FA Hayek vs. the Birth of Democratic Socialism

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Neoliberalism’s Fathers: Mises, Hayek and Friedman

FA Hayek vs. the Birth of Democratic Socialism

Friedrich August von Hayek studied at the knee of Mises during what Mises called his “private seminars” in the offices of the Vienna Chamber of Commerce on that city’s Ringstrasse (Grand Boulevard) between 1920 and 1934. Out of this developed both a lifelong friendship, the formation of the Mont Pelerin Society, and the new economic religion of neoliberalism.

By 1940, the year Mises emigrated to the US, Hayek had also fled the Nazis, although he’d moved to London (he became a British citizen in 1938) which was then being regularly bombed by Hitler’s Luftwaffe. As the bombing campaign, the Blitz, became more aggressive that year Hayek began to seriously worry about the possibility a bomb could kill his children.

This was a turning point for his family and he thought that America, daily becoming more egalitarian and leading the world out of the Republican Great Depression with FDR’s New Deal, would offer them the best opportunities.

Instead of being inculcated with the ancient social and royal hierarchies of Europe, Hayek hoped they would learn – as long as they were living with white Americans – a more modern, socially conscious, and civilized way of living.

“For the sake of my children who still had to develop their personalities,” Hayek wrote, “I felt that the very absence in the USA of the sharp social distinctions which would favour me in the Old World should make me decide for them in favour of the former.” He then added, parenthetically, “I should perhaps add that this was based on the tacit assumption that my children would there be placed with a white and not with a coloured family.”

His seminal and most famous book, The Road to Serfdom, was published without much fanfare in the UK in 1944, but the following year it came out in an American edition and made a huge splash among the growing neoliberal movement economists and even large parts of the conservative general public. (He followed his children to the US in 1950.)

Reading The Road to Serfdom is like stepping into a political and cultural time machine.

Unlike his mentor Mises, who wrote in his book Socialism that, “The foremost demands of the national-socialist [Nazi] agitation are different from those of the Marxists,”[xxx] Hayek believed that the biggest challenge facing the world wasn’t a creeping welfare state that would inevitably lead to communism but, instead, that a creeping welfare state would instead put the UK and US on the same path Hitler trod to fascism.

Germany’s social welfare state led all other developed nations by the end of the 1920s, that country having led the pack by initiating the world’s first single-payer healthcare system in 1884.[xxxi]

Following Germany’s defeat in World War I, the Kaiser stepped down in 1918 and by 1927 that country had put into place a new constitution (1919); laws protecting the rights of labor (leading to a steady rise in wages and growth of a middle class peaking in 1928 with a 10 percent rise in wages just that year); national “pension and sickness benefit schemes” (what we’d call Social Security and Paid Family and Sickness Leave); a massive program building low-income housing, schools, parks and hospitals; and a national program of unemployment insurance (1927).[xxxii]

This German abandonment of free-market hands-off-government and embrace of a modern social safety net was, Hayek believed, the cause of Hitlerism and the Nazi movement that had forced him and his family out of Europe. And if the US and the UK continued down the road the Germans had taken in the 1920s, he was convinced we were doomed to repeat Germany’s terrible experience.

“It is necessary now to state the unpalatable truth that it is Germany whose fate we are in some danger of repeating,” he wrote. “Few are ready to recognize that the rise of fascism and Naziism was not a reaction against the social trends of the preceding period but a necessary outcome of those tendencies.”[xxxiii]

There’s an important distinction between the Soviet system and the German welfare state of the 1920s, which was more like the American welfare state of the post-1933 New Deal and the British welfare state that emerged with the end of World War II. The Soviets had taken to heart Marx’s admonition that the means of production must be owned by the state, along with caring for the people’s needs.

Every industry in the USSR, from making cars, blue jeans and steel, to publishing books, building houses and even making pharmaceuticals had been taken over by the Soviet government, which became the entire nation’s sole employer. The Soviet government was unmistakably communist.

But in Germany, the United Kingdom and the United States, outside of natural monopolies like utilities, schools, and police/fire, all production and employment was still in private hands. The government regulated industry to protect workers from exploitation, protect consumers from dangerous or poisonous products, and keep the air and water clean, but didn’t own any major industries.

And Germany under Hitler’s Nazi government not only did not nationalize industries like the Soviets had done, but – like Margaret Thatcher did in the UK – undertook a widespread privatization program, turning previously government-owned or -run parts of the “steel, mining, banking, shipyard, ship-lines, and railways” over entirely to the private sector.[xxxiv]

That reality, however, didn’t deter Mises and Hayek from their certainty about the dangers of a strong social safety net in a democratic republic like the US and the UK.

While Mises had looked at the social welfare systems of all three countries (US, UK, Germany) and saw it leading to Soviet-style communism and race-mixing, Hayek saw in programs like unemployment insurance and low-income housing subsidies the seeds of a new Nazism.

