Hayek as a critical rationalist

F A Hayek: Economics, Political Economy and Social Philosophy  by Peter Boettke of the George Mason  University is hot off the press. The subtitle signals three phases in Hayek’s career, first   fundamental economic theory from roughly 1920 to 1940, then the function of reason and knowledge in society from 1940 to 1960 and then restating classical liberal principles informed by economics and his views on rationality and justice.

He toured Australia in 1976 and some of the talks that he delivered explained what he was doing in his “abuse of reason” project after  he turned from  his major work on economics at the end of the 1930s. His target was “constructivist rationalism”, the mindset that recklessly claims to know more than is actually possible. In his view this was the abuse or pathology of reason that underpinned the utopian vision of socialism and central planning and many other adventures of tyrants and demagogues from time immemorial. It has been described as “the idiocy  of  ideology”. Another target was “scientism”, that is the application of (misguided) ideas about the methods of physics in the social sciences.

This article is an edited version of a paper about the tour and some of the material remains for general interest, especially for Australian readers.

Between 3 October and 6 November 1976, F.A. Hayek spent five busy weeks in Australia with more than 60 appointments, seminars, informal meetings and formal presentations. He and his wife travelled almost the full length of the east coast from Cairns and the Barrier Reef in Queensland to Melbourne, Canberra and Adelaide in the south with excursions to the country in Victoria and Queensland. Roger Randerson, a finance journalist and economics commentator, masterminded the tour.

The political situation, 1976

The central issue in Australian politics was the willingness and ability of the newly-elected Liberal and Country Party coalition led by Malcolm Fraser to regain control of the economy after the big spending and other initiatives of the Australian Labor Party (ALP) administration under Gough Whitlam (1972 – 1975). Inflation peaked at over 15 per cent in 1974 and unemployment was 6 per cent during Hayek’s visit.  Those figures were unprecedented in the years preceding the Whitlam administration. There were also major issues to be resolved regarding monetary policy and the then-fixed exchange rate.

There were high hopes for the Fraser administration in conservative circles and some progressives were alarmed by a rumour that he was a reader of Ayn Rand. That was before it became apparent that Fraser was the kind of conservative who Hayek had in mind when he wrote “Why I am not a conservative” – a man more concerned with holding political power than limiting it and prepared to protect existing industries rather than reforming for productivity. At the end of the paper there is an account of Hayek’s meeting with Prime Minister Fraser.

The climate of ideas, mid-1970s

In the mid-1970s, interventionism dominated the formation and discussion of public policy. The strength of interventionist tendencies on the both sides of politics can be seen in the hysterical tenor of criticism of the so-called New Right from political conservatives and also the Labor Party and the left. A decade later the Labor administration led by Bob Hawke and Treasurer Paul Keating  initiated  some significant reforms along the lines suggested by the ‘new right’ (strictly speaking the “dries’ in the Liberal Party) and they were so unpopular among Labor voters that many traditional Labor seats were lost to the Liberal (Conservative) party in the state of  New South Wales in the election of 1988.   (They were regained at the next election).

For many years the Institute of Public Affairs (IPA) in Melbourne was the major source of informed economic commentary on the conservative side of politics. Formed in 1943 it pre-dated the Mont Pelerin Society that Hayek formed in 1947.  The war provided the incentive for central planning and the federal public service doubled in size Australia between 1939 and 1945: “Curtin’s reform-oriented ALP government in 1941 caught the imagination of the intelligentsia who saw it as the vehicle for the new order”. The autobiography of H. “Nugget” Coombs (1981), the most influential advisor to Labor and Liberal governments over many years, showed how the new order would be based on central control of the economy, using the Keynesian insights to deliver sustained economic growth with full employment and other social benefits.

It was not only ALP supporters who were impressed by John Maynard Keynes. Much the same happened to the some leaders of the non-Labor forces, chief among them the remarkable mover-and-shaker, Herbert Gepp, who formed the IPA and charged C. D. ‘Ref’ Kemp with the task of producing a program for it. This work turned out to be a major source of ideas for the new Liberal Party under Prime Minister Robert Menzies (1943-46; 1949-1966). According to Walters (1988), “By the late 1930s Gepp, like Coombs, had discovered Keynes, and begun to propound a version of neo-Keynesian economic planning. Unlike Coombs, however, he drew the line at anything that looked like collectivism”.

