Have We Had This Discussion Before? Revisiting the LSE in the 1930s

|Peter Boettke|

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.

 

 

 

Comments

[Valueprax]

Peter,

I think the way you meant your concluding remark it was a harmless/bridge-building lament. But it seems like a subtle ad hominem the more I think about it.

You're in effect accusing your intellectual opponents of suffering from terrible memories. In other words, they don't actually mean the things they say, they've just forgotten what we all agreed was right long ago. In other words, "You're wrong because you don't remember."

I wonder how so many people have managed to forget conclusions which are so dramatic. Why can't this science seem to move forward on this issue?

I think there's a lot of factors at play but faulty memories aren't one of them.

[Richard Ebeling]

Pete,
I wish I could share your implication of "mere intellectual error" about those on "the left" suffering from a memory lapse.

Unfortunately, I believe it is deeper. They have never forgone their belief in some form of socialism.

The collapse of the Soviet Union shattered the "dream" of a world successfully managed without private property and the profit motive. Especially, since they finally had to admit that it resulted in some much "unpleasantness" (read: tens of millions of innocent people killed in the name of building socialism).

But the core idea had not left their soul -- the evilness of capitalism.

As I have suggested in some things I've written in the past, the "specter of communism" still haunts the world. No longer in the form of Soviet-style central planning. But in the form of the socialist and Marxist critique of capitalism.

Left to its own designs, unregulated capitalism exploits workers, concentrates wealth in the hands of "the few," converges on monopoly, produces for profit (i.e., unnecessary things) instead of for need (what the critic of capitalism would want to be produced for the supposed good of society), etc.

The appeal of Piketty right now is that his book seems to vindicate their implicit fears and dislikes about the relatively free market.

And justifies, anew, the need for paternalistic government to confiscate concentrated wealth to bring about a "Juster" (a more materially equal) society.

In the video interview you've link to Piketty says that he has no equation specifying what is or is not a "socially necessary" and acceptable degree of inequality to maintain a minimum amount of incentives for work and effort.

But like pornography, he knows excessive income inequality when he sees it.

Which is like every other "leftist": they know "social injustice" when they see it, and a confidence that a people's "democracy" freed from the influence and control of the "one percent" will know how to rectify it.

Notice also, and which is typical of many on "the left," he did does not expect that his 80 percent tax on income and wealth above $500,000 or one million dollars will generate permanent redistributive income year-after-year.

No, it is punitive. It would be nice if Peter could continuously be plundered to give more to Paul. But it is enough to guarantee that Peter permanently cannot rise above the average income earnings of the Pauls of society.

Here is the psychology and ideology of envy and resentment of those who have done better than others. They must be punished by not being allowed to have what their efforts may have produced.

How is freedom compatible with a political-economic system in which all are monitor, controlled and restricted to only earn and enjoy what the "wealth police" have decided they should have based on "social usefulness"?

Need I add that here is, also, the politics of the "tribe" which asserts ownership over each individual member and what he produces?

If this gains traction, even darker days are once more ahead of us.

[Barkley Rosser]

As a participant a decade ago in symposia on the 60th anniversary of the publication of Hayek's Road to Serfdom (RtS), I think I should weigh in on this, following up on themese discussed by both Pete and Richard. Let me first note that I am still waiting to get my hands on a copy of Piketty's book and so have read none of it, although I have been following the debates. So, aside from observing that its popularity is clearly related to the fact that it claims to both document and explain the trends in rising inequality of both income and wealth in many nations, including certainly the US, I am not going to comment on it further (although I shall note that a number of Latin American nations have recently seen reduced inequality coinciding with improved general economic growth and performance).

So, I think that I would rephrase Pete's basic complaint to being one that is unhappy with the sloppy use of the word "socialism." When Maher and others use it, just what do they think they mean by it. Is it just knee jerk anti-capitalism as Richard suggests, and to what degree is it just incoherent or evil or what?

