What’s the one thing everyone knows about capitalism? Why, that it started out as a mean, nasty tool of greedy industrialists. “The Industrial Revolution,” we all learned, was a terrible Moloch that devoured children, put profits before people, and though it made great fortunes (or, perhaps, partly because it made great fortunes), was a wicked development. The Industrial Revolution, we’ve all been taught, was the original sin of capitalism, necessary, perhaps (perhaps) to prime the engine of economic progress, but lamentable nevertheless.
Ask anyone: the Industrial Revolution is a stigma that no amount of societal amelioration can remove.
Ask anyone: the Industrial Revolution is a stigma that no amount of societal amelioration can remove. The “factory system,” an integral part of the Industrial Revolution, was an urban nightmare, a Dickensian melodrama in which rural innocence was mauled and blighted in those horrific, unsanitary “Satanic mills” that William Blake anathematised. Once upon a time, before the advent of the factory system, workers enjoyed:
a passably comfortable existence, leading a righteous and peaceful life and all piety and probity; and their material condition was far better than that their successors... They did not need to overwork; they did no more than they chose to do. and yet they earned what they needed. They had leisure for healthful work in garden or field, work which, in itself, was recreation for them, and they could take part beside in the recreation and games of their neighbours ... [which] contributed to their physical health and vigour... Their children grew up in fresh country air, and, if they could help their parents at work, it was only occasionally.
Alas, this Eden, as described by Frederick Engels in a fairytale called The condition of the working classes in England in 1844, was destroyed by the advent of the machine. “The proletariat,” writes Engels, “was called into existence by the introduction of machinery:”
The consequences of improvement in machinery under our present social conditions are, for the working-man, solely injurious, and often in the highest degree oppressive. Every new advance things with the loss of employment, want and suffering.
That’s the sad story of capitalism we all imbibed with mother’s milk, or formula. No less an authority than Bertrand Russell has assured us that “the Industrial Revolution caused unspeakable misery both in England and in America. I do not think any student of economic history can doubt that the average happiness in England and early nineteenth century was lower than it had been hundred years earlier.”
The widespread emotional aversion to ‘capitalism’ is closely connected with this belief that the undeniable growth of wealth which the competitive order had produced was purchased at the price of depressing the standard of life the weakest elements of society.
As Friedrich Hayek points out in Capitalism and the Historians, an extraordinary collection of essays he edited and published in 1954, “The widespread emotional aversion to ‘capitalism’ is closely connected with this belief that the undeniable growth of wealth which the competitive order had produced was purchased at the price of depressing the standard of life the weakest elements of society.” This picture of economic depredation, notes Hayek, is “one supreme myth which more than any other has served to discredit the economic system [capitalism] to which we owe our present-day civilisation.”
When we move from the realm of myth-making to historical truth, however, we see that the Engels-Russell narrative, the narrative upon which we’ve all been battened, is a tissue of exaggerations, misrepresentations, and outright lies. A “careful examination of the facts,” which is what Hayek and his colleagues provide in Capitalism and the Historians (or, to give it its full title, Capitalism and the Historians: A Defense of the Early Factory System and its Social and Economic Consequences), has led to a “thorough refutation of this belief.”
Alas, the fact that a poisonous idea has been “thoroughly refuted” does not mean that it has been disarmed. Far from it. Some bad ideas exert a catnip-like fascination on susceptible souls, partly because they speak to that species of naiveté that undergirds all utopian schemes, partly – and more darkly – because it plays into the hands of those who wish to wield power over others.
Consider, for example, the case of Benito Mussolini. In 1929, when he was still riding high as the man who made the trains run on time, Il Duce boasted that: “We were the first to assert that the more complicated the forms assumed by civilisation, the more restricted the freedom of the individual must become.”
Of course, Mussolini was wrong about his historical priority, just as he was wrong about most other things. The palm for first promulgating that principle in all its modern awfulness must go to Lenin who, back in 1917, boasted that when he finished building his workers’ paradise “the whole of society will have become a single office and a single factory with equality of work and equality of pay.” What Lenin didn’t know about “restricting the freedom of the individual” wasn’t worth knowing.
Of course, Mussolini was wrong about his historical priority, just as he was wrong about most other things.
Granted, things didn’t work out quite as Lenin hoped – or said that he hoped – since as the Soviet Union lumbered on there was less and less work and mostly worthless pay. (“They pretend to pay us,” one wag said, “and we pretend to work.”) Really, the only equality Lenin and his heirs achieved was an equality of misery and impoverishment for all but a shifting fraction of the nomenklatura. Trotsky got right to the practical nub of the matter, observing that when the state is the sole employer the old adage “he who does not work does not eat” is replaced by “he who does not obey does not eat.”