And he was incredibly frustrated that it wasn’t obvious on its face to the citizens of the US and the UK.

“It seems almost as if we do not want to understand the development which has produced totalitarianism,” he wrote in Road to Serfdom, “because such an understanding might destroy some of the dearest illusions to which we are determined to cling.”[xxxv]

Hayek wrote how “many of my Anglo-Saxon friends have sometimes been shocked by the semi-Fascist views they would occasionally hear expressed by German refugees,” but this, he said, wasn’t caused by their being exposed to Hitler’s ideas for a decade.

“[T]he true explanation,” he wrote of the fascist-friendly German refugees, “is that they were socialists whose experience had carried them several stages beyond that yet reached by socialists in England and America.”

They were still sympathetic in some ways to the fascists, in other words, because Germany had a more comprehensive “Prussian” social safety net than did the UK or US and these refugees “favored” their unemployment insurance, Social Security system and single-payer healthcare.

“It was the prevalence of socialist views and not Prussianism,” Hayek wrote, “that Germany had in common with Italy and Russia – and it was from the masses and not the classes steeped in the Prussian tradition, and favored by it, that National Socialism [Nazism] arose.”

Weirdly, this inversion of reality has taken hold in the contemporary American right. Senator Rand Paul wrote in his 2019 book The Case Against Socialism, that the simple reality is that “Hitler was a socialist.”[xxxvi]

Paul then goes on to suggest that because Germany was a welfare state when Hitler rose to power and stayed that way (at least for loyal or nonpolitical “Aryans”) through Hitler’s reign, Adolf Hitler had to be a hard-core socialist.

The word “socialist” in “National Socialism” (abbreviated to Nazi) was, in reality, just Hitler affirming that he wanted white Aryans – and only white Aryans – to continue to have a social safety net and worker protections in place. As Hitler told an interviewer with Liberty magazine in 1923:

“Why,” I asked Hitler, “do you call yourself a National Socialist, since your party programme is the very antithesis of that commonly accredited to socialism?”

“Socialism,” he retorted, putting down his cup of tea, pugnaciously, “is the science of dealing with the common weal. Communism is not Socialism. Marxism is not Socialism. The Marxians have stolen the term and confused its meaning. I shall take Socialism away from the Socialists.

“Socialism is an ancient Aryan, Germanic institution. Our German ancestors held certain lands in common. They cultivated the idea of the common weal. Marxism has no right to disguise itself as socialism. Socialism, unlike Marxism, does not repudiate private property. Unlike Marxism, it involves no negation of personality, and unlike Marxism, it is patriotic.

“We might have called ourselves the Liberal Party. We chose to call ourselves the National Socialists. We are not internationalists. Our socialism is national. We demand the fulfilment of the just claims of the productive classes by the state on the basis of race solidarity. To us state and race are one.”[xxxvii]

Bizarrely, both Hayek and Paul ignore the fact that Hitler waged an internal war against the actual socialists (pretty much no matter how you define the word) in Germany.

On March 23, 1933 Hitler pushed the Enabling Acts through the Reichstag and the following week arrested all 81 elected Communist and 26 of the 120 elected Social Democrat members of parliament; he sent all of them to concentration camps, and virtually all of the hundreds of thousands of members of both parties were either sent to camps to die or blocked from employment for the rest of his reign.[xxxviii]

But a simple online search of the words “Hitler” and “socialism” will find literally thousands of web pages devoted to arguing Paul’s and Hayek’s view that Hitler had, in modern economic and political terms, more in common with Bernie Sanders than Pol Pot.

Hayek laid out this bizarre theory, now almost fully embraced by the American right, unambiguously in The Road to Serfdom:

“Although most of the new ideas, and particularly socialism, did not originate in Germany, it was in Germany that they were perfected and during the last quarter of the nineteenth and the first quarter of the twentieth century that they reached their fullest development.

“It is now often forgotten how very considerable was the lead which Germany had during this period in the development of the theory and practice of socialism; that a generation before socialism became a serious issue in this country [the UK}, Germany had a large socialist party in her parliament and that until not very long ago the doctrinal development of socialism was almost entirely carried out in Germany and Austria, so that even today Russian discussion largely carries on where the Germans left off.

“Most English and American socialists are still unaware that the majority of the problems they being to discover were thoroughly discussed by German socialists long ago.”[xxxix]

That most Americans and Brits don’t consider themselves either Nazis or socialists, and believe capitalism is the core economic system of both countries, is, according to Hayek, purely a function of the amazingly effective propaganda employed by those wily socialists.

“To make a totalitarian system function efficiently,” Hayek writes, “it is not enough that everybody should be forced to work for the same ends. It is essential that the people should come to regard them as their own ends. Although the beliefs must be chosen for the people and imposed upon them, they must become their beliefs…

“This is, of course, brought about by the various forms of propaganda. Its technique is now so familiar that we need say little about it.”[xl]