Thomas Piketty has become quite a sensation with Capital in the 21st Century. I have yet to make my way through the book, but I have been following the discussion quite closely. But even given the clear best-seller nature of this tome, it was surprising to see Bill Maher on his HBO show discussing Piketty's book and to declare that the upshot of the book is that "socialism built the middle class". There was some irony in watching this yesterday evening by sheer accident given that in a talk I gave earlier that afternoon for students at Beloit College I emphasized that socialism has a particular meaning and a systemic ways of thinking about human affairs and should not just be equated with things "we" like -- such as greater equality of income distribution.
Nevertheless, the way that Maher was throwing around the term, and the fact that his panel seemed so comfortable with the use of the term, really reminded me of the discussion about socialism -- and in particular market socialism -- in the 1930s at the LSE. In my 2004 Hayek Lecture at the LSE I wrote:
The LSE counter-reaction to the Mises-Hayek critique was to argue that socialist policy and economic and political freedom were compatible. Durbin (1945) actually stated: "We all wish to live in a community that is as rich as possible, in which consumers' preferences determine the relative output of goods that can be consumed by individuals, and in which there is freedom of discussion and political association and responsible government." He also adds that "We are socialist in our economics because we are liberals in our philosophy." Even Hayek's friend and comrade in the debate with market socialist Lionel Robbins (1947) came to argue that: "An individualist who recognizes the importance of public goods, and a collectivist who recognizes the desirability of the maximum of individual freedom in consumption will find many points of agreement in common. The biggest dividing line of our day is, not between those who differ about organization as such, but between those who differ about the ends which organization has to serve."
To Hayek the evolution of the argument in this direction must have seemed most puzzling and frustrating. In fact, it is my contention that the development of Hayek's research program over the next 40 years was not a consequence of him running away from economics, but of running deeper underneath economic argumentation to understand the source of the misunderstanding by his former students and colleagues.
I want to highlight the Durbin claim --- 'socialist in our economics because we are liberals in our philosophy'. This is, I would like to contend, what Maher and others believe as well. But Hayek's argument is that this argument is wrong in its basic economics, and wrong in its understanding of politics, and it is certainly wrong in its analysis of the interaction between economics and politics. And the consequences of being wrong have tragic consequences. Liberals are led by the logic of their own argument to pursue economic policies that destroy the very foundations of the liberalism that they supposedly cherish. This is the tragedy that forms the core of the argument in The Road to Serfdom.
Now that argument has been denied, confused, and abused throughout its history as Hayek's stock as a social thinker has risen, fallen, risen again. There are obviously technical details in the Piketty book, but as Tyler Cowen's review discusses if you look through the lens of Austrian capital theory as well as the lens of public choice theory, the analysis will start to shift ground. But I will wait till I get through the book until I pass full judgement on this and other issues with respect to Piketty's work. Nevertheless, I do wonder whether we haven't had this discussion before and that we are just forgetting the ultimate conclusions that were drawn.