Social Democracy — A Detour on the Road to Serfdom?

Hayek enthusiasts were up in arms when Jeffrey Sachs wrote, "Austrian-born free-market economist Friedrich
August von Hayek suggested in the 1940s that high taxation would be a ‘road to serfdom,’ a threat to freedom itself" (pdf). Hayek’s supporters were quick to point out that his 1944 book, The Road to Serfdom, was an attack on socialism, not an attack on the welfare state. One commenter attacked me just for citing Sachs’ views:

Don — you are either grossly ignorant of Hayek’s work, or grossly dishonest. Hayek allowed for the social welfare state, and said nothing about tax increases leading to “tyranny”.

Let’s see if we can clear this up. Hayek’s objection was to policies which aimed at ‘social justice.’ By that he meant, policies which attempt to give each individual the income he or she morally deserves. He was not an extreme libertarian who regarded taxation as theft or who wanted to abandon the aged, unemployed and disabled to market forces.

Hayek allowed programs like unemployment insurance and an assured minimum income for those unable to support themselves in the market. I’ve quoted Hayek on this in the past and so have other bloggers (more here). But at the same time, it’s clear that Hayek thought that tax and welfare policies which aimed at redistribution could put a country on the ‘road to serfdom.’ For example, here’s how Hayek answered a question about his 1944 book:

It was aimed against what I would call classical socialism; aimed mainly at the nationalization or socialization of the means of production. Many of the contemporary socialist parties have at least ostensibly given up that and turned to a redistribution/fair-taxation idea — welfare — which is not directly applicable. I don’t believe it alters the fundamental objection, because I believe this indirect control of the economic world ultimately leads to the same result, with a very much slower process. So when I was then talking about what seemed to be an imminent danger if you changed over to a centrally planned system, which was still the aim of most of the official socialist programs, that is not now of direct relevance. At least the process would be different. Some parts of the present welfare-state policies — the redistribution aspect of it — ultimately lead to the same result: destroying the market order and making it necessary, against the will of the present-day socialists, gradually to impose more and more central planning. It would lead to the same outcome. But my description of the process, and particularly the relative speed with which I assumed it would take place, of course, is no longer applicable to all of the socialist program (p 108).

This response comes from a 1978 interview with Axel Leijonhufvud. It is published in Hayek on Hayek: An Autobiographical Dialogue. Hayek’s objection is not against the state providing a minimum income to people who are unable to earn a living in the market. Instead, his objection is to policies which aim at providing every citizen with the income they morally deserve.

As my grumpy commenter might point out, this is not the same as saying that high taxes lead to tyranny. However, during the 1940s Hayek did have concerns about the rising level of taxation and its effect on freedom. In an essay in his 1949 book Individualism and Economic Order he commented on "the effect of progressive income taxation at the rate which has now been reached and used for extreme egalitarian ends." He argued that this:

…has come near to eliminating that most important element in any free society — the man of independent means, a figure whose essential role in maintaining a free opinion and generally the atmosphere of independence from government control we only begin to realize as he is disappearing from the stage (p 118).

But again, you could argue that the emphasis is on the "egalitarian ends" rather than the level of taxation itself. Hayek went on to say:

I ought at once to add that inheritance taxes could, of course, be made an instrument toward greater social mobility and greater dispersion of property and, consequently, may have to be regarded as important tools of a truly liberal policy which ought not to stand condemned by the abuse which has been made of it (p 118).

Jeffrey Sachs has made a correction to the online version of ‘The Social Welfare State, beyond Ideology’. He now says that "Because of an editing error, an earlier version of this essay misattributed the date of Hayek’s suggestion" that high taxation was the road to serfdom. If anyone has any other references to Hayek’s views on taxation, welfare and liberty, I’d be interested to learn about them.

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Patrick
Patrick
15 years ago

I am afraid that not being the scholarly type, I can’t help with the references! But I can point out how Hayek’s 1949 comment illustrates how much richer are so many today than just 60 years ago.