THIRTEEN

The Road to Nowhere

Hayek Links Keynes’s Remedies to Tyranny, 1937–46

The success of the Keynesian Revolution in America seemed assured after publication of The General Theory, yet the application of Keynesian ideas by the Roosevelt administration was patchy. Franklin Roosevelt may have welcomed Keynes to the White House, but he was nervous about funding public works on the scale the new doctrine demanded. And when, in the spring of 1937, production, profits, and wages returned to their 1929 levels, suggesting that the recovery was on its way, the president signaled a change in direction. Unemployment was at 14.3 percent, down from 16.9 percent the previous year, persuading some of Roosevelt’s advisers, including the Federal Reserve chairman Marriner Eccles,1 that the New Deal job schemes had worked their magic.

In June 1937, Roosevelt re-embraced orthodoxy with spending cuts, a credit squeeze, and an increase in taxes.2 The work of federal job-creating agencies was slowed. Soon after, America was heading back into recession. The “Roosevelt Recession” lasted throughout 1938 and caused industrial production to slump by a third, prices to fall about 3.5 percent, and unemployment to climb to 19 percent.3 Roosevelt tried to avoid blame by attacking big business. In January 1938, with a fall election looming, the president switched course, sending Congress a $3.75 billion spending bill and a further $1.25 billion in April, to fund fresh job-creating initiatives.

In a “fireside chat” on April 14, FDR adopted Keynesian logic. “We suffer primarily from a failure of consumer demand,” he said. “It is up to us to create an economic upturn.” He announced $300 million for slum clearance, $100 million for highways, and millions more for “public improvements.” Roosevelt justified his reversal by claiming that putting the jobless back to work would protect America from the extremism rampant in Germany and Italy. “The very soundness of our democratic institutions depends on the determination of our Government to give employment to idle men,” he declared.4

In February, Keynes wrote to Roosevelt. Dismissing the Roosevelt Recession as “an ‘error of optimism,’” he urged the president on, recommending he focus on house building as “by far the best aid to recovery.” And he urged Roosevelt to curb his rhetoric against business people, who were “perplexed, bemused, indeed terrified,” he wrote. “If you work them into the surly, obstinate, terrified mood . . . the nation’s burdens will not get carried to market.”5

Fast-moving events in Germany obliged Roosevelt to spend on the vast scale Keynes prescribed. Hitler assumed power in January 1933 and set off on a massive rearmament program, in direct defiance of the Versailles treaty. Within a year, Germany, dogged by mass joblessness since World War I, was enjoying full employment.6 Rearmament by the anxious European democracies gave American war industries a boost. In Britain, Neville Chamberlain’s government was quietly rearming. Unemployment in Britain began to fall, though it remained at a record high until war was declared against Germany on September 3, 1939,7 the day Wall Street stock prices returned to their pre-1929 crash levels.8 Europe was not alone in fearing the Axis powers. Despite Roosevelt’s assurances during the 1940 presidential campaign—“I have said this before, but I shall say it again and again and again: Your boys are not going to be sent into foreign wars”9—he ordered a gargantuan rearmament program: in 1940, the annual defense expenditure was $2.2 billion; the following year it reached a sizzling $13.7 billion.

“If expenditure on armaments really does cure unemployment, a grand experiment has begun,” Keynes declared in 1939. “We may learn a trick or two which will come in useful when the day of peace comes.”10 The multiplier effect of so much public money being pumped into the American economy caused the gross domestic product (GDP) to jump by about $25 billion, with arms and other defense spending accounting for 46 percent of the increase.11 Even so, employment was not restored to the pre–Roosevelt Recession level until 1941, the year America was attacked by the Japanese at Pearl Harbor. “We saw the war as a justification of the Keynesian theory, the Keynesian doctrine, and the Keynesian recommendation,”12 John Kenneth Galbraith recalled.13

The German occupation of Austria in March 1938 coincided with Hayek becoming a British citizen, and he made one last trip to the old country before the outbreak of war. Unable to serve in the British armed forces because of his former nationality, in September 1939 he wrote to the Ministry of Information, suggesting that his “exceptional experience and somewhat special position might enable me to be of considerable help in connection with the organization of propaganda in Germany.”14 Hayek’s offer was ignored.