Nevertheless, a long line of Western intellectuals came, saw, and were conquered: how many bien-pensants writers, journalists, artists, and commentators swooned, as did Lincoln Steffens: “I have been over into the future,” he said of his visit to the Soviet Union in 1921, “and it works.” Jeremy Corbyn updated the sentiment when, in 2013, he said that Hugo Chavez “showed us that there is a different and a better way of doing things. It’s called socialism, it’s called social justice and it’s something Venezuela has made a big step towards.”
Yes, Jeremy, it has. And how do you like it? Of course, you can’t make an omelette without breaking eggs. But it is remarkable what a large accumulation of egg-shells we have piled up over the last century. (And then there is always Orwell’s embarrassing question: “Where’s the omelette?”)
I forget which sage described hope as the last evil in Pandora’s box. Unfair to hope, perhaps, but not inapplicable to that adamantine “faith in a better world” that has always been at the heart of the socialist enterprise. Talk about a hardy perennial! The socialist experiment has never worked out as advertised. But it continually blooms afresh in the human heart – those portions of it, anyway, colonised by intellectuals, that palpitating tribe which Julien Benda memorably denominated “clercs” (as in “trahison de”).
But why? What is it about intellectuals that makes them so profligately susceptible to the catnip of socialism?
In his last book, The Fatal Conceit: The Errors of Socialism (1988), Hayek drily underscored the oddity:
The intellectuals’ vain search for a truly socialist community, which results in the idealisation of, and then disillusionment with, a seemingly endless string of “utopias” – the Soviet Union, then Cuba, China, Yugoslavia, Vietnam, Tanzania, Nicaragua – should suggest that there might be something about socialism that does not conform to certain facts.
At the end of the day, Hayek’s inestimable value is to have dramatised the subtle and seductive insidiousness of the socialist enterprise.
It should, but it hasn’t. And the reason, Hayek suggests, lies in the peculiar rationalism to which a certain species of intellectual is addicted. The “fatal conceit” lay in believing that, by exercising reason, mankind could recast society in a way that was at once equitable and prosperous, orderly and conducive to political liberty.
I say “mankind,” but of course the fatal conceit is always pursued by a tiny elite who believe that the imposition of their reason can effect the desired revolution in society. The rest of us “deplorables” are the raw material for the exercise of their fantasy.
Hayek traced this ambition back through Rousseau to Descartes. If man is born free but is everywhere in chains, Rousseau argued, then why does he not simply cast off his fetters, beginning with the inconvenient baggage of traditional social restraint? Whether Descartes deserves this paternity suit is perhaps disputable. But I see what Hayek means. It was a small step from Descartes’s dream of making man the “master and possessor of nature” (as he said at the end of the Discourse on Method) through science and technology, to making him the master and possessor of man’s second nature, society.
How much that was recalcitrant about human experience and the world had suddenly to be rendered negotiable even to embark upon that path! All that was summed up in words like “manners,” “morals,” “custom,” “tradition,” “taboo,” and “sacred” is suddenly up for grabs. But it was part of the intoxicating nature of the fatal conceit – for those, again, who were susceptible to its charms – that no barrier seemed strong enough to withstand the blandishments of mankind’s ingenious tinkerings. “Everything solid,” as Marx famously said, “melts into air.”
John Maynard Keynes – himself a conspicuous victim of the fatal conceit – summed up its psychological metabolism in his description of Bertrand Russell and his Bloomsbury friends: “Bertie in particular sustained simultaneously a pair of opinions ludicrously incompatible. He held that in fact human affairs were carried on after a most irrational fashion, but that the remedy was quite simple and easy, since all we had to do was to carry them on rationally.”
The more individuals were left free to follow their own ends, the more their activities were “led by an invisible hand to promote” ends that aided the common good.
What prodigies of existential legerdemain lay compacted in that phrase “all we had to do.” F. Scott Fitzgerald once said that the test of “a first-rate intelligence” was “the ability to hold two opposed ideas in the mind at the same time” and still be able to function. In fact, that ability is as common as dirt. Look around.
