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Hayek: a Collaborative Biography ARCHIVAL INSIGHTS INTO THE EVOLUTION OF ECONOMICS HAYEK: A COLLABORATIVE BIOGRAPHY Part VIII: The Constitution of Liberty: ‘Shooting in Cold Blood’, Hayek’s Plan for the Future of Democracy Robert Leeson Archival Insights into the Evolution of Economics Series Editor Robert Leeson Stanford University Stanford, CA, USA Tis series provides unique archival insights into the evolution of eco- nomics. Each volume examines the defning controversies of one or more of the major schools. More information about this series at http://www.palgrave.com/gp/series/14777 Robert Leeson Hayek: A Collaborative Biography Part VIII: The Constitution of Liberty: ‘Shooting in Cold Blood’, Hayek’s Plan for the Future of Democracy Robert Leeson Department of Economics Stanford University Stanford, CA, USA Archival Insights into the Evolution of Economics ISBN 978-3-319-78068-9 ISBN 978-3-319-78069-6 (eBook) https://doi.org/10.1007/978-3-319-78069-6 Library of Congress Control Number: 2018946165 © Te Editor(s) (if applicable) and Te Author(s) 2019 Tis work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microflms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Te use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifc statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Te publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Te publisher remains neutral with regard to jurisdictional claims in published maps and institutional afliations. Tis Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG Te registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Contents Part I Crony Capitalists and Teir ‘Free’ Market School of Economics 1 ‘Free’ Market ‘Knowledge’: ‘Tat Part of the Argument Which Is Not Sympathetic to Me, I Pass Over’ 3 2 ‘Te Two Great Scarcities in the Libertarian Movement: Money and Talent’ 79 3 Te Deception Plans of the ‘Aristocratic Revolution’: ‘Von’ Hayek I, II and III 115 4 Te Deluding and the Deluded 159 5 Summoned to Service by TOFF Funds and Aristocratic Bells 199 6 ‘Free’-Market ‘Knowledge’: Seven Suggested Research Topics 269 v vi Contents Part II Hitler and the Austrian School ‘United Front’ with ‘Neo Nazis’ 7 Power, Terror and Rights: An Overview Chronology 309 8 From Metternicht’s ‘Justice, Love and Peace’ to Mises’ ‘Oligarchic’ ‘Liberty’ and Russia of the Oligarchs 353 9 Cold War ‘Peace’ 415 10 ‘Shooting in Cold Blood’ 453 11 What ‘Tings’ Did Hitler ‘Get Done’? 497 12 Te Unravelling and the Glue 549 Bibliography 609 Index 667 Part I Crony Capitalists and Their ‘Free’ Market School of Economics 1 ‘Free’ Market ‘Knowledge’: ‘That Part of the Argument Which Is Not Sympathetic to Me, I Pass Over’ 1 Archival Insights into the Evolution of Economics Tis volume of the AIEE series examines the relationship between the Austrian School of Economics and the overthrow (or planned over- throw) of democracy in a variety of countries, including inter-war Germany and Austria and Cold War Chile, the USA and Britain. Te AIEE series seeks to provide a systematic archival examination of the process by which economics is constructed and disseminated. All the major schools will be subject to critical scrutiny; a concluding volume will attempt to synthesise the insights into a unifying general theory of knowledge construction and infuence. Before encountering the argumentum ad hominem of the Tobacco, Obesity and Fossil Fuel (TOFF) Professoriate, the AIEE editor largely accepted the validity of Ludwig ‘von’ Mises’ (1998, 90) cliché: ‘Scientists are bound to deal with every doctrine as if its supporters were inspired by nothing else than the thirst for knowledge.’ Two AIEE vol- umes were initially planned for the entire Austrian section. However, it soon became apparent that due to the amount of stolen and covered-up © Te Author(s) 2019 3 R. Leeson, Hayek: A Collaborative Biography, Archival Insights into the Evolution of Economics, https://doi.org/10.1007/978-3-319-78069-6_1 4 R. Leeson evidence almost two score volumes would be required to examine Friedrich ‘von’ Hayek alone. Economic ‘theory’ is a misnomer: the subject has been constructed through competition between school-based theories. Teory (and illus- trative evidence) is the bridge between the school (or individual econo- mist) and their preferred (if often unacknowledged or fully recognised) societal outcomes. Te ‘presuppositions of Harvey Road’ informed John Maynard Keynes’ theorising (Harrod 1951), and the presuppositions of his proto-Nazi family and milieu played a similar role for Hayek. And as Lawrence White (2008) unintentionally discovered, for Hayek and Mises, economic ‘theory’ is an elaborate and ornate facade behind which to pursue defation—and thus ‘extensive unemployment’—so as to reconstruct the ‘spontaneous’ order (see also Magliulo 2018; Glasner 2018). And Presuppositionalist public stoning theocrats also sense an opportunity to impose their ‘free’ market. Te two fraternities that emerged from the French Revolution—com- mitted, respectively, to the slogans of ‘liberty’ and ‘equality’—have tended to see the world as an irreconcilable confict concerning the share of national income that ‘should’ accrue to the owners of the two primary factors of production: labour (human capital) and (non-human) capital. Two trade unions (and their associated political representatives) emerged from the Tird Estate: for employers and for labour. Adam Smith (1827 [1776], 137) famously cautioned that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ Mises (2006 [1958], 97) complained: ‘You have, in the legis- latures, representatives of wheat, of meat, of silver, and of oil, but frst of all, of the various unions.’ Mises (1881–1973), the co-leader of the third-generation Austrian School, was a paid lobbyist for employer trade unions1; and the co-leaders of the fourth generation, Hayek (1899–1992) and Murray Rothbard (1926–1995), were also funded from the same source.2 Behind the abstractions of ‘mal-investment,’ their mission was to 1He was sacked in 1938, after the Anschluss that he had promoted, and for a few wartime years may have not had much, if any, funding from the business lobby. 2In Hayek’s case: with the exception of his time at the LSE, 1931–1949. 1 ‘Free’ Market ‘Knowledge’: ‘That Part of the Argument … 5 undermine the power of the other (labour) trade union. In contrast, the British branch of the neoclassical school promotes the tax-funded acquisi- tion of education (human capital) as a harmonising invisible hand. Both major branches of the neoclassical school (British and Austrian) promote interference with the price mechanism. In the British Pigouvian-externality tradition, taxes and subsidies are recommended to promote full-cost pricing; and in the post-Keynesian tradition, incomes policies or price and wage controls (underpinned by cost-push or wage- price spiral analysis) are often proposed to assist the pursuit of the empty concept of ‘full’ employment. In Te General Teory of Employment, Interest and Money, Keynes (1936, Chapter 2)—disturbed by the threat to civilisation posed by the return to the gold standard and the resulting general strike—advocated (naively, perhaps) a once-and-for-all rise in the price level to reduce both real wages and unemployment: it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all- round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school. Te Great Infation of the 1970s—initiated by the second-year (1948–) Mont Pelerin Society (MPS) member and Richard Nixon’s Chair of the Federal Reserve, Arthur Burns—turned Keynes’ ‘dream’ into a nightmare. To end infation, Mises reportedly stated: ‘Hear that noise’ of the print- ing presses? ‘Turn it of!’ (Chapter 8, below). Using a price-wage-depression 6 R. Leeson spiral, Austrians seek to ‘turn of’ labour trade union power through a ‘contrivance’ to reduce prices: demand-pull defation which (temporarily) increases the real wage creates double-digit unemployment (the equilibrat- ing vehicle) through which nominal wages and labour trade union power are reduced. Tey also provide intellectual respectability to the TOFF lobby in their eforts to keep prices reduced (by avoiding externality full-cost pricing).
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