hey, I'm against government except for verylittle limited kinds of things. But if they built a slaughterhousenext door to his apartment house, I assume Milton and Rose would bethe first people out there with placards saying, hey, where's mygovernment, what are they doing? So now, how can you not have agovernment planning certain kinds of things?

MS. VAUGHN: There's always a lot of unplanned things that go on. Take the military, that's kind of a benchmark of what can 'go wrongwith planning.'

MR. WATTENBERG: Right. Nobody said, let's bomb the ChineseEmbassy in Belgrade.

MS. VAUGHN: Yes, right. And nobody says that there's no planningthat goes on in markets. As a matter of fact, Hayek's whole purposewas to show that who does the planing and where the planning is done,is the most important factor. And, another thing, Hayek is notanti-welfare state, which gets him in trouble with the rightsometimes. He was anti-central planning, he was anti-putting thewrong plans in the wrong hands, he was anti --

MR. WATTENBERG: How can you have a welfare state without centralplanning? I mean, welfare state means you're taking money fromeverybody and giving it out according to a set of plans.

MS. VAUGHN: I see we have a problem with the term 'planning' Planning doesn't mean legislation, planning means the economicplanning in trying to decide what should be produced, who should beproducing it, and how it should be produced. Taxation is completelywithin the purview of government as far as Hayek was concerned.

MR. HAMOWY: I think really we must be careful. I suspect itleaves the wrong impression when one makes the statement, Hayek wasnot opposed to the welfare state. If you take the welfare state tomean all of the welfare programs that exist in a modern Westernsociety today, Hayek would have opposed most of those.


MR. BAKER: I thought we were all going to agree on this. I thinkwhat's most important about Hayek is this point that we have tounderstand the problems with planning, and the question is where dowe think it's appropriate. I don't think -- I don't think we want toprivatize the military. You know, we all would agree. We might notagree on what exactly we want the military to do, but, you wouldagree, whatever it ends up doing, I think we'll agree that has to bedone publicly. And there's a similar sort of debate, and maybe we'lltake the opposite side of this. I suspect I'd be on the oppositeside of Hayek on this, but when we look at how to do we provide thebasic for the elderly, I think that's something done best centrally. But, again, the issues Hayek raised are how we should think aboutthat, what is it we're trying to do when we provide income for theelderly, or let's say health care for the elderly.

MR. WATTENBERG: We're going to come to that, because that's righton target. Let's first, just let's set the stage about Hayek. Imean, The Road to Serfdom is written in the middle of World War II,right?


MR. WATTENBERG: I mean, he has seen Hitler rampage throughEurope. He had seen Stalin take over the Soviet Union and transformit into a gulag. Is that what drove him, those experiences?

MR. HAMOWY: Well, that was part of it, but what he feared werethe policies that were adopted by the allies, the control anddepredations on personal liberty which had been introduced to someextent by the fact that these allied powers were at war, which reallylimited the area of private free action. And he saw this ascontinuing. If you extrapolated what was going on, say, from 1930 to1944, when The Road to Serfdom was originally published, if you go upto 1999, you see a huge behemoth state and, in fact, he was probablyright in believing that that would come about.

MS. VAUGHN: I think you have to look at that background and thattime. The attitudes seemed to be, look, we can plan to win the warso we can plan to win the peace. And that was what he was very muchopposed to. Interestingly, he and Keynes were on the same side ofonly one battle, and that was they were both anti-price controlsduring World War II. And they both lost that battle. And so, he wasreally worried about the attitudes of Western intellectuals whoseemed to think now that the war was a model for how to run asociety. And I think the other thing about The Road to Serfdomthat's sometimes overlooked was, he was trying to gently introducethe idea to the intellectual community that there was an equivalencebetween Hitler and Stalin that most of them were unwilling torecognize, that it was all totalitarian societies -- excuse me, bothof these centrally planned, or attempted to be planned as societiesbecame totalitarian for a reason. It was inherent in the logic ofhow they were running their economy. And that was the message thathe was trying most to communicate.

MR. WATTENBERG: Most people think of Hayek as a conservative,because we sort of organize our lines, liberal, conservative. Friedman had this to say about that.