Friedrich Hayek (he dropped the aristocratic “von” to which he was born) was a supreme anatomist of this species of intellectual or intellectualist folly. Born to a prosperous family in Vienna in 1899, Hayek had already made a modest name for himself as an economist when he departed for England and the London School of Economics in 1931. Over the next decade, he published half a dozen technical books in economics (sample title: Monetary Theory and the Trade Cycle). Life changed in 1944 when The Road to Serfdom – published first in England, then a few months later in the United States – catapulted him to fame.
The story of this short but extraordinary book – which is less a treatise in economics than an existential cri de Coeur – is well known. Three publishers turned it down in the United States – one reader declared it “unfit for publication by a reputable house” – before the University of Chicago, not without misgivings, took it on. One of Chicago’s readers, while recommending publication, cautioned that the book was unlikely to “have a very wide market in this country” or “change the position of many readers.”
In the event, Chicago could hardly keep up with demand. Within months, some 50,000 copies were in print. Then Reader’s Digest published a condensed version, which brought the book to some 600,000 additional readers. A few years later, a Look picture-book version – the “graphic novel” of the day – further extended its reach.
The Road to Serfdom transformed Hayek from a retiring academic into an international celebrity. By the time he died, six weeks shy of his 93rd birthday, in 1992, Hayek had become a darling of the academic establishment. He’d been a professor at the London School of Economics, the University of Chicago, and the University of Freiburg, and was the recipient of numerous honorary degrees. In 1974, he was awarded the Nobel Prize for Economics – the first free-market economist to be so honoured – and his theories helped lay the intellectual groundwork for the economic revitalisations that Margaret Thatcher and Ronald Reagan undertook in the 1980s.
In a deeper sense, however, Hayek remained a maverick, outside the intellectual or at least the academic mainstream. The message of The Road to Serfdom shows why. The book had two purposes. On the one hand, it was a paean to individual liberty. On the other, it was an impassioned attack on central economic planning and the diminution of individual liberty such planning requires.
It might seem odd, in the wake of the Reagan and Thatcher revolutions, to describe an attack on central planning or a defense of individual liberty as “maverick.” But in fact, although Hayek’s theories won some major skirmishes “on the ground,” in the world of elite intellectual opinion his views are as contentious now as they were in the 1940s. Even today, there is widespread resistance to Hayek’s guiding insight that socialism is a nursery for the growth of totalitarian policies.
A rule, which, in speculation, may seem the most advantageous to society, may yet be found, in practice, totally pernicious and destructive.
With the example of Nazi Germany before him, Hayek saw how naturally national socialism, leaching more and more initiative away from the individual in order to invest it in the state, shaded into totalitarianism. A major theme of the book is that the rise of fascism was not a reaction against the socialist trends of the 1920s, as is often contended, but on the contrary was a natural outcome of those trends.
What began as a conviction that, if planning were to be “efficient,” it must be “taken out of politics” and placed in the hands of experts, ended with the failure of politics and the embrace of tyranny. “Hitler did not have to destroy democracy,” Hayek noted; “he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done.”
Britain, Hayek warned, had already travelled far down the road of socialist abdication. “The unforeseen but inevitable consequences of socialist planning,” he wrote, “create a state of affairs in which… totalitarian forces will get the upper hand.” Hayek quotes numerous influential commentators who cheerfully advocate not only wholesale economic planning but the outright rejection of freedom.
Today, some of us warn about the growth and insidiousness of “the administrative state” or “the deep state” – that permanent bureaucracy of busybodies who are not elected but nevertheless wield enormous power over every aspect of our lives. The growth of that unaccountable apparatus of control has deep roots. In 1932, for example, the influential political theorist Harold Laski argued that “defeat at the polls” must not be allowed to derail the glorious progress of socialism. Voting is all well and good – so long as people vote for the right (ie, the Left) things. In 1942, the historian E. H. Carr blithely argued that: “The result which we desire can be won only by a deliberate reorganisation of European life such as Hitler has undertaken.”
The two great presiding influences on The Road to Serfdom were Alexis de Tocqueville and Adam Smith. From Tocqueville, Hayek took both his title and his sensitivity to what Tocqueville, in a famous section of Democracy in America, called “democratic despotism.” Hayek, like Tocqueville, saw that in modern bureaucratic societies threats to liberty often come disguised as humanitarian benefits.
If old-fashioned despotism tyrannises, democratic despotism infantilises. Echoing and extending Tocqueville, Hayek argued that one of the most important effects of extensive government control was psychological, “an alteration of the character of the people.” We are the creatures as well as the creators of the institutions we inhabit. “The important point,” he concluded, “is that the political ideals of a people and its attitude toward authority are as much the effect as the cause of the political institutions under which it lives.”
