Friedrich Hayek: Darling of the right is reborn in the USA

The uncompromising anti-statism of Friedrich Hayek has won a new following among Republicans. Stephen Foley reports

Margaret Thatcher kept a copy in her handbag. Ronald Reagan said it influenced his economic philosophy. Dissidents in Communist Eastern Europe surreptitiously passed paperback prints amongst themselves before the Berlin Wall came down.

And now, a generation and a whole heap of economic trouble later, Friedrich Hayek's The Road to Serfdom has been pitched into the centre of America's heated election battle, and is back atop the best-seller lists, 66 years after it was first published.

In a renaissance laced with ironies, a political treatise penned in the aftermath of the Great Depression is waved around on Fox News as if it is a holy book, and its Austrian-born author, dead for 18 years, has been anointed Philosopher King of the right-wing Tea Party movement that is sweeping the grassroots of the Republican Party.

"Like Mike Tyson in his prime," says Fox host Glenn Beck, Hayek delivered "a right hook to socialism in Western Europe and in the United States." From beyond the grave, he expects the economist to deliver a right hook to Barack Obama, too.

Hayek would be smiling at having emboldened the American right wing. He always joked that he heard better with his right ear than with his left. He had dedicated his career to discrediting state intervention in the economy and asserting the primacy of free markets, winning a Nobel Prize for some of his work.

And in The Road to Serfdom he proffered a dire warning: that governments were not only incompetent but their actions impinge on individual freedoms, create a tyranny of the bureaucracy and will inevitably lead to totalitarianism. In short, under a big government, we would all become serfs, or slaves.

The right in the US is bloodied and furious by the Obama administration's reform of healthcare, which will mandate insurance coverage for almost all Americans, and the public is still smarting from the emergency government takeovers of the car companies General Motors and Chrysler as well as half the banking system.

For many, Hayek seems to be talking not about 1944 but about the here and now. So when Beck, the mewling personification of anti-government Republicanism in a prime-time slot on Fox, dedicated a show to The Road to Serfdom last month, he set the book up as an intellectual lodestar for our times. Sales tripled overnight, and the book went instantly to number one on the Amazon chart. A title that was shifting 2,000 copies a year two years ago is now on course to sell 70,000 in 2010, says its publisher.

Reading Hayek is "kind of an 'Aha' moment for a lot of people today," Beck declared, adding that failing to heed the warnings within would leave us "incredibly vulnerable to repeating the mistakes of the past". And he gave The Road to Serfdom a sexy, underground feel by adding: "People [behind the Iron Curtain] literally risked their lives to read it."

Friedrich August von Hayek was born in Vienna in 1899 to a family steeped in academia, and became a polymath whose learning spanned psychology and the law as well as philosophy and economics.

Working at the London School of Economics in the Thirties and Forties, he became the most persuasive of all the "Austrian school" of economists who advocated for limited government, a classical liberalism that is today more commonly described as libertarian.

They passionately opposed central planning of whatever political hue, from Nazism to Communism, and that included opposing the nationalisations and Keynesian demand management that took hold in social democratic Europe after the Second World War. It was a lonely position for much of the post-war period.

"It was the occupational hazard of liberal scholars to show the consequences of political error years ahead of their time," Hayek's disciple Arthur Seldon, founder of the Thatcherite think-tank the Institute of Economic Affairs, wrote in his obituary of the writer in The Independent in 1992.

"The electorate was not inclined to listen in 1945 before the vast post-war expansion in financial, industrial and welfare nationalisation. It may have wanted to wait for the evidence that liberty would suffer from aggrandisement of the state. By the General Election of 1979 it had had enough. It was Hayek's thinking which largely inspired the 'Thatcherite revolution' in economic policy ... For half a century, Hayek was the leader of world liberal thinking. His influence will extend long into the 21st century."

Seldon's words were prophetic. Glenn Beck's herogram to Hayek did not come out of the blue. His works – and those of other members of the Austrian school of economists, led by Ludwig von Mises – are much discussed in the online forums frequented by the politically savvy young, many of whom have a libertarian bent.

It was this online student following that kept alive the presidential hopes of Ron Paul, a Texan Republican, long after mainstream media had written him off as a candidate for the Grand Old Party's nomination in 2008. The Congressman has hung portraits of the Austrian economists behind the desk of his Washington office, and proudly tells visitors it was their work that inspired his move into politics.