Classical liberalism and libertarianism had practically no profile in Australia – until in 1975 a new party with a libertarian program and aroused a deal of disbelief but little electoral support. First called the Workers Party – heightening disbelief – later the Progress Party, and currently the Liberal Democratic Party, it had yet to gain enough support to make an impact in State or Federal elections. In 1976, the pros and cons of economic rationalism or deregulation were not yet significant topics for public discussion, and there was still a serious battle to be fought on the conservative side of politics before the agenda of deregulation achieved full support in the Liberal Party at the end of the 1980s.

Hayek’s Australian tour came some time before the network of academics, the new think tanks and the “backbench Dries” of the Liberal Party achieved some traction in the debate on public policy. For example the flagship of the new thinktanks, the Centre for Independent Studies, was not even a drawer in Greg Lindsay’s filing cabinet when Hayek visited, although it rapidly progressed and three years later published some of the papers that Hayek (1979a; 1979b) delivered on the tour.

Hayek on Tour

Hayek arrived two years after sharing the 1974 Nobel Prize in Economic Sciences with Gunnar Myrdal for their work on money, economic fluctuations and the institutional analysis of economic phenomena. In a remarkable piece of synchronicity, in June 1974, a small group of American economists convened at South Royalton, Vermont, for the first of a series of meetings which started the revival of the Austrian School of Economics. Hayek’s most recent major works were the three-volume Law, Legislation and Liberty: Rules and Order (1973), The Mirage of Social Justice (1976a) and The Political Order of a Free Society (1979c); plus Full Employment at Any Price? (1975), Choice in Currency (1976b) and Denationalisation of Money (1976c).

The Law, Legislation and Liberty trilogy were products of his “abuse of reason” project that commenced with The Road to Serfdom (1944) and extended to his last book The Fatal Conceit: The Errors of Socialism (1988).  The three major speeches that he delivered on the tour drew upon that work which was primarily philosophical and political in nature. In ‘The Atavism of Social Justice’, delivered at the University of Sydney, Hayek (1979a, 15) pursued the controversial theme that dominated much of his mature work, that our instinctive moral sentiments were formed at a time when our ancestors lived in small bands and the ethos of sharing has been recruited in modern times to support the idea that justice is all about redistribution of wealth. The result is a push for systems and institutions which politicise and undermine the classical principle of equalitarian justice, and also impede the generation of wealth which is required to improve the lot of everyone in the long term. At the conclusion of the talk he very briefly made a crucial point about evolutionary theories and competition for “survival of the fittest”. His analysis had little to do with “social Darwinism” and competition between individuals; he was concerned with the sustainability of social and political orders and in this context the main benefit that we obtain from competitive selection is “the competitive selection of social institutions.”

‘Socialism and Science’ was delivered to the Canberra branch of the Economic Society of Australia and New Zealand (Hayek 1976e). Wolfgang Kasper’s account of the meeting (another addition at the end of the paper) conveys a sense of the excitement of the event and the responses aroused from all sides. Hayek established a good rapport with the audience and delivered a line that “brought the house down”: “I have been ill and I have tried old age. It was not to my liking! Who has the next question?”

Hayek (1976e) mentioned some of the issues addressed in the “abuse of reason” project, namely the unhelpful theories of science and rationality that he labelled “scientism” and “constructivism” respectively. He examined the way that socialists attempted to quarantine their ideas from scientific appraisal and he went on to another aspect of the project concerned with rationality and the formation and appraisal of social norms and moral rules. His position in The Fatal Conceit (1988, 21) aroused concerns that his interest in social institutions had led him away from political individualism in the direction of collectivism and some passages in this paper stand as a partial corrective to that perception. Against the genuine collectivists whose efforts to apply reason to generate new moral codes hark back to primitive instincts, he argued: “The [classical] liberal must claim the right critically to examine every single value or moral rule of his society…Our moral task must indeed be a constant struggle to resolve moral conflicts, or to fill gaps in our moral code … [towards] the order of peace and mutually-adjusted efforts, which is the ultimate value that our moral conduct enhances. Our moral rules must be constantly tested against and if necessary adjusted to each other, in order to eliminate conflicts between the different rules, and also so as to make them serve the same functioning order of human actions.” The purpose is to promote rules of the social game that tend to generate peace, freedom and prosperity.