Hayek could have been treated far worse. Piero Sraffa was interned on the Isle of Man merely for being Italian, a cruel fate in light of his having escaped Italy after Mussolini had threatened him. He was released after Keynes petitioned the home secretary. Hayek was aware of his good fortune. “I was still the ex-alien, enemy alien. I had a very privileged position,” he recalled. “I was not used for any war purposes, but I was not molested. It couldn’t have been a more ideal position.”15

Keynes, at fifty-six, was too old for active service, far from healthy, and too out of favor with Chamberlain’s government to be welcome at the Treasury. As his biographer Skidelsky explained, “He was too eminent to be made an ordinary civil servant, and too stimulating to be let loose in Whitehall.”16 But standing idly by was not his way. Unasked, he directed his thoughts toward solving how to pay for the war. He rejected the inflationary approach used in World War I, nor was he in favor of rationing. “The abolition of consumers’ choice in favor of universal rationing is a typical product of that onslaught, sometimes called Bolshevism,”17 he wrote in April 1940.

Chamberlain’s chancellor, Sir John Simon,18 had, inadvertently, been behaving like a model Keynesian, financing rearmament by public borrowing rather than raising taxation. He increased defense spending by £600 million, while imposing taxes of only £107 million. The Treasury concluded that there was little risk of inflation so long as unemployment remained at 9 percent.19 Keynes, however, believed the huge spending on arms combined with the recruitment of armed forces would employ the whole of the workforce, stoking a massive increase in demand. Not only would this starve the government of essential supplies with which to fight the war, but inflation would follow as too much money chased too few goods. The choice was between high taxes, or inflation, or rationing, or a combination of all three.

In “War Potential and War Finance,” a lecture to the Marshall Society on October 20, 1940, Keynes unveiled his plan. Instead of a straight income tax, earnings would be subject to a levy that combined progressive taxation with compulsory savings, “deferred pay” credited to interest-bearing accounts to be cashed once the war was won. Keynes believed the accumulated money spent after the war would counter what he believed would be a slump once war expenditures came to an end. Hayek described Keynes’s approach as “ingenious.” Hayek also welcomed Keynes’s opposition to rationing, believing the removal of prices would result in injustices. Because he disliked the notion of countering a postwar slump with a contrived surge in spending, Hayek suggested instead that the deferred pay should be invested in shares. He also, surprisingly, floated the idea of paying down war debt with a “capital levy on old wealth”20 to be placed in “a kind of giant holding company, [that] would in turn issue shares to the holders of the blocked balances.”21

In reviewing Keynes’s plan, Hayek described Keynes as having “the most fertile mind among living economists”22 and concluded that “Mr. Keynes’s proposal . . . appears to be the only real solution.”23 While remarking that it was “doubtful whether such a wholesale increase of expenditure is really a safe cure for slumps,” he welcomed Keynes back to the fold. “The difference which had so long separated him from the more ‘orthodox’ economists had disappeared.”24 “During the war I was fighting on Keynes’s side against his critics, because Keynes was very much against inflation,” Hayek said later, telling only part of the story when he suggested that it was “to strengthen his influence against the inflationists” that he did not complete the second volume of The Pure Theory of Money.25

After the London School of Economics was evacuated from London in 1940 because of the Blitz, it moved to Peterhouse College, Cambridge, where Keynes’s sternest critics, Hayek and Pigou, shared teaching duties. The move completed Hayek’s assimilation into English life. “Life at Cambridge during those war years was to me particularly congenial,” he recalled. “Somehow the whole mood and intellectual atmosphere of the country had at once proved extraordinarily attractive to me, and the conditions of a war in which all my sympathies were with the English greatly speeded up the process of becoming thoroughly at home.”26

Hayek was due to move into Peterhouse when Keynes, in a typically humane gesture, insisted that his old rival be found rooms near his own at King’s College. The two men met from time to time at King’s and took part in faculty duties. And so it was that the surreal scene took place when Keynes and Hayek, armed with shovels and brooms, found themselves patrolling the Gothic roof of King’s Chapel, scouring the night sky for German bombers. It was a truce of convenience. Neither had given ground, but in the face of a vicious common enemy each agreed to become affable acquaintances. “We shared so many other interests, historical and outside economics,” Hayek recalled. “On the whole when we met we stopped talking economics. . . . So we became personally very great friends, including Lydia Lopokova.”27

In August 1940, Keynes was given an unpaid Treasury job that allowed him to rove across all areas of economic policy. In particular, he was asked to negotiate war loans from America. He developed plans for a postwar economic order to replace the unbridled competition between nations that had fomented the war, and he invented a more orderly system of currency trading fixed around a revived gold standard, what became the Bretton Woods agreement. He was also instrumental in conceiving two other pivotal organizations, the International Monetary Fund and the World Bank.