Now his equally libertarian son, Rand Paul, has sensationally won the Republican nomination to fight the Senate seat in Kentucky this November, thanks to Tea Party support. But Rand Paul has got himself in a spot of bother since winning the nomination, having declared he would not have voted for the Civil Rights Act that outlawed discrimination against African-Americans. The Act contravenes strict libertarian dogma, since it represents government interference with private business, in this case the right to refuse to serve blacks.

After a decade when US elections have seemingly hinged on the cultural issues that fixate the religious right, the looming clash promises to put the role of government at its very heart. In a vivid way, it mirrors the intellectual clash between Hayek and another dead economist, John Maynard Keynes, who argued for governments to step in with big spending programmes to prevent a recession from spiralling into a depression. It was Keynesian policies, lashings of them in every major country in the world, that pulled the global economy back to growth after the financial crisis.

Keynes declared himself in "deeply moved agreement" with The Road to Serfdom, but he had a sting in the tail of his praise. He declared that the philosophy was of no practical use. A minimalist government, which left people to fend for themselves, was unconscionable, he said, and no matter how seductive it appears on the printed page, no one would support its introduction in the end.

Kevin Logan, chief US economist at the international bank HSBC, said that Hayek's economic insights were powerful but limited. "His political appeal is very high compared to his economic influence," he said. "It is absolutely true that markets create much more efficient dissemination of information and Hayek's is a valid critique of central planning. In a complicated, large, modern economy, a central planner cannot get enough information to make efficient decisions. How many nails should be produced in an economy? How many ham sandwiches? Central planners can't know.

"He was writing at a time when the world was coming out of the Great Depression, when capitalism was widely seen as an inefficient, lousy system that had given us high unemployment. This was when central planning took hold as an alternative, a time of five-year plans and input-output tables and the like. Hayek's critique was that it can't be done. But we are not talking about central planning today. The US government has taken stakes in car companies and banks, but reluctantly. There is no appetite for it, no desire to control or operate enterprises. Even in healthcare, where Americans can choose their doctor and their insurance plan, things are not centrally planned at all."

The biggest irony of Hayek's return to the top of the pop charts is that this was not supposed to be the outcome of the credit crisis. When the financial world convulsed in 2008, it was easy to assume that it one of its many victims would be the laissez-faire politics begun in the Thatcher-Reagan era.

Politicians on both sides of the Atlantic said as much, French President Nicolas Sarkozy declared the death of Anglo-Saxon capitalism and Barack Obama in the US blamed many of the excesses allowed on Wall Street to the deregulatory philosophy that began in the Reagan years.

But although the economy has returned to growth, it has not returned to health, and while government intervention in the economy is greater than it has been in a generation, Americans increasingly doubt its effectiveness. Unemployment is stuck at 10 per cent. The percentage of Americns who think the Obama administration's $797bn (£525bn) stimulus package worked is in the single figures.

According to the latest polls, 62 per cent of Americans think the country is on the wrong track, the highest level since Mr Obama was sworn in. Even the President's approval ratings have now dipped into negative territory, joining Congress in the tank of public disillusion.

The Tea Party movement is so far the only political force successfully channelling that disappointment, and mainstream Republicanism has been uncertain how far to embrace what remains a shambolic and often incoherent protest group. And because he brings a seductive intellectual voice to the chaos and the anger, Hayek is suddenly potent again.

Gurus of Economics

*When the financial crisis and the Great Recession presented challenges for politics and for economics unlike anything seen since the 1930s, sending people scurrying for the economic philosophers of more than half a century ago, the first they reached for was John Maynard Keynes. An economist who rose through the ranks of the British civil service, he was instrumental in restoring the UK after the Great Depression, and in reshaping the global financial order after the chaos of the Second World War. As well as providing the academic underpinning for government efforts to stimulate demand in the economy, he also had much to say about banking. "Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation."

On the same Fox programme in which Glenn Beck proselytised Hayek's tome, he also waved a copy of 'Atlas Shrugged', the 1957 novel by Ayn Rand, the Russian-American philosopher who is another darling of the libertarian right. This book, too, has found its way back into the charts. In it, Rand fantasises a "strike" by America's most productive capitalists and creative scientists, driven away by government interventions that restrict their businesses and redistribute their wealth, a strike that leads to the collapse of society. Alan Greenspan, the deregulating chairman of the US Federal Reserve, was a Rand devotee.