MR. FRIEDMAN: Hayek is not a conservative, was not aconservative. What does conservative mean? It means keeping thingsas they are. We don't want to keep things as they are. We want tochange them. We don't believe that a government who is spendingnearly half the national income is the right size government, we wanta much smaller government. We don't believe that the individual'sposition ought to be determined by tradition or by inheritance. Webelieve that there ought to be an open opportunity for everybody touse his own capacities for the maximum possible extent. Hayek calledhimself a Whig. That's not a term that was widely understood. Inthe United States, in the American Lexicon, he was a libertarian, asI am a libertarian. A libertarian is someone who believes that themajor emphasis should be on individual freedom. And that, for thatpurpose you need a government, but a government which is limited tocertain basic function, the function s of protecting the nationagainst foreign enemies, or protecting individuals against coercionby other individuals, and providing a means for mediating disputes. Those are the basic functions. And beyond that, government causestrouble

MR. BAKER: I think the vast majority of people would stronglydisagree with that view of government. I think most people are veryhappy that the government assures them some basic income in their ownate. I think they're very happy that it assures them of decentmedical care in their old age. I think most people would like it ifthe government assured them medical care throughout their life as itdoes throughout the rest of the industrialized world. So, I thinkmost people see government as filling a much larger role in theirlives than what Hayek envisioned, and I don't think they view that astotalitarian. I think they view that as a positive development.

MR. WATTENBERG: But they don't want to pay more taxes for it.

MR. BAKER: Well, everyone would like -- you know, I'd like topays less on my mortgage, too. But I mean, yes, they would like to.

MR. WATTENBERG: And the big argument is what the tradeoff is,whether they'd rather have the services or --

MR. BAKER: Exactly. And that's where I think the argument has tobe.

MR. WATTENBERG: So, Dean, you would sort of buy the argument thatHayek, intellectually, is sort of the prince of freedom, that hereally makes the crystalline case for that, but that it's not reallyrelevant in day to day life, because freedom isn't going to beeroding if we erase social security.

MR. BAKER: Well, I agree that it won't be eroding, but I thinkalso Hayek, I think you have to go behind Hayek in a sense, becausenone of these things could be taken at face value. I mean, we justheard Milton Friedman saying, well, we just want to create the rules. Well, what are those rules? Bill Gates is very rich because thegovernment is going to arrest me if I try to sell a copy of Windowsto someone without his approval. The government creates copyright.

MR. WATTENBERG: Excuse me, that's in the Constitution, copyright. I mean, that was by the founders, the right to copyright.

MR. BAKER: We also didn't enforce copyright, British copyrightsuntil after the civil war, what about patents, you know, patents. You have pharmaceutical companies who make billions of dollars a yearin profits.

MR. WATTENBERG: That's also in the Constitution.

MR. BAKER: No, the patents are not in the Constitution. Copyrights are, not patents. But, my point here, if could justfinish the point, the government sets up rules that could be verybeneficial to some groups, be very harmful to others. How thoserules are defined is not given to us by God, we have to sit there aretake a look at it and say, how does it make sense to define theserules.

MS. VAUGHN: It's an issue of where those rules come from. Hayekdid believe in the rule of law. And he thought that we were verylucky, it was almost a lucky accident in the West that we happenedupon a set of rules of property, contract, tort, that evolved througheons of working at individual cases and problems. And he had noproblem with those kinds of laws. What he had a problem against wassomething he called constructivism, which is your notion of let's sitaround and figure out what makes sense here, because he said, nobody,no group of people have enough wisdom or knowledge to overturn theserules of law. What you can do is tinker around the edges, and that's-- and which kinds of things that you apply the rule of law tobecomes very important.

MR. WATTENBERG: Just hold on a minute. Milton Friedman hassomething to say about that, and you had mentioned it before. Let'sjust take one more look at Friedman.

