This book changed the world. The West needs to read it again

The Austrian economist and intellectual Friedrich Hayek was a victim of cancel culture long before the term entered the political vernacular. Eighty years ago, three US trade publishers rejected his now-classic The Road to Serfdom, suggesting it was “unfit for publication by a reputable house”.

One publishing adviser later conceded that the quality of the scholarship was not disreputable, just its politics. The manuscript outraged conventional wisdom by arguing that capitalism was morally superior to socialism. Excessive central economic planning, even if managed by political leaders and policymakers of good will, would lead to loss of liberty, stagnant economies and downright misery.

Hayek dared to suggest that Hitler’s National Socialists and Stalin’s Communists had more in common than most people were willing to admit. Both were socialist and enemies of freedom. To follow the example of either would take Western democracies down the road to serfdom. Human wellbeing depends on personal freedom, competitive markets and property rights within a rule of law.

It was an unpopular argument to make at a time when collectivist planning seemed to be the wave of the future. That was certainly the view of Hayek’s fellow British academics, who in their government planning positions embraced high taxation and nationalisation.

After its publication in the US on September 18, 1944, The Road to Serfdom sold millions of copies, catapulting Hayek to public prominence. Most intellectuals, though, were hostile, especially in Britain where socialists were about to take power in the 1945 election.

The political scientist Herman Finer denounced the thesis as “the most sinister offensive against democracy to emerge from a democratic country for many years”. But Hayek did not advocate a pure survival-of-the-fittest economy. He supported state action to prevent monopolistic restraints of trade. Nor did he reject a guaranteed minimum wage and a social safety net. Arch-libertarian Ayn Rand denounced him as a “compromiser” and “real poison”.

Hayek once said that for your ideas to succeed you had to outlive those who opposed them; and, in his case, he lived to see his views vindicated with public praise and political support. He won the Nobel Prize in Economics on October 9, 1974, which had conferred a prestige the academy had long denied him.

Three decades of growth

Thanks to his influence on Margaret Thatcher and Ronald Reagan, Hayek emerged as a hero of the political right (though he never identified himself as a conservative.) When she became Tory leader in 1975, Thatcher set out her anti-socialist-policy plans by thumping down a copy of one of Hayek’s books before a group of Conservative party colleagues, telling them “this is what we believe”.

Australia’s experience with market reforms also vindicated Hayek: despite some policy setbacks and reversals, the Hawke-Keating and Howard-Costello governments embraced what the critics called economic rationalism – tariff cuts, privatisation, deregulation and fiscal prudence.

The result was almost 30 years of growth with low inflation, low unemployment and increased real wages by two-thirds from the early 1990s to the peak of the resources boom two decades later. But the final proof of Hayek’s theories came in the last years of his life, when Soviet Communism collapsed.

In 1991, just before his death, he won the Presidential Medal of Freedom. Yet despite all this, the scholar whom Keynes biographer Robert Skidelsky called “the dominant intellectual influence of the last quarter of the 20th century” is today scorned if not ignored.

The American Economic Association, which usually celebrates Nobel Prize winners at its annual meeting, recently rejected a proposal to honour Hayek on the 50th anniversary of his winning the Nobel Prize in economics. It will instead devote 45 sessions to topics on diversity, equality, gender, race, LGBT, et al.

Joseph Stiglitz, himself a Nobel laureate, was in Australia last month to rail against Hayekian neoliberalism and justify higher levels of government intervention in the economy. However, the kinds of policies applied in Australia and other advanced countries over the past 15 to 20 years are hardly an example of what Stiglitz calls neoliberalism. That is, free-market policies have not been tested for a long time, and highly interventionist government and, until recently, easy money, have been the Western policy consensus.

In 2008, the same Kevin Rudd who had prided himself on being the exemplar of economic discipline, declared the end of neoliberalism, and railed against Hayek at (of all places) the Centre for Independent Studies, a classical liberal think tank at the forefront of creating the intellectual conditions for the economic-reform agenda, which ultimately saved Australia from the global financial crisis.

Since then, Labor and Coalition governments have rested on the windfall of the China-fuelled resources development boom while they have failed to curtail unsustainable spending projects and implement the kind of productivity-enhancing reforms that reward incentive and enterprise.

The liberal economic ideas that once defined liberal and conservative governance in Australia, New Zealand, the UK and the US have been jettisoned. The result has been productivity slowdown, wage stagnation and a spending blowout, for which future generations will have to pay.

Hayek recognised that the unintended consequences of high taxation, central planning and high public spending are massive economic inefficiency, over-regulation and suppressed prosperity – and that is before one even considers the effects on freedom of the individual. The arguments for free markets, productivity reform and fiscal prudence will need to be made (and won) again. As Hayek showed, the ship of state can be turned eventually.

Tom Switzer is executive director of the Centre for Independent Studies in Sydney.