Rules to promote freedom and democracy were the focus of Hayek’s (1979b) speech to the IPA (Sydney Branch) on ‘Whither Democracy?’ He articulated serious doubts about the sustainability of democracy as long as the notion of “majority rule” is not corrected by devices to minimise the risk of a tyranny of the majority (now called populism in a derogatory sense by people who disagree with majority opinion).

Hayek’s (1976d) extempore address at the IPA Annual General Meeting (taped and published in the IPA Review) dwelt on economic themes and revealed that Hayek’s longstanding connection with the Institute “played a considerable role in the development of my writings… I received an invitation to contribute an article to your Review. I wrote up for that purpose, which otherwise I would never have done, a diagnosis of the then existing situation…under the title ‘Full Employment, Planning and Inflation’ [1950].” He claimed that his analysis at that time essentially predicted the kind of outcomes that eventually emerged as “stagflation” in the 1970s, quoting the conclusion of the 1950 paper: “It must appear more than doubtful whether, in the nature of democratic institutions, it is possible that democratic governments will ever learn to exercise that restraint, which is the essence of economic wisdom, of not using palliatives for present ills which not only create worse problems later but also constantly restrict the freedom of further action”.

Hayek obtained significant public exposure on the weekly current affairs TV program ‘Monday Conference’ (11 October 1976) which was shown nationwide on the free-to-air public broadcaster, the Australian Broadcasting Commission (ABC).  This aroused strong reactions from supporters; and a persistent Marxist critic, University of Sydney Associate Professor of Economics Debesh Battarcharaya, received equally enthusiastic endorsement from the other side of the “house”.  Battarcharaya elicited from Hayek one of the memorable takeaway lines of the tour “I don’t want to trade discourtesies with you.” Robert Moore presided over the proceedings and maintained a balance of voices in the exchanges which enabled Hayek to range over many aspects of his social, political and economic ideas. One of these was the theme of his ‘Whither Democracy’ address, voicing concern that the erosion of authority by special interest groups would cause serious problems and this will discredit democracy.  But he insisted that “What has failed is not democracy as such, it’s a particular form of democracy which we have had.”

 Out of the public eye

There were many – mostly off the record – private engagements. The details of Hayek’s meeting with Prime Minister Fraser have not previously been reported (Appendix ).

Hayek and his wife went off-the-beaten track into the countryside. A trip to a Victorian forest enabled them to hear – and more rarely – see the famous lyre birds.  On his visit to Melbourne, Hayek and his wife stayed for some days at the home of C.D. (Ref) Kemp and Mrs. Betty Kemp at Mount Macedon. Mrs. Hayek, with her interest in astronomy, was keen to see an eclipse and Mt. Macedon was expected to be a good vantage point. In the event, clouds prevented a sighting. The Sydney Morning Herald (25 Oct 1976) reported: “Thousands of scientists and amateur astronomers, stationed at centres along the band of totality, were largely thwarted by the heavy cloud cover of much of south-eastern Australia on Saturday”.

Kemp had had a long acquaintance with Hayek’s thought and The Road to Serfdom had been one of the intellectual inputs into the work of the IPA, where Kemp had been economic adviser and then Director.  The IPA Review from the late 1940s published articles by Hayek which Ref Kemp had sought out.  The Kemps and the Hayeks got on well together and greatly enjoyed each others’ company. Hayek’s favourite room was the library. Ref Kemp recalled that Hayek took Tolstoy’s War and Peace off the shelves and commented that, in his view, this one was the best translations.  Hayek inadvertently allowed his cigarette to burn a mark on a small polished coffee table in the library: the Kemps ever after referred to it as ‘the Hayek table’ and refrained from repolishing it.