MR. FRIEDMAN (From video): There is a notion that you can't getany order unless somebody plans it, and somebody specifies it. But,what Hayek emphasized was the possibility of spontaneous ordecentralized order being produced by the market. Here you havepeople, my favorite example, and the one I've always used, and theone Hayek would have agreed with was the idea of a common, ordinarylead pencil, which required the cooperation of thousands of people. You had people getting wood somewhere, people getting graphite inChile, people putting up steel mills in order to get the steel thatwas used to band it. There you have a spontaneous order, whichnobody plans. And that was his main point, that nobody plans it. It's a human creation, but it's a creation which arises without anyindividual human having created it.

MR. WATTENBERG: I think Friedman would have answered your earlierpoint about Bill Gates is that that's how that worked. It wasn't thegovernment, it was sort of spontaneous things coming from here andthere, and Bill Gates, notwithstanding what some of his adversarieshave to say, has a lot of competition. And his argument, Hayek'sargument against government is that it didn't have competition.

MR. BAKER: Again, let's take the example of Bill Gates --

MR. WATTENBERG: Or the lead pencil.

MR. BAKER: Well, lead pencil would be a little different here,because Bill Gates, my whole point earlier about copyright is thatthat requires the government to arrest people if they're going tosell a copy of Windows without Bill Gates' permission. I understandthat's in the Constitution. But, it's not clear that that's the waywe have to organized society.

MR. WATTENBERG: But if you wrote a book and spent, as I havesometimes, two or three years in an attic trying to write a book, andthen, hey, that's a pretty good book, and then the publisher camealong and said, you know, I like Dean's book, it's a good book, I'mgoing to sell it, but I'm not going to give him a royalty.

MR. BAKER: I'd be delighted, I've actually written three books,and I really doubt I'll make pocket change out of the royalties fromthem. I would love to have my books circulated, if you know apublisher that will do that for me --

MR. WATTENBERG: Without your permission?

MR. BAKER: By all means, I would like to see them circulated aswidely as possible.

MR. HAMOWY: Don't you think this is trivializing Hayek?

MR. BAKER: No, it's not.

MR. HAMOWY: To reduce Hayek's criticism of large scale planningto a question of whether we should keep copyrights and patents?

MR. BAKER: No, let me be as concrete as possible. I'm not tryingto trivialize this at all, because you're making this point, you'retrying to distinguish between your referring to my views asconstructivism, as opposed to the sort of tinkering around the edges. My point is that there are very, very big issues in determining howour society is created. It's not just nature that we ended up withthe pencil. We had a set of legal institutions, which are extremelycomplex, and none of those have to be taken as given. Just becausethey were there, you don't want to be a conservative. Just becausethey're there doesn't mean we should accept them. They're extremelycomplex, they help certain people, they hurt others. We have to lookat those and we can't just say, okay, what's there is great. It maynot be.

MS. VAUGHN: Actually, there is a conservative streak in Hayek,and I think Milton Friedman is telling us more about what MiltonFriedman believes, in some respects, than what Hayek did. And theconservative element is that the institutions that have evolved we dohave to take seriously, because there are always going to beunintended consequences of new laws. And that's something that a lotof people have trouble with. That just because we think, gee, maybethis will be better doesn't mean that's the way it's going to workout in practice. So you fool around with things that have alongstanding history, like property rights very, very gingerly, andthat's not to say you never do it, but you have to ask what are thealternatives. And that's something that hasn't come up in ourconversation. When Hayek asked that question, if you had a marketalternative, that he thought the market alternative was likely togenerate a better long term result than some sort of legislatedalternative.

MR. WATTENBERG: What would Hayek have thought of the Securitiesand Exchange Commission. Now, here is something that helps themarket flourish, but it flourishes by circumscribing it?

MR. HAMOWY: I frankly could not speak to what Hayek thought ofthe SEC.

MR. WATTENBERG: You were a student of his?

MR. HAMOWY: Yes, but the SEC never came up for some reason.

MR. BAKER: I think it's a very important point, though, becauseagain it says that you have to structure these things. If we didn'thave the SEC giving very detailed regulations on what information has--

MR. HAMOWY: That, I can tell you, he would oppose. That he wouldoppose, giving detailed -- giving detailed instructions. HE wasvery, very much opposed to the determination of what you can do andwhat you can't do.