Hayek, meanwhile, set out on his pessimistic masterwork, The Road to Serfdom.28 As his biographer Alan Ebenstein observed, “‘The Road to Serfdom’ revolutionized Hayek’s life. Before its publication, he was an unknown professor of economics. A year after it was published, he was famous around the world.”29 Not bad for a book that Hayek, with rare modesty, believed only a few hundred would read.30

Hayek had written to Walter Lippmann in 1937, “I wish I could make my ‘progressive’ friends here understand that democracy is possible only under capitalism and that collectivist experiments lead inevitably to fascism.”31 Originally titled “The Nemesis of the Planned Society,” the book drew on ideas Hayek had explored in two essays in 1938 and 1939, that those who advocate a planned economy in place of a free market are, however well intentioned, treading a path that could lead to tyranny. “Once the free working of the market is impeded beyond a certain degree,” he declared, “the planner will be forced to extend his controls until they become all-comprehensive.”32

The Road to Serfdom was published in Britain on March 10, 1944, in an edition of 2,000. Within days, however, Routledge ordered 2,500 more and thereafter struggled to keep up with demand. In America, the University of Chicago Press published the book on September 18, 1944, after a number of mainstream publishers declined.

The principal targets of The Road to Serfdom are what Hayek deemed the twin evils of socialism and fascism, though because at the time of writing Stalin’s Soviet Union was allied to Britain and America, he felt obliged to soften his criticisms of communism and allude more to the dangers of Nazism and fascism. He asserted that the common perception that the extremes of Left and Right were polar opposites was a misapprehension, for both, by replacing market forces with comprehensive state planning, assaulted individual liberties. He reiterated his belief that as economic planners cannot know the will of others, they end up acting like despots.

Hayek feared that when World War II was won, the Allied victors might conclude that wartime economic management would speed a more prosperous, more just postwar society. Such policies, he warned, invited the preconditions for totalitarianism and might cause history to repeat itself. “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past,”33 he wrote. “It is Germany whose fate we are in some danger of repeating.”34

Little of Hayek’s argument in The Road to Serfdom is directed toward Keynes, who is mentioned by name only twice,35 though it seems it is Keynes and other newfound colleagues at Cambridge whom Hayek had in mind when he wrote that the book “is certain to offend many people with whom I wish to live on friendly terms.”36 Threaded between the lines of his central thesis can be found a belated, if slender, response to The General Theory. Yet gone was his usual shrill tone. Time at Cambridge, and proximity to Keynes, appear to have softened his zeal to prove his old adversary wrong.

The Road to Serfdom is hardly a rebuttal of The General Theory. Hayek acknowledges the motive behind Keynes’s grand scheme: the dangers of prolonged widespread unemployment and that “combating general fluctuations of economic activity and recurrent waves of large-scale unemployment which accompany them” presented a “supremely important problem” and “one of the gravest and most pressing problems of our time.”37 His solution, however, rejects government intervention. “Though [the] solution [to chronic unemployment] will require much planning in the good sense,” he wrote, “it does not—or at least need not—require that special kind of planning which according to its advocates is to replace the market.”38

Hayek conjures up a Keynesian world where economic activity is directed by the state. “This might lead to much more serious restrictions of the competitive sphere,” he wrote, “and, in experimenting in this direction, we shall have carefully to watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure.” “We shall have carefully to watch our step” is hardly the robust demolition of Keynes’s General Theory that Hayek had long promised.

Hayek’s next two sentences are ambiguous. “[The remedy of large-scale public works to cure unemployment] is neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security,” he writes. “In any case, the very necessary efforts to secure protection against these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom.” Did he mean to suggest that his ominous warnings about the dangers to freedom of state intervention did not include the “very large-scale” public works programs proposed by Keynes? It is hardly likely that he would exclude them, yet it is far from clear that he did. Once again, with Keynes clearly in the crosshairs, Hayek failed to discharge a fusillade.