Ron Kitching hosted the Hayeks on his farm and provided an opportunity to come to grips with a giant bull named ‘Inflation’: “When he arrived we had a celebratory drink of his favourite tipple, Johnny Walker Black Label. ‘When ever I drink this brand of Scotch,’ Hayek announced, ‘I get ideas beyond my station’. He was a past master at putting people at ease. He then noticed hanging on the wall of the bar, a large picture of a magnificent Brahman Bull I owned. He asked about the Bull, so I told him he was a prize winning show bull which I had nicknamed ‘Inflation’ as he would not stop growing. He weighs 2,500 pounds in his working clothes. Hayek laughed and said that he knew a bit about inflation and that he would like to meet this one. Next day I took him down the paddock and took several pictures of him and the bull.  He was delighted to have a bit of fun. The caption of course was to be ‘Hayek’s Got Inflation By The Balls’”.

Impact and outcome of Hayek’s visit

The major public record of the tour is a Centre for Independent Studies Occasional Paper containing the three major speeches with some information about Hayek and a brief account of the tour including the partial itinerary. Hayek wrote the Preface with a graceful tribute to Randerson who organised the visit and “…was guide, philosopher and friend to Mrs. Hayek and myself; and finally crowned his efforts by editing these lectures and seeing them through the press.”

Hayek’s address to the IPA appeared in the IPA Review as did his paper on ‘Socialism and Science’. A version ‘Whither Democracy’ was published as ‘Can Democracy be Saved?’ in Quadrant, November 1976.

A survey of four daily newspapers, The Australian, The Sydney Morning Herald, The Melbourne Age and The Australian Financial Review revealed no mention of Hayek and the tour. The Sydney Morning Herald (15 October 1976) announced Friedman’s Nobel award on the front page and that was an opportunity to mention that a recent Prize winner was in the country at the time. Another place where the Hayek tour could have been noted was The Australian Financial Review (5 October 1976) which ran a story on Myrdal, Hayek’s co-recipient.

The impact of the visit is impossible to assess. Later in the decade, Hayek would have found many more interested listeners as the forces for reform became better organized and more articulate. There is no doubt that his ideas energised many of the people engaged in the push for reform – but it took more than a decade and a change of government to achieve real progress to a more open and competitive economy.

 Hayek’s meeting with Prime Minister Fraser

This account is based on personal communications with Roger Randerson (late in his life) and, more recently, with officers who served in the Commonwealth Public Service and the Prime Minister’s office at the time.

The meeting between Hayek and the Prime Minister occurred on 18 October 1976.  Hayek went to Parliament House accompanied by Roger Randerson; they were met on their arrival by a Prime Ministerial staffer.  Whilst waiting for Fraser to finish his previous meeting, the group chatted about Friedman’s recent Nobel Prize: Hayek declared himself to be very pleased.  It was mentioned that The Constitution of Liberty had been the subject of seminars in the Melbourne University Liberal Club during the 1960s; Hayek responded that “you never know the influence of your work. Sometimes you write and it seems to have no effect at all”.  Fraser emerged from his office and, after introductions, the party went into the Prime Minister’s Office accompanied by another of Fraser’s staff.

Fraser had discussed Hayek’s visit with his staff beforehand and received a written brief but it was apparent in the meeting that his mind was still on the issues of the previous meeting. After they sat down and exchanged pleasantries, Hayek opened the conversation by broaching the subject of the exchange rate, then under intense discussion, and asked the Prime Minister why it should not be allowed to float? Fraser responded by asking what further action would be necessary if this were done, but Hayek disclaimed enough detailed knowledge of the Australian scene to answer the question.  Fraser seemed unwilling to pursue the matter and Randerson commented that he had not suggested to Hayek that he raise the issue. Fraser courteously replied that he did not imagine that Professor Hayek needed people to tell him what to say.

Hayek, attempting to discuss a broader subject, turned to the issue of social justice: it was, he stated, a misleading and unsatisfactory term which encouraged the growth of government welfare spending.  Fraser responded sharply: “What do you do when aboriginal children are dying?”  Hayek suggested that the government should consider a minimum income system, to avoid the obvious problems of the current system which simply encouraged special interest pressures for more spending.  Fraser responded that this underestimated the common sense of the people, and that he had taken a strong stand himself in condemning politicians who kept promising new spending. Hayek responded that the system for deciding these matters was itself flawed and needed to be changed.

