Hayek, Keynesian Economics, and Planning against Competition: A Caveat?
Farrant, Andrew, McPhail, Edward, History of Economics Review
Abstract: Hayek wrote The Road to Serfdom as a warning to intellectuals who were supposedly much taken with the idea of a 'planned' economy. Jeremy Shearmur (1997) makes use of unpublished material drawn from the Hayek archives to suggest that Hayek did not seemingly deem Keynesian full-employment policy to be incompatible with what Hayek would view as a free society. Our reading of the archival material invoked by Shearmur arrives at a rather different conclusion. Hayek's view of the logic supposedly inherent in Keynesian policy is markedly congruent with the general tenor of The Road to Serfdom. We demonstrate that Hayek deemed activist monetary policy incompatible with Hayek's favoured planning for competition.
1 Introduction (1)
The past year has seen a mighty flurry of interest in the ideas of F.A. Hayek. Indeed, Hayek's classic The Road to Serfdom (1944) sold over 100,000 copies in a mere week or so following heavy and repeated plugs by leading popular conservative US media pundits such as Glenn Beck (Farrant and McPhail 2010a). Beck and company (for example, Rush Limbaugh) find much reason in Hayek's writings to object to the policy stance adopted by the Obama administration (Beck et al. 2010). Other pundits, by contrast, draw upon Hayek's writings to support President Obama's advocacy of national health insurance (Matthews 2010). (2)
In an earlier issue of the History of Economics Review, Jeremy Shearmur (1997, p. 68) persuasively argued that J.M. Keynes's critical assessment of Hayek's The Road to Serfdom may have spurred Hayek to further develop his ideas. (3) As Shearmur explains, Hayek was never an advocate of full-blown laissez faire and rejected any do-nothing 'agenda' for government policy (Shearmur 1997, p. 72). In particular, Hayek made an important distinction between two types of planning: planning for competition and planning against competition (Hayek 1994, p. 48). Indeed, Hayek argued that while 'competition can bear some admixture of regulation, it cannot be combined with planning to any extent we like' (pp. 47-8). Accordingly, Hayek maintained that 'planning and competition can be combined only by planning for competition but not by planning against competition' (p. 48). As Shearmur notes, Hayek's later writings--and apparently in response to Keynes's suggestion that The Road to Serfdom had provided no adequate 'guidance ... as to where to draw' the line between planning of the apparently 'good' and 'bad' variety (Shearmur 1997, p. 70)--heavily emphasise the way in which the Hayekian ideal of the rule of law would supposedly allow one to adequately 'demarcate between legitimate and illegitimate forms of state activity' (Shearmur 1997, p. 68). (4)
Accordingly, Shearmur (1997, p. 68) makes use of unpublished material drawn from the Hayek archives to explore the way in which Hayek began to flesh out the important distinction between 'legitimate and illegitimate forms of state activity' (p. 68). Shearmur's article is wide-ranging in scope. Accordingly, we only focus here on the particular use that Shearmur makes of this archival material when evaluating Hayek's stance towards activist monetary policy and Keynesian demand management (Shearmur 1997, pp. 71-3). In particular, Shearmur (1997, p. 72) suggests that Hayek did not appear to deem Keynesian full-employment policy and activist monetary policy to be incongruent with what Hayek would view as 'planning for competition'. As we argue below, however, the particular archival evidence invoked by Shearmur (for example, Hayek's draft 1948 Postscript to The Road to Serfdom) shows that Hayek thought that activist monetary policy (and Keynesian policy) was ultimately incompatible with a free society. Indeed, the archival evidence makes clear that Hayek viewed discretionary monetary policy and Keynesian activist policy in much the same negative light as he had viewed partial planning and interventionist policy in the published draft of The Road to Serfdom. …