Yet if Hayek was accepting that Keynesian planning would not necessarily lead to a diminution of freedom, he was clear that in his view Keynes’s program came at too high a price: creeping inflation. “If we are determined not to allow unemployment at any price, and are not willing to use coercion [compel people to work], we shall be driven to all sorts of desperate experiments, none of which can bring any lasting relief and all of which will seriously interfere with the most productive use of our resources,”39 he wrote.

In terms of his belated response to Keynes, there is a second significant omission in The Road to Serfdom. In The General Theory, Keynes not only provided an intellectual justification for government intervention but inadvertently invented a whole new branch of economics: macroeconomics, which offered a top-down perspective on economic activity the better to allow planners to understand, then manage a national economy. Until then economics had been understood solely in “microeconomic” terms, that is, looking at each element of economic activity in turn. Keynes was so far ahead of his time that the terms “macroeconomic” and “microeconomic” were not even coined until after his death. “Econometrics,” too, was Keynes’s unintended and much disparaged invention, the measurement of economic activity that came into its own as soon as planners came to assess the dimensions of an economy and set goals. Hayek and the Austrians thought such methods inappropriate. Yet Hayek omits any reference to the new disciplines, as well as the switch from the philosophical to the social scientific approach that Keynes’s masterwork heralded.

Hayek later conceded that the Keynesians did not set out to do harm. “It has frequently been alleged that I have contended that any movement in the direction of socialism is bound to lead to totalitarianism,” he wrote in 1976. “Even though this danger exists, this is not what [The Road to Serfdom] says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.”40 Hayek suggested that moderate, “middle way” thinkers like Keynes who advocated ameliorative measures, although not themselves socialists, had gone some way toward adopting socialist ideas, imagining them to be a step toward enlightened progress. “The supreme tragedy is still not seen that in Germany it was largely people of good will . . . who prepared the way for, if they did not actually create, the forces which now stand for everything they detest,” Hayek wrote. “If we take the people whose views influence developments, they are now in the democracies in some measure all socialists.”41

Although not a critique of representative democracy per se, which Hayek supported, The Road to Serfdom is nonetheless an indictment of all who aspire to do good through the offices of the state as well as of politicians of all stripes who struggle—and, by his lights, inevitably fail—to understand the true will of the people. He recognized that the existence of a democratically elected government ensured that the size of the state would continue to grow. “The fault is neither with the individual representatives nor with the parliamentary institutions as such but with the contradictions inherent in the task with which they are charged,”42 he wrote.

Classical economists and conservatives do not fare much better than socialists and communists in Hayek’s stark analysis. He condemns the “wooden” advocates of free-market solutions, while rejecting conservatism, a devotion to existing institutions. “Though a necessary element in any stable society, [conservatism] is not a social program,” he wrote. “In its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never . . . appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place.”43

In a coda, Hayek takes a swing at the idealistic notions of a new world order that preoccupied Keynes in the final year of the war. While conceding that “the need is for an international political authority which, without power to direct the different people what they must do, must be able to restrain them from action which will damage others,” he casts doubt on the prospect of achieving an international system of economic management that would not entail a drift toward authoritarianism. “The problems raised by a conscious direction of economic affairs on a national scale inevitably assume even greater dimensions when the same is attempted internationally,” he wrote.

By coincidence, Keynes read The Road to Serfdom in June 1944 while he was sailing across the Atlantic en route to the Bretton Woods hotel in New Hampshire to preside over the negotiations for the international currency mechanism that took the hotel’s name, the sort of supra-national body that made Hayek nervous. Hayek had in April sent The Road to Serfdom to Keynes, who had responded that the book “looks fascinating. It looks to me in the nature of medicine with which I shall disagree, but which may agree with me in the sense of doing me good. . . . Something to be kept at the back of one’s head rather than at the front of it.”44 Plainly relaxed after his sea crossing, Keynes dropped a line to his old rival from the Claridge Hotel in Atlantic City, New Jersey. “The voyage has given me the chance to read your book properly,” he wrote. “In my opinion it is a grand book. We all have the greatest reason to be grateful to you for saying so well what needs so much to be said. You will not expect me to accept quite all the economic dicta in it. But morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”