MR. WATTENBERG: But, if you don't give detailed instructions thenit goes over to the judiciary as to whether -- if you give a general,say, you know, you shouldn't do corrupt things with your clients ifyou're a stock broker. And if you don't spell them out in some code,then it goes to a judge and you have case law going up to the ceiling--

MR. HAMOWY: That's exactly what he wanted, case law going up tothe ceiling.

MR. BAKER: There's another part of this, also. I mean, we heardall about the crony capitalism in Asian, that's exactly what this issupposed to prevent, because if you don't have detailed laws, I'm ahigh officer at GM, and I know we had a real bad quarter, I dump mystock before we make the news public. That's why you need verydetailed laws, it's essential for the functioning of the market.

MR. HAMOWY: What Hayek objected to was administrative regulatoryagencies, which made ad hoc decisions, which were not predictable inadvance.

MR. BAKER: Well, I think that's a caricature. I mean, no onewants that. I mean, that would be foolish, to have an administrativeagency that today is going to do this --

MR. WATTENBERG: But, we have had -- in the United States andelsewhere, we have had these metastastacizing government agenciesthat have self-perpetuated themselves, I think, in acounterproductive way. I think the best example was the welfaresituation in America where you had a growth of welfare even whenunemployment was going down in the '80s, welfare was going up. Youhad this sort of -- and that was, I thought, it was hurting thepeople it was supposed to help. So it was mindless, and that's inthe modern era, that's what the Hayek answer is saying.

MS. VAUGHN: And international agencies, as well. He was verymuch against -- because they had no root in some sort of politically--

MR. HAMOWY: But, it is wrong to call it a caricature, it is not acaricature when you go before the FCC and ask for a license tobroadcast. It is an ad hoc decision as to whether you are going toget the license or not There is simply no predictor for that.

MR. BAKER: If we didn't have the FCC, though, you couldn't evenhave broadcasting. If everyone who wants to, I could just broadcaston the same frequency, you know.

MS. VAUGHN: Well, you're assuming there would have been no marketalternative, there would have been no way those property rights wouldhave been established, absent from the FCC. We don't --

MS. VAUGHN: You have to have someone to establish property there.

MR. BAKER: That seems to be your view of laws, somebody, the lawgiver at one point established it, whereas, Hayek's view of law wasthat people bargained over these things, they worked it out, and thatproperty rights were established though some sort of bargaining.

MR. HAMOWY: There is a history of that kind of law, beginning toemerge before the government preempted it.

MR. BAKER: But, keep I mind, someone has to come in there andimpose that on me, because whatever you all --

MS. VAUGHN: Somebody has to enforce it. And enforcement hasalways been --

MR. BAKER: But, you're saying that's better done privately thandemocratically?

MS. VAUGHN: No, no. Enforcement is one of the police powers ofthe state, but how you establish the property rights in the firstplace may not be.

MR. WATTENBERG: Okay. I am going to use this little counterpoint as proof positive that the ideas that Frederick Von Hayekraised are still, in this day and age, hotly contested. Thank you,Karen Vaughn, Dean Baker, Ronald Hamowy, and Milton Friedman. Andthank you. We at Think Tank encourage feedback from our viewers viaemail. It is very important to us. For Think Tank, I'm BenWattenberg.

ANNOUNCER: We at Think Tank depend on your views to make our showbetter. Please send your questions and comments to New River Media,1150 Seventeenth Street, Northwest, Washington, D.C. 20036, or emailus at thinktank@pbs.org. To learn more about Think Tank, visit PBSOnline at www.pbs.org. And please let us know where you watch ThinkTank. This has been a production of BJW, Incorporated, inassociation with New River Media, which are solely responsible forits content. Brought to you in part by ADM, feeding the world is thebiggest challenge of the new century, which is why ADM promotessatellite technology to help the American farmer be even moreproductive. ADM, supermarket to the world. Additional funding isprovided by the John M. Olin Foundation, the Lilly Endowment, theLynde and Harry Bradley Foundation, and the Smith RichardsonFoundation.

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