Sunday, February 24, 2013

Hayek Flunks History (Again)

By Carl Stoll [1]

Friedrich Hayek is the patron saint of the free-market crowd. In 1944 he caused a sensation with his epochal book The Road to Serfdom, denouncing the horrors of collectivism and purporting to prove that central planning, and indeed any purposeful state intervention in the economy, inevitably lead to the establishment of tyranny. In the following decades more and more people rallied to his slogan, and in the 1980s the interventionist Keynesian doctrine was officially discarded by mainstream economic policy-makers. Since then the free market has reigned supreme in academic circles.

Far from damning Hayek unconditionally, I sympathize with much of his basic reasoning. Moreover he wrote beautifully. Nonetheless I believe most of his conclusions are wrong. In this brief note I will mention but one of these claims, one that has fared badly. I cite:

Few men will deny that our views about the goodness or badness of different institutions are largely determined by what we believe to have been their effects in the past. … Yet the historical beliefs which guide us in the present are not always in accord with the facts; sometimes they are even the effects rather than the cause of political beliefs. Historical myths have perhaps played as great a role in shaping public opinion as historical fact.[2]

After 5 pages in this vein, Hayek finally gets to the point:

There is, however, one supreme myth which more than any other has served to discredit the economic system   to which we owe our present-day civilizations and to the examination of which this volume is devoted. …who has not heard of the “horrors of early capitalism” and gained the impression that the advent of this system brought untold new suffering to large classes who before were tolerably content and comfortable? … The widespread emotional aversion to "capitalism” is closely connected with this belief … That this [i.e., the horrors of early capitalism] was the case was at one time indeed widely taught by economic historians. A more careful examination of the facts has, however, led to a thorough refutation of this belief.The actual history of the connection between capitalism and the rise of the proletariat is almost the opposite of that which these theories of the expropriation of the masses[3] suggest.[4]

Unfortunately for Hayek, it has been conclusively proven that all this is just a load of codswallop. At the time I write (2007) there can be no doubt that the English Industrial Revolution did indeed bring about misery on a colossal scale. I need cite but a single fact to bring all of Hayek’s clever phrases tumbling down like a house of cards. Between the period 1825-1849 and the period 1850-1875 -- in the space of one generation -- the average height of grown Englishmen fell by one full inch. This phenomenon, discovered by measuring skeletons in English graveyards, has no parallel on the European continent for that period.[5]

Any commentary of this finding and of its implications for the standard of living in England in the mid-19th century would be superfluous.[6]

But there is more. Despite the “careful examination of the facts” allegedly conducted by the contributors to Hayek’s Capitalism and the Historians, certain details seem to have escaped these worthies. Such as the fact that in 1840 great numbers of English children were parentless, homeless, starving and freezing.[7]  According to the thesis they espouse, namely that the industrial revolution did not depress but rather raised the standard of living of the masses, this phenomenon must have been even more widespread in England before the 19th century. I challenge anyone to produce historical evidence in support of such a claim.

I close by quoting again, this time in an ironical tone, from the opening passage of Hayek's introduction:

[The historical beliefs which guide us in the present are not always in accord with the facts; sometimes they are even the effects rather than the cause of political beliefs. [8]  [my stress]

De te fabula narratur.

[2] F.A. Hayek: Introduction, in F.A. Hayek (editor): Capitalism and the Historians, University of Chicago Press 1954, p. 3.
[3] Here Hayek by implication disputes Marx’s theory of original accumulation expounded in chapter 24 of volume I of Das Kapital. According to Marx, much of the wealth that fed the rise of English manufacturing had been appropriated in centuries and decades past by gradual encroachments by the rich on the property (above all the land) of the poor. The parliamentary enclosure acts constitute Marx’s exhibit A for his argument.  
[4] Ibidem, pp. 10-
[5] R.W. Fogel: The Escape from Hunger and Premature Death, 1700-2100, Cambridge University Press 2004, Table 1.4 (p. 13), citing data from R. Floud, K.W. Wachter & A. Gregory: Height, health and history: Nutritional status in the United Kingdom, 1750-1908, Cambridge University Press 1990.

[6] I note in passing that nowadays the horrors of Dickensian England (whether they be real or imaginary) would no longer tend to discredit capitalism as such. Hayek’s two statements “… our views about the goodness or badness of different institutions are largely determined by what we believe to have been their effects in the past. …” and “The widespread emotional aversion to "capitalism” is closely connected with this belief …  [i.e., belief in the alleged the horrors of early capitalism]” do not seem to me to reflect present-day thinking in the industrial countries.  Thus it would nowadays be pointless to undertake the public relations effort, so to speak, that Hayek half a century ago evidently deemed necessary to legitimize the market system.

Over the last sixty years or so -- since Capitalism and the Historians was published in 1954 – the English Industrial Revolution of the mid-19th century has lost its position as the primary model and emblem of capitalist development.

This is to a great extent the consequence of the fact that a great many countries have since become industrialized, and their industrialization did not follow the laissez-faire path trodden by England.  As a matter of fact not a single country has faithfully followed the English development model.

However this historical experience fails to explain fully the decline of the laissez-faire model as the  quintessence of capitalism, since a great many countries had become industrialized even before 1954 without adopting laissez-faire. Most prominent among them was Germany, whose industrialization in the second half of the 19th century had been  accompanied by a sort of state socialism introduced by Otto von Bismarck.

The successive impact of these historical experiences eventually took their toll on the conventional model of what capitalism means.

It is important to note that Hayek’s efforts must undoubtedly be construed as part of his lifelong struggle against Marxism and socialism. It is ironical that in refuting this thesis of Hayek’s, I am exposing him to the suspicion of having perpetrated historical forgery, much like his archenemy Stalin. Most of the content of Capitalism and the  Historians appears quite plausible and reasonable to the present-day reader. However, as we have seen, such appearances can prove deceptive. 

[7] Michael Perelman: The Perverse Economy. The Impact of Markets on People and the Environment, Palgrave Macmillan, New York 2003, p. 12, citing Tobias, J. J.: Crime and industrial society in the 19th century, Batsford, London 1967, p. 86. 

[8] F.A. Hayek: loc. cit.

Censorship of Hayek book review
Dear sir or madam:

I must vehemently protest against the censorship of book reviews on that I have only recently become aware of. Specifically, my review of Friedrich Hayek's Capitalism and the  Historians was removed.
I have no doubt that the reason for such removal was that my review was critical of Hayek’s book. All reviews of Capitalism and the  Historians currently shown on are by contrast fulsome eulogies. This is the link to my review on as it stood on November 26, 2010:

Please explain this  anomalous act of censorship and restore my review to its proper place.

Sincerely, Carl Stoll

2012-03-17 Customer Service
17:11 (19 ore fa)

a me
Hello Carl,

Thank you for contacting us in regards to your review for "Routledge Library Editions: Economics: Capitalism and the Historians (Routledge Library Editions-Economics, 28)" and I am sorry for any concern over your review.  Currently, I see that the review is still active on the website and can be viewed here:

In addition it can also be seen here on the titles Product Details page:

I looked into this matter for you and see that the review was never suppressed and has remained active since its creation date of April 27, 2009. We take removal of Customer Reviews very seriously and only remove reviews if they violate our posted guidelines.  We want to be fair and unbiased in our decisions.

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When I browse the reviews attached to the book Capitalism and the
Historians, my review is nowhere to be seen. Accordingly, customers who read the book reviews never see my review and only read the reviews by Hayek groupies. CS

I never received any reply to this note from amazon.