In the short time allowed for the meeting, Fraser did not attempt to engage his visitor on the major issues he was facing, despite the opening provided.  He had expressed interest beforehand but it appeared that the Prime Minister had not read the brief prepared by his staff, and the opportunity to engage one of the great minds of the modern era in a serious policy discussion was passed over by the Australian leader.

Wolfgang Kasper on Hayek at the Australian National University (prepared at the request of the present author).

In 1969, I had visited Hayek several times when he recuperated in a sanatorium in the Black Forest in Germany and I was a staffer of the German Council of Economic Advisors. By 1976, I had moved to the Australian National University (ANU), and found the atmosphere among the social scientists there not very congenial, to say the least. They were mostly neoclassical model builders or left-wing economic historians, most of whom might not even have heard of Austrian economics. But they were all very sure that they belonged to the noble religion of do-gooding reform and that the sacking of Whitlam was a gross injustice.

It was against this background that the news of Friedrich Hayek’s visit came as a great and very pleasant surprise! Hayek was to speak at ANU in the big Coombs Lecture Theatre (named after ‘Nugget’ Coombs). When I turned up in the company of a businessman friend, the auditorium was already quite packed. I saw only few of my fellow economists from ANU in the audience, but many vaguely familiar faces from the Treasury and – oddly – the Canberra Fabian Society.

Then, Hayek – a gangly old fellow – began to speak after an introduction that assumed few in the audience had even heard his name. I do not even recall the contents of his address only that it was lively and the audience were spell-bound. My businessman friend (and Chris Caton, then of Treasury, who sat next to us) loudly approved of what was said, but some around us began shaking their heads. Hayek clearly hailed from a different intellectual universe than the model builders, who were trained to assume ‘perfect knowledge’.

After the talk, the questions came mostly from several senior civil servants, some of whom were eager to use our eminent visitor to score policy points. Hayek obliged in his good-natured and clear way. I do not believe that he changed minds of the ‘Whitlam tribe’, but he did much to cheer and reinforce those who shared his basic worldview and his understanding that economics is about a dynamic game to search and test useful knowledge. Well after the habitual closing time for such public events, the questions and answers were keeping the big audience spell-bound. The chair (it may have been John Stone from Treasury, I am not sure) pointed out Hayek’s advanced age, his recovery from serious illness and politely suggested we come to a close. Hayek interrupted him cheerfully: “Yes”, he said in his Vienna-accented English, “I have been ill and I have tried old age. It was not to my liking! Who has the next question?” This brought the house down! With hindsight, I know that this remark was one of his standard party quips at the time – but he certainly won over the hearts of the audience, though possibly not their minds.

His Canberra show was fondly remembered by those present, including the majority who were unable to jettison their old beliefs in favour of thinking in terms of Austrian-evolutionary economics.

Ronald Kitching on the tour

The great Nobel Prize winning economist/social scientist F. A. Hayek made a month long lecture tour of Australia in October 1976. There is a bit of an inside story to this tour which so far few know about. Hayek was invited to Australia for a lecture tour by economist Mark Tier. However, Hayek, at that time, had to decline, but as circumstances changed and as he did not know anybody else in Australia, he wrote a note to Sydney Economist/Barrister Roger Randerson, whom he once tutored at The London School of Economics, saying that he could squeeze in a month before going on previously scheduled visits to New Zealand and Japan.

Roger and I were good mates so he rang me with the good news. I then suggested to Roger that he immediately write back to Hayek and ask what his fee would be. I can still quote the answer. Hayek replied saying: “Should first class return airfares be provided for my wife and myself both internationally and nationally, and first class accommodation be provided for us, and also providing that my lectures are confined to no more than two per week, there will be no fee.”

Roger estimated that the total cost would be approximately $25,000. As he was well connected in the commercial world and I was well connected with the Australian Mining Industry, we thought that it would be an easy matter to get the tour underwritten. So we set off to see what we could do. After a week’s travelling and lobbying, I could not find a single executive willing to undertake part in such a “revolutionary” activity. I returned to my home rather dispirited about it all. I rang Roger to see how he was doing.