If Hayek’s spirits were lifted by such warm praise, he was in for a shock. Keynes was soon on the counterattack. “I should say that what we want is not no planning, or even less planning, indeed I should say that we almost certainly want more,” Keynes continued. “But the planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your own moral position. . . . Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to the moral issue. This is in fact already true of some of them. But the curse is that there is also an important section who could almost be said to want planning not in order to enjoy its fruits but because morally they hold ideas exactly the opposite of yours, and wish to serve not God but the devil.” Keynes conceded that some British socialists were closet totalitarians.

He went on, “What we need, therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them.” Keynes reminded Hayek that Hitler’s rise was facilitated not by big government but by the failure of capitalism and mass unemployment. “Your greatest danger ahead is the probable practical failure of the application of your philosophy in the U.S. in a fairly extreme form,” Keynes continued, suggesting that if in peacetime America returned to the unemployment rates of the 1930s it might provoke the political extremism that had drawn the world into war.

“No,” Keynes continued, “what we need is the restoration of right moral thinking—a return to proper moral values in our social philosophy. If only you could turn your crusade in that direction you would not look or feel quite so much like Don Quixote. I accuse you of perhaps confusing a little bit the moral and the material issues. Dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly.”45 This was an acute observation: that Hayek’s analysis rested on an understanding of economics or sociology rather than of people. While Hayek was wary of the relationship between government intervention and tyranny, Keynes believed that the tendency toward totalitarianism stemmed from individual moral choices.

Hayek conceded in The Road to Serfdom that in the case of tackling chronic unemployment, planning might play its part and that the right form of planning might not lead to oppression. As he later expressed it, “So far as government plans for competition or steps in where competition cannot possibly do the job, there is no objection.”46 He also believed that the state may have a moral duty to step in and that was admissible so long as the spirit of free enterprise was not compromised. “There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody,” he wrote. “Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance—where, in short, we deal with genuinely insurable risks—the case for the state’s helping to organize a comprehensive system of social insurance is very strong.”47

Keynes pounced on this rare glimmer of moderation. There may be a slippery slope from planning to totalitarianism, but Hayek was on a slippery slope too. “I come to what is really my only serious criticism,” Keynes wrote. “You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere; and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.”48

Hayek did not attempt to answer the points raised in Keynes’s letter, grateful, perhaps, for the general benevolence of his rival’s appraisal. He did, after a time, counter Keynes’s suggestion that planning would not invite tyranny in a country, like Britain, that held freedom dear. “I’m afraid many of my British friends still believe, as Keynes believed, that the existing moral convictions of the English would protect them against such a fate. This is nonsense,” he declared. “You cannot rely on an inherent ‘British character’ saving the British people from their fate.”49

Hayek’s failure to respond to Keynes was perhaps because he imagined he had in The Road to Serfdom already dealt at some length with Keynes’s specific objection—that it was a matter of drawing the line between state intervention and the free market. The key to the state’s role was whether the rule of law was applied in every case. The law should be impartial, which meant ensuring that it did not skew in favor of a particular section of a community. “The state controlling weights and measures (or preventing fraud and deception in any other way) is certainly acting, while the state permitting the use of violence, for example, by strike pickets, is inactive,” he wrote. “Yet it is in the first case that the state observes liberal principles and in the second that it does not.”50

Government policies such as subsidies for certain industries or individuals, the granting of commercial monopolies, or discriminatory policies, even to right an injustice, confounded the rule of law. But welfare state provision, such as alleviating poverty and ill health, were legitimate state activities so long as they treated all citizens equally. “There is no reason why, in a society which has reached the general level of wealth which ours has attained, [this] kind of security should not be guaranteed to all without endangering general freedom,” he wrote, though “whether those who rely on the community should indefinitely enjoy all the same liberties as the rest . . . might well cause serious and perhaps even dangerous political problems.”51