I think that Richard, although not Pete, pinpointed crucial elements of RtS that Hayek identified with socialism that have to a substantial degree disappeared, or at least been sharply reduced, in most of the high income parts of the world, and indeed more widely generally around the world since the breakup of the Soviet Union. Those are state ownwership of the means of production, Marx's old criteriion for what constituted socialism, btw, and maybe even more crucially, central planning, particularly in its command form. The Soviet economy and those following it combined both of those elements, widespread state ownership of enterprises with strong command central planning. Those elements have been massively on the retreat throughout most of the world in recent years, and by even as early as when Hayek wrote Constitution of Liberty he recognized that they were both losing their ideological appeal. I also have not seen anybody reporting that Piketty is supporting some return to either of those, although I could be mistaken, not having read his book yet.

This leaves us with this other political-economic form that is often called "social democracy," with its clearest manifestation in the Nordic economies, although some other European ones as well, and a few others in some other parts of the world such as perhaps Uruguay. This involves no, or very little, state ownership of enterprises or resources, and essentially no command central planning, with only limited amounts of other sorts of central planning involving such things as planning infrastructure investment or labor market interventions or environmental policies, and in some places, support for corporatist-style economy-wide labor-management wage negotiations. Many critics of Hayek have noted that these nations have generally done fairly well economically while maintaining high levels of civil and political liberty.

Hayek recognized this, but was always uncomfortable with it, warning that these natinos were in danger of getting on a slippery slope if they were not careful. And, of course, it is well known that he himself, especially in RtS, supported at least a limited social safety net in the form of certain kinds of social insurance (including national health insurance), although he clearly opposed policies explicitly directed solely at income or wealth redistribution such as progressive income taxes. Indeed, it has been this support for such things by him, arguably weaker as he got older, that has led some harder line anarcho-capitalists to label Hayek a "socialist."

Again, I do not know where Piketty fits into all of this, with the only proposal I keep hearing about from him being some sort of 80% global wealth tax (which is certainly not going to happen). However, it may be that people like Maher are thinking of Nordic-style social democracy when they use the term "socialism." I do not know as they remain vague and incoherent.

Let me close this by noting that while up until recently there was a sort of knee jerk reaction by the sorts of people who read this blog of going "booo hissss" at the Nordic economies, severral of them have been liberalizing in the classical sense portions of their economies, including iconic Sweden especially, with many of those people not having realized that they were in many policy areas already very classically liberal on many things, such as regulations about starting businesses or transferring property or protecting private property rights. This has changed recently, with many now noting that by gosh by gum these economies do pretty well on measured "freedom indexes," with their main negative being the high taxes they continue to have to support their still large welfare states, and for all its libearlizing, the last time I checked, Sweden had the lowest Gini coefficient for income of any nation in the world.

[Padma]

The best retort to Pickety's argument was published in book form in 2010: http//www.juggernautcometh.com

[Jerry O'Driscoll]

I agree with Pete and Barkley that the term socialism is used loosely on both the left and right. As Barkley correctly notes, the old-style socialism criticized by Mises and Hayek is mostly gone. (But let us not forget the basket cases where it remains, like North Korea and Cuba).

Some social democratic countries have done well. But to rekindle growth, many have liberalized in recent years. That includes Germany and the Nordic countries that Barkley mentions. As an aside, I took early note of liberalization in the Nordic counties when I was senior editor of the Index of Economic Freedom.

I have not read Piketty either. I look forward to a thorough discussion of it.

[Peter Boettke]

Here is a dialogue from 1982 between Bell, Nozick and Tobin ... Note the witty exchange between Tobin and Nozick on philosophy and economics ...http://www.nytimes.com/1982/01/03/weekinreview/if-inequality-is-inevitable-what-can-be-done-about-it.html?pagewanted=3

[Barkley Rosser]

I think that Gerry O'Driscoll and others such as Bob Lawson deserve lots of credits for their efforts to develop the various indices that they have done. Some can dispute certain details of how certain parts are measured, but by and large credible and sincere efforts have been made in carrying out these very useful exercises.