According to Hayek, the limitations of human knowledge are real. Thus, freedom to all individuals should be given without any conditions, except the “harm principle” which set the boundaries between the individuals among themselves. Anyone who wants to regulate an individual’s life path planning, for example through state entities, must be aware of the limitations of human knowledge on others. For the progress of human civilization, Hayek proposed a thesis of “spontaneous order” which explains that without a centralized planning from a particular authority, humans can interact among themselves and make progress. Indeed, though with the absence of centralized planning, the market is still in order. With a creative mind, man can negotiate their personal desires and interests to produce major advances. (This argument is then not justifying anarchism group, which presupposes the absence of the state. Hayek presumed the state is present in spontaneous order only as a “referee” who set the “rules of the game” without intervening in the game itself).
Hayek was consistent in this matter. Therefore after World War II, when the trend of state interventionism in the economy was experiencing its glory, Hayek launched the article – which he later published in a book under the same title, “Road to Serfdom”. Hayek criticized the approach of interventionism in the economy around the world, especially in Europe with the assets nationalization program. Interventionism was affecting Europe, in addition to the domino effect from the left-wing movements throughout the world, as well as the influence of Keynesianism. According to Hayek, the slightest infringement on freedom, with the dominance of state intervention on politics and the economy will lead to a “road to serfdom”. Hayek pointed out the phenomenon of the rise of Hitler and the Nazis in Europe, firstly because of the tolerance on how big the state’s role was to take care of the lives of its citizens. Nazi fascism – which is an acronym of National Socialism – favored by Hayek as the culmination of the enslavement of a man by another man, who started from the small intention to organize another human being.
Socialism, collectivism, and other state intervention are the beginning of slavery. In addition to some very influential books, Hayek thoughts in fighting for the idea of freedom was written down in a long essay in 1949 titled “Intellectuals and Socialism” which described the tendency of new dominant groups in democratic countries called intellectuals who favored socialism, compared to liberalism. Intellectual group, according to Hayek was not a scholar or academia, but the well-educated people who have an influential opinion into policy-making. Intellectual group can work in any field, because this group is not on a particular profession, but the ability to change the view of the public. Hayek called this group as “professional second-hand dealers of ideas”, and we often learn new ideas from them. Not from the experts directly.
Socialism can take sympathy and side with the intellectuals. Liberalism, at that time, was not enough to have influence on the intellectuals that did not have the public’s attention. Therefore Hayek invited freedom fighters around the world to seize the influence of the intellectuals in democratic countries.
There was an interesting story about Hayek’s discussion with Sir Anthony Fisher, a businessman who was inspired by “The Road to Serfdom”, and therefore wanted to go into politics. Hayek immediately rejected the idea, “No you’re not! Society’s course will be change only by a change in ideas. First you must reach the intellectuals, the teachers, and writers, with reasoned argument. It will be their influence on society which will prevail, and the political will follow.”
Fisher then changed his direction by establishing an institution or Think-Tank, which called the Institute of Economic Affairs – which later became the researcher for policy in the era of Prime Minister Margaret Thatcher. History recorded the victory from this belief on ideas.
Keynes and A Versus
World War II broke out. London School of Economics (LSE) which was located in Central London was being evacuated to Peterhouse College, Cambridge. Hayek, at that time had just become a visiting professor at LSE, had to flee to King’s College, which is provided by a friend and intellectual rival named John Maynard Keynes. It was told that both Hayek and Keynes, during that period often sit on the roof to watch the German bombs falling, while arguing about economic studies. These two economic thinkers then led the battle of ideas of the 20th century. Keynes had an idea about a bigger state role to keep the economy rolling, one of them through planning. To tackle unemployment, the government should create a government project, which employs many workers, even if the work itself is not required. Such policy is expected to absorb labor, restoring power and then restore public consumption.
After the World War II, Keynes led world leaders to build a world economic system that can prevent a crisis and world war, in a conference called Bretton Woods – which became known as the Bretton Woods System – which established three world organizations: International Monetary Fund (IMF), the World Bank, and World Trade Organization (GATT which later turned into the WTO). It is to be funny, because the critics of the market economy are often put through performance target critique of the IMF, the World Bank, and the WTO is considered detrimental to developing countries and benefit the developed countries. Though the three international organizations are built on great trust on the system of economic planning, not the free market.
At that time, Keynes’ idea became the main idea for the world’s economy. In 1930 after the great depression that hit the United States, the market economy or laissez-faire was regarded as mastermind of the crisis and interventionism became something that was considered mandatory for the government to prevent the crisis from coming back. Western countries such as the USA and Western Europe embraced Keynesianism as their economic policy. When the current Eastern and Asian countries embraced communism and authoritarianism, Western countries “also” embraced the state interventionism in the economy. The documentary “Commanding Heights: Battle for the World Economy” pictured the two-thirds of the world at that time embraced the approach of “collectivism”, the West and the East had a portion of each.
Hayek tried to oppose the massive influx of ideas of the world at that time. Hayek wrote an essay “Road to Serfdom” which was condemned by the public. As the consequences of the writing, Hayek had academic and intellectual isolation for many years because he opposed the majority point of view of the intellectuals. There was only one university that would accept Hayek as a professor, the University of Chicago. Chicago, or known as the Chicago school of economics. Mixed economic system, with the influence of Keynesianism, embraced great success. Nobody accepted the idea of a free market from Hayek.
Before that, Hayek tried to get a fellow colleague who fought together for freedom. Hayek gathered academics and economists supporters of freedom at a hotel in the mountains Pelerin, Switzerland, which later inspired the formation of organizations that defended economic freedom and political called “Mont-Pelerin Society”. In the first meeting in 1947 Milton Friedman joined the meeting, and he was exposed to insults from the famous Ludwig Von Mises “You're all a bunch of socialist!” When debating on the issue of income redistribution. Mont-Pelerin Society became a vessel for Hayek to fight for freedom despite of the intellectual isolation.
In the 1970s, the economic crisis appeared like nothing before. This crisis was characterized by stagnant economic growth, in which rising unemployment and high inflation. This condition was impossible in the Keynesian economic theory, as unemployment and inflation occurred at the same time. This was the period where many people looked back to the market economy as a solution to the global economy. In the UK, Margaret Thatcher appeared and began the deregulation and liberalization of the economy. In the United States, Ronald Reagan appeared which to some extent did the same thing as Thatcher (although some people rejected Reagan, because the policies have increased state intervention in the Reagan era). Deng Xiaoping also appeared to begin liberalizing the Chinese economy towards a free market. The era 1970 to 2000 became a span of years for many countries in the world for the liberalization of economy to achieve welfare. Hayek, who in previous decades did not get an appreciation for his thoughts, then got the Nobel prize in economics in 1974.
Hayek and Keynes are the people who believe in the idea. Thoughts from both have formed the idea of economic debate in the 20th century in helping the global community to achieve prosperity. Keynes had dreams to prevent the world from malaise in 1930 and another world war. Hayek had the desire to avoid totalitarian Nazi in Germany to oppose the centralized planning and bring freedom for all mankind.
Both ideas have shaped the world in the 20th century. Their contributions are both important for the world. But I chose to become Hayek, who believed in the idea that humans (people) are born free without the need for planning and regulations from other humans to determine the course of their lives. Only with individual freedom, human beings can achieve such progress today.