COLUMNS Stephen Berk

The Road to Serfdom

The above phrase is the title of the best known work of economist Friedrich von Hayek, mentor to Milton Friedman, and with him creator of the Chicago school of economics, neoliberalism. This view, reigning economic orthodoxy for over thirty years, has recreated the boom/bust cycles of classical nineteenth century liberalism, and it has also spread unimpeded markets around the globe, unleashed a frenzy of development, and made some people immensely wealthy and others sickeningly poor. Chicago orthodoxy regards unregulated markets as godlike entities, not to be tampered with by governments. If left alone, so the dogma goes, they will eventually make everyone prosperous and free. Hayek wrote his book following American and European institution of government regulation first to combat the dire effects of the Great Depression and then to fight the Second World War. He argued that prevailing statist economics was in fact “the road to serfdom,” wherein the West would end up looking like Stalin’s Soviet Union. This was a nervy thing to say when US government money was rebuilding Europe in the heady days of the Marshall Plan.

The system developed by British economist John Maynard Keynes, which featured strict government controls over market speculation, put in place a number of safeguards to prevent the kind of wild speculation that had brought on the crash of 1929 and the Depression. The Keynesian system was based on the idea that a healthy capitalism demanded a constantly growing middle class. In order for that to come about, the state needed to create upward mobility. One of the ways to do so was to finance public education from kindergarten through graduate school. The US never went this far, but many of the European countries did. Social Security, which is actually based on forced savings from earnings, became the basis in the US of old age pensions, unemployment and disability insurance. The Keynesian “developmental” model, wherever it was introduced, included a large measure of government aid to impoverished or otherwise marginalized groups to open opportunity to as many as possible, thus creating an ever expanding middle class with the ability to consume and thereby further continuous prosperity. The money to finance government aid on such a large scale came from taxation, including a steeply graduated income tax.

Welfare statism, the product of the Keynesian system, did create much more equalitarian societies where it was used most extensively, as in Northern Europe. Those countries saw poverty, crime and imprisonment decline appreciably. The US, with its background in frontier individualism, never went nearly so far in welfare statism as the European countries. But by the sixties and seventies, with many marginalized groups being brought into the mainstream through compensatory legislation, and with increased federal aid to education, and Aid to Families with Dependent Children (abolished in 1996), poverty did begin to decline, and market regulation lessened the extremes of boom and bust that characterized unregulated capitalism.

Many of the well-to-do resented paying high taxes, even though taxation did not greatly diminish their wealth. They viewed state supervised redistribution as un-American, and they preached the nostrum that prosperity comes from low taxes and unregulated markets. In the wake of the social upheavals of the sixties, people of wealth began to organize to reclaim control of the economy. In doing so, they followed the neoliberalism of the Chicago school. The deregulation of banking began in the late seventies, with the junk bond frenzy that marked the Savings and Loan crash coming ten years later. Twenty-first century neoliberalism has brought us the bust and the subprime mortgage debacle in quick succession, replete with unparalleled disparities of wealth. The ultra-rich few live rarified lives insulated from the masses, while college graduates face massive debt and low wage jobs as far as the eye can see. Millions are unemployed, millions homeless, 2.3 million, mostly from poorer classes, are in prison. And the best our politicians can offer is not a hand up, but cuts in Social Security and Medicare. Judge for yourself which is the road to serfdom: Keynesian statism, or Hayek’s neoliberalism.

By Stephen Berk

Steve is a retired history professor from California State University at Long Beach. He's currently on the board of directors of Clatsop Community College, and teaches classes in the ENCORE program. He's written extensively on social, political and religious issues, and has been writing a column in HIPFiSHmonthly for over 5 years.