A major part of The Road to Serfdom is negative or critical. Its task is to expose, describe, and analyse the socialist threat to freedom. But there is also a positive side to Hayek’s argument. The road away from serfdom was to be found by embracing what Hayek called “the extended order of cooperation”; aka capitalism. (Although Hayek uses the term “capitalism,” I prefer the term “free market,” which is innocent of Marxist overtones.)
In The Wealth of Nations, Adam Smith noted the paradox, or seeming paradox, of the free market: that the more individuals were left free to follow their own ends, the more their activities were “led by an invisible hand to promote” ends that aided the common good. In other words, private pursuits advance public goods: that is the beneficent alchemy of the free market, of capitalism. Hayek’s fundamental insight, enlarging Smith’s thought, is that the spontaneous order created and maintained by competitive market forces leads to greater prosperity than a planned economy.
The sentimentalist cannot wrap his mind, or his heart, around that datum. He cannot understand why we shouldn’t favour “cooperation” (a pleasing-sounding arrangement) over “competition” (much harsher), since in any competition there are losers, which is bad, and winners, which may be even worse.
It is at this juncture that advocates of a planned economy introduce the word “fairness” into the discussion: wouldn’t it be fairer if we took money from person “A,” who has a stack, and gave it to person “B,” whose stack is smaller? (“That is,” as W. S. Gilbert put it in The Mikado, “assuming I am ‘B’.”)
Socialism is a version of sentimentality. The socialist, the sentimentalist, cannot understand why, if people have been able to “generate some system of rules coordinating their efforts,” they cannot also consciously “design an even better and more gratifying system.” Central to Hayek’s teaching is the unyielding fact that human ingenuity is limited, that the elasticity of freedom requires the agency of forces beyond our supervision, that, finally, the ambitions of socialism are an expression of rationalistic hubris. As David Hume, another of Hayek’s intellectual heroes, put it, “a rule, which, in speculation, may seem the most advantageous to society, may yet be found, in practice, totally pernicious and destructive.”
A spontaneous order generated by market forces may be as beneficial to humanity as you like; it may have greatly extended life and produced wealth so staggering that, only a few generations ago, it was unimaginable. Still, it is not perfect. The poor are still with us. Not every social problem has been solved. In the end, though, the really galling thing about the spontaneous order that free markets produce is not its imperfection but its spontaneity: the fact that it is a creation not our own. It transcends the conscious direction of human will and is therefore an affront to human pride.
The urgency with which Hayek condemns socialism is a function of the importance of the stakes involved. As he puts it in The Fatal Conceit, the “dispute between the market order and socialism is no less than a matter of survival” because “to follow socialist morality would destroy much of present humankind and impoverish much of the rest.” We get a foretaste of what Hayek means whenever the forces of socialism triumph. There follows, as the night the day, an increase in poverty and a diminution of individual freedom.
The curious thing is that this fact has had so little effect on the attitudes of intellectuals. No merely empirical development, it seems – let it be repeated innumerable times – can spoil the pleasures of socialist sentimentality. This unworldliness is tied to another common trait of intellectuals: their contempt for money and the world of commerce. The socialist intellectual eschews the “profit motive” and recommends increased government control of the economy. He feels, Hayek notes, that “to employ a hundred people is… exploitation but to command the same number [is] honourable.”
It is not surprising that Hayek is often described as “conservative.” In fact, though, he was right to object that his position is better described as “liberal,” understanding that term not in its contemporary deformation (ie, Leftist, statist) but in the 19th-century English sense in which Burke, for example, was a liberal. There is an important sense in which genuine liberals are (in Russell Kirk’s phrase) conservative precisely because they are liberals: they understand that the best chance for preserving freedom is through preserving the institutions and traditional practices that have, so to speak, housed freedom.
Although cautious when it came to political innovation, Hayek thought traditional Tory conservatism too wedded to the status quo. “The decisive objection” to conservatism, Hayek wrote in “Why I Am Not a Conservative,” a postscript to The Constitution of Liberty, is that it is by nature reactive and hence unable to offer alternatives to the “progressive” programme. It can retard our progress down the socialist path; it cannot, Hayek thought, forge a different path.
At the end of the day, Hayek’s inestimable value is to have dramatised the subtle and seductive insidiousness of the socialist enterprise. “It is seldom that liberty of any kind is lost all at once”: that sentence from Hume stands as an epigraph to The Road to Serfdom. It is as pertinent today as when Hayek set it down in 1944.