He replied to my query, “My boy, nobody wants to know me. They are all running for cover.” I then went on to say that the average answer I got was, “We cannot be seen to be endorsing the right wing views of such a radical figure.” He replied that that was precisely the response he got too. So, I said, “Bugger it all Roger, I’ll underwrite the tour myself.” He replied, “I won’t see you do that m’boy, I’ll go you halves.”

So, with that settled, I suggested that we again go around the traps, and, seeing the tour was underwritten by somebody who wished to remain anonymous, try to see what could be raised for the venture. We were ably assisted in this effort by Mr. Ref Kemp, Director of The Institute For Public Affairs in Victoria, Mr. Viv Forbes in Brisbane, and Mr. R. H. (now Sir Robert) Norman OBE of Cairns.

Roger later published a booklet titled Social Justice, Socialism and Democracy featuring three of Hayek’s [1979b] most important lectures on the tour. In that small book he said: ‘Many publicly spirited citizens, institutions and organisations donated, (numbering no fewer than 62, in sums ranging from $50 to $2,000) towards the visit, but no list is given because some wish to be nameless. Their generosity is, however, gratefully acknowledged.’

The Hayek visit was a co-operative private enterprise. Indeed it had to be, because approaches at high levels for concessions from government owned or controlled internal and external airlines were refused.

There were complaints from high level “intellectuals”, that the visit was everything from a white washing of dangerous capitalist ideology, a political plot of ever devious Jews, to a “bankers plot”. Hayek incidentally was a non-practising Catholic. Hayek was in great form and he appeared as Guest of Honour on the hour-long Monday Conference with Robert Moore, and televised by the ABC network in all states on 11 October 1976.

In addition, in total he kept no less than 60 appointments, including visits to heads of state, seminar and lecturing engagements. A very heavy schedule for anybody, but at that time Hayek was 76 years of age. He was in scintillating form.

Roger decided that in the middle of the tour he would give him four days off on the Atherton Tableland. I had a spacious home there and as half of my six children were away at boarding school, we had ample room to accommodate Roger, and Professor and Mrs. Hayek.

When he arrived we had a celebratory drink of his favourite tipple, Johnny Walker Black Label. “Whenever I drink this brand of Scotch,” Hayek announced, “I get ideas beyond my station”. He was a past master at putting people at ease.

He then noticed hanging on the wall of the bar, a large picture of a magnificent Brahman Bull I owned. He asked about the Bull, so I told him he was a prize winning show bull which I had nicknamed Inflation as he would not stop growing. “He weighs 2,500 pounds in his working clothes,” I told the small gathering present.

Hayek laughed and said that he knew a bit about inflation and that he would like to meet this one. I told him that compared with the inflations he had witnessed, that this one was rather tame and that my boys jumped on to his back in the paddock. “I even jump on his back when he is in the yard and I can climb up the rails to do so,” I told him. “Well, while I am here, I would like to meet him, ” Hayek exclaimed. So I put that on the agenda.

I got this bright idea that I’d put the bull in the yard, get a step ladder, put Hayek on the bull, (if he agreed), and take a picture, which would carry the caption, “Hayek’s on Top of Inflation”. I told my wife and that was the end of it. She would not under any circumstances countenance such a move. “What if the Professor fell off and was injured,” and all of that sort of chatter. So that project was abandoned.

Nevertheless Hayek still wanted to meet the bull. Next day I took him down the paddock and took several pictures of him and the bull when another idea popped into my head and I quietly mentioned it to him. He was delighted to have a bit of fun. The caption of course was to be “Hayek’s Got Inflation By The Balls.”

Well, the old boy was delighted. He was quite at home with animals and had palled up with the bull, which was an easy matter with this particular animal. So he posed and I took the picture. He predicted that if the Americans got hold of a copy, the picture would become famous.

I am happy to announce that I recently heard from Dr. Eamonn Butler of the Adam Smith Institute in London. He told me that at a recent luncheon in her honour in London, Mrs. Thatcher, much to her delight, had a picture presented to her of her favourite Economist/Philosopher and with Inflation by the balls.

Hayek’s grand-daughter, who was present, read out the story.