When the University of Chicago Press asked Frank Knight, who might have been expected to approve the book’s warnings, to advise on whether the press should publish the book, he said that Hayek had overstated his case. “The work is essentially negative,” Knight wrote. “It hardly considers the problems of alternatives, and inadequately recognizes the necessity, as well as political inevitability, of a wide range of governmental activity in relation to economic life in future. It deals only with the simpler fallacies, unreasonable demands and romantic prejudices which underlie the popular clamor for governmental control in place of free enterprise.” He concluded, “I doubt whether it would have a very wide market in this country, or would change the position of many readers.”52

In that Knight was plainly wrong. Over time the The Road to Serfdom established itself as a key work in challenging the legitimacy and usefulness of economic planning. Starting with a print run of two thousand in America, the book received a prominent review in The New York Times describing it as “one of the most important books of our generation.”53 A second run of five thousand was followed quickly by a third, of ten thousand. Then Max Eastman,54 a former leftist firebrand who had turned against socialism, arranged for an abridged version in Reader’s Digest that coincided with the death of Franklin Roosevelt on April 12, 1945, when the New Deal and the future of economic policy became a hot topic. Before long a million copies had been ordered. Look magazine even printed a cartoon version.

In Britain, Hayek’s arguments were treated mostly with fairness. Typical was a review by the author of Nineteen Eighty-Four, George Orwell,55 no slouch when it came to recognizing creeping authoritarianism. “In the negative part of Professor Hayek’s thesis there is a great deal of truth,” he wrote. “Collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of.” But he added, “Professor Hayek . . . does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.”56

Others on the Left, such as the formidable public intellectual Barbara Wootton,57 found Hayek’s analysis on target but recoiled from its propagandist tone. “I wanted to point out some of these problems,” she wrote Hayek, “but now that you have so exaggerated it I must turn against you.”58 She took his views seriously enough, however, to publish a riposte, Freedom under Planning.”59

The Road to Serfdom was given an unexpected fillip in Britain in June 1945 when Winston Churchill simplified its theme in a radio broadcast opening the 1945 Conservative election campaign.60 Hayek’s warning that socialist planning could lead to tyranny chimed with Churchill’s belief that Labour under his wartime coalition deputy Clement Attlee61 put at risk the freedom just won. “[The Labour Party] would have to fall back on some form of Gestapo,” he declared. “It would gather all the power to the supreme Party and the Party leaders, rising like stately pinnacles above their vast bureaucracies of Civil Servants, no longer servants and no longer civil.”62 The prime minister’s biblical sense of foreboding, so apt in wartime, suddenly seemed extreme, alarmist, even undemocratic. The broadcast was, according to Churchill biographer Roy Jenkins,63 “the most ill-judged of all his famous wireless addresses.”64

Churchill’s adoption of Hayek’s critique did little to enhance Hayek’s reputation. Pointing out that the prime minister was inspired by a “second-hand version of the academic views of an Austrian professor,” the mild-mannered Attlee declared, “When I listened to the Prime Minister’s speech last night . . . I realized at once what was his object. He wanted the electors to understand how great was the difference between Winston Churchill, the great leader in war of a united nation, and Mr. Churchill, the party Leader of the Conservatives. He feared that those who had accepted his leadership in war might be tempted out of gratitude to follow him further. I thank him for having disillusioned them so thoroughly.”65 Much to the surprise of Churchill—and Attlee—Labour was returned with a landslide, not least because voters feared a return of the prewar high unemployment presided over by the Conservatives. As the Labour politician Tony Benn recalled, “All these soldiers said, ‘Never again. We’re never going back to unemployment, the Great Depression.’”66

In America, Hayek recalled, “[The book] was treated even by the academic community very largely as a malicious effort by a reactionary to destroy high ideals.”67 Harvard’s leading Keynesian, Alvin Hansen, in his article “The New Crusade against Planning,”68 joined Keynes in noting that Hayek had made a distinction between good and bad intervention, and asked, like Keynes, where exactly would Hayek draw the line.

Professor T. V. Smith69 of the University of Chicago turned up the heat, calling Hayek’s argument “hysterical,” “alarmist,” and “overstrident.” “No country has yet wittingly or . . . unwittingly slipped into serfdom whose presuppositions are democratic,”70 he wrote. The point, wrote Smith, was “to distinguish harmful from helpful planning rather than to damn all planning. . . . The author is not opposed to planning. Like the rest of us, he is opposed only to planning which subverts freedom.”71 “The preparation for an electrocution and for an electrocardiograph is the same, up to a point,”72 Smith suggested. The difficulty was telling one from the other.

