Friedrich von Hayek, Thomas Piketty, and the Search for Political Economy

A European economist travels to America to give a few lectures on his new book, recently published by a university press. Although a successful scholar, he is hardly a celebrity, especially in the United States. Yet almost as soon as he arrives, this economist is swept into a book tour exceeding any author’s wildest dreams—crowds of thousands at his public talks, generous offers from wealthy donors to continue and expand the work, and reprints in popular magazines.

The story is drawn from the life of Austrian economist Friedrich von Hayek, who visited the United States in 1945 to publicize his book The Road to Serfdom, considered today as one of the foundational texts of neoliberalism. But it also resonates with the more recent example of Thomas Piketty, the French academic whose 577-page Capital in the Twenty-First Century has been on the New York Times bestseller list for 16 weeks (as of this writing) following its publication in April 2014.¹ Piketty’s American tour this past spring became a news story as much as his book: he met with Treasury Secretary Jacob Lew and the Council of Economic Advisers and appeared on Stephen Colbert, and Business Week ran a cover feature on “Pikettymania.”

At first glance, Hayek and Piketty seem to have nothing in common. Writing in the wake of the Great Depression and in the middle of World War II, Hayek argued that even as the United States, United Kingdom, and the USSR were allies in a fight against Nazi Germany, the real threat to civilization was the move toward economic planning and regulation embodied by the New Deal. “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past,” he wrote.² Piketty’s project is entirely different: it is to document the history of inequality over the course of the 20^th century; to show that the gap between rich and poor (and especially between the very rich and the rest of the society) has been widening rapidly, especially in recent years; and to argue that the general tendency of capitalism itself may be to generate ever-higher levels of inequality unless political institutions and taxes exist to counteract this. Hayek hardly saw economic inequality as a problem; for Piketty, it is the primary threat to social cohesion and democracy.

Yet the two actually have more in common than might appear, for both books suggest the deeply political nature of economic life.

Hayek’s American journey followed several years of frustration for the Austrian economist. As chronicled by historian Angus Burgin in his study The Great Persuasion, Hayek found himself outmatched in the early 1930s by John Maynard Keynes (his academic rival), as Hayek’s criticism of government involvement in the economy became increasingly out of place in the context of the Great Depression. He began to search for a way to update the old liberal creed of economic liberalism and opposition to the power of the state. As hard as it may be to believe today (as neoliberalism occupies a dominant place in American policy circles), neoliberal thought was born out of a sense that the earlier wave of economic liberalism had collapsed in the Depression years.

Instead of rigidly insisting on economic individualism, Hayek tried to reframe the issues in terms of the need to protect the fragile, creative spontaneity of the marketplace. The real danger of the welfare state and economic planning, according to Hayek, was that no matter how well-intentioned its advocates (the “totalitarians in our midst,” as he put it) might be, they would lead Britain and the United States down a path ending in political disaster.³

His book had some difficulty finding an American publisher but was eventually taken on by the University of Chicago Press, which planned an initial print run of 2,000 for release in September 1944. Front-page reviews in the New York Times Book Review and other publications boosted interest—and only a few weeks after publication, the Press had to scramble to get out a second, then a third, edition.⁴

Imagine the shy Austrian’s surprise when he arrived in the United States for a five-week book tour in April, 1945, and was met by a crowd of 3,000 at an early speaking engagement at New York’s Town Hall, also broadcast over the radio.⁵ Conservative businessmen who had been deeply frustrated by the rise of labor unions and expansion of government regulation during the New Deal had been eager to find what one referred to as a “‘bible’ of free enterprise,” a book that could articulate the underlying principles of capitalism in the rhetoric of freedom, giving them a way of opposing the new order without appearing motivated solely by self-interest.⁶ Hoping to find ways to limit labor’s reach and undermine the welfare state, these businessmen were thrilled to discover The Road to Serfdom.

The book also owed much of its success to Reader’s Digest, which published a condensed version for its readership of 8 million people; Look magazine printed a handy cartoon version, which was then picked up by General Electric’s in-house magazine.⁷

Hayek was a little chagrined by this success; he worried that he would no longer be taken seriously by scholars, that his admirers in the business community had discarded the subtlety of his arguments. But he was also happy to accept a position—financed by one of the early conservative foundations—at the Committee of Social Thought at the University of Chicago.⁸ While a bit wary of his business supporters, he was also aware of the potential for an alliance with them. As he wrote in the preface to The Road to Serfdom, “When a professional student of social affairs writes a political book, his first duty is to say so. This is a political book.”⁹

It might have been hard for Hayek, writing in 1944, to imagine the world of 2014 into which Piketty’s book appeared. One of Piketty’s major claims is that the level of inequality in a society is determined by politics and social norms—the deregulation of finance, the political mobilization of the wealthy, and even the dominance of the free-market ideas that Hayek once championed—all of which have given rise to the ascendance of the super-elite.

The differences between the two books are not just about their arguments, or even their politics. They’re also methodological: Piketty is an empiricist, whose major contribution lies in his assembling of massive quantities of statistical information about economic inequality. Like Hayek, he was at odds with the economics profession even before his book was published, alienated even as a young assistant professor at the Massachusetts Institute of Technology by its retreat into mathematics and avoidance of history and politics.

Hayek became a theorist, even a polemicist, eschewing narrow mathematical arguments but also by and large avoiding data altogether. Overlooking any possibility that corporations or inequality might limit freedom, Hayek argued that the heavy hand of the state was all that people had to fear.

However, Piketty’s success, like that of Hayek, comes in part because of his willingness to write about the economy as a political space. As he suggests, economic inequality is a topic far too important to be left to economists. It’s a subject with which everyone is intimately familiar, affecting our most basic choices about work, consumption, family, and identity—and the economy is something that “all activists in the unions and in politics of whatever stripe,” as well as journalists, commentators and social scientists need to understand.¹⁰

The response to Piketty from liberal audiences, eager to find an analysis deeper than a Paul Krugman column, reflects not only the economic politics of our own time: the stark, growing separation between the very rich and the rest of American society, a division that affects everything from education and health care to the very terms of political participation (and which may even be starting unsettle elites, such as those who have greeted Piketty’s work with enthusiasm). It also indicates a longing, however tentative, to bring these economic questions into political debate in ways that reflect their centrality to our lives—reviving an approach to economic life that sees it shot through with ideas about justice and indeed even freedom.