Smith discerned a further flaw in Hayek’s reasoning: that it was hardly undemocratic to plan if democratically elected governments followed the electorate’s wishes that planning occur. “The greatest success of the Constitution . . . is that in a century and a half it has won the people from an ancient distrust of government to an acceptance of it as their friend,” wrote Smith. “A democratic government is the people themselves incorporated.”73

Another University of Chicago professor, Herman Finer,74 responded with The Road to Reaction, in which he dismissed Hayek’s “jungle of fallacies.” He went on, “Hayek’s apparatus of learning is deficient, his reading incomplete, . . . his understanding of the economic process is bigoted, his account of history false, . . . his political science is almost nonexistent, his terminology misleading, his comprehension of British and American political procedure and mentality gravely defective; and . . . his attitude to average men and women is truculently authoritarian.”75 He described the work as “the most sinister offensive against democracy to emerge from a democratic country for many decades.”76

It soon became clear that, though hugely popular, The Road to Serfdom was a defining work that not only divided the Left from the Right but also the Right from the Ultra-Right. The quarrelsome libertarian Ayn Rand,77 who rarely met Hayek in person, and when she did dismissed him as a “compromiser,”78 was enraged by the book. In the margins of her copy she scribbled abusive comments, calling Hayek a “God damn fool,” an “abysmal fool,” an “ass,” and a “total, complete, vicious bastard.”79

Hayek was taken aback that in the United States he found himself caught in a caustic ideological battle. In America, he remembered, “The great enthusiasm about the New Deal was still at its height. And here there were two groups: people who were enthusiastic about the book but never read it—they just heard there was a book which supported capitalism—and the American intelligentsia, who had just been bitten by the collectivist bug and who felt that this was a betrayal of the highest ideals which intellectuals ought to defend. So I was exposed to incredible abuse, something I never experienced in Britain at the time. It went so far as to completely discredit me professionally.”80

In January 1946, Hayek and Keynes met in Cambridge. Hayek turned the conversation from Elizabethan books to the way, it seemed to him, that Keynes’s followers—it is thought Joan Robinson and Richard Kahn were mentioned—appeared to be adapting Keynes’s ideas for their own ends. Did this not trouble Keynes? What could he do about it? “After a not very complimentary remark about the persons concerned,” Hayek recalled, “he proceeded to reassure me by explaining that those ideas had been badly needed at the time he had launched them. He continued by indicating that I need not be alarmed; if they should ever become dangerous I could rely upon him again quickly to swing round public opinion—and he indicated by a quick movement of his hand how rapidly that would be done.”81 “Keynes had a supreme conceit of his power of playing with public opinion,” recalled Hayek. “He believed he could play with public opinion as though it were an instrument. And for that reason, he wasn’t at all alarmed by the fact that his ideas were misinterpreted. ‘Oh, I can correct this any time.’ That was his feeling about it.”82 Three months later, Keynes was dead.

On Easter Sunday morning, April 30, 1946, the strain of living several hectic lives in parallel took its toll on the frail body of John Maynard Keynes. He died in his bed in his farmhouse in Tilton, East Sussex, of the heart disease83 that had plagued his middle age. Lydia and his mother were by his side. He was just sixty-two. His onetime opponent Lionel Robbins, who had accompanied him to America to negotiate Britain’s war debt, wrote to Lydia that Keynes “has given his life for his country, as surely as if he had fallen on the field of battle.”84 Hayek, too, wrote to Lydia, describing Keynes as “the one really great man I ever knew, and for whom I had unbounded admiration. The world will be a very much poorer place without him.”85

Hayek told his wife that with Keynes dead he was now “probably the best known economist living,” a remark he was to “bitterly regret.” “Ten days later it was probably no longer true,” he remembered. “At that very moment Keynes became the great figure and I was gradually forgotten as an economist.”86 As he put it some forty years later, “In the middle 1940s—I suppose I sound very conceited—I think I was known as one of the two main disputing economists: there was Keynes and there was I. Now, Keynes died and became a saint; and I discredited myself by publishing ‘The Road to Serfdom,’ which completely changed the situation.”87