Economics as Ideology: Keynes, Laski, Hayek, and the Creation of Contemporary Politics

Richard M. Ebeling

Why do people hold the views that they do, including and especially their political and ideological views? That question has generated a vast library of what has generally come to be called “psychobabble,” wherein the author attempts to “deconstruct” his biographical subject and demonstrate why the subject’s upbringing and social circumstances made him the way he was, including his ideas about the social, political, and economic world in which he lived.

A recent contribution to this genre is Kenneth R. Hoover’s Economics as Ideology. A political science professor at Western Washington University, Hoover wants to find out what made Harold Laski a socialist, F. A. Hayek a proponent of free-market liberalism, and John Maynard Keynes, well, a Keynesian.

Laski was one of the most prominent and influential advocates of socialism in Great Britain in the decades from World War I to the early 1950s. His writings and political activities helped move his country in the direction of central planning and the welfare state. Hoover concludes that Laski’s ideology and politics were driven by a falling out with his businessman father and the Orthodox Judaism of his family. His whole life was supposedly a revolt against the chains and apparent social insensitivity of religious and cultural conservatism.

Keynes was the product of a British intellectual elite and a generation at the beginning of the twentieth century that was determined to break free of Victorian morality. A focus on the pleasures of the moment and a probabilistic theory of uncertainty concerning the future resulted in Keynes discounting many of the long-run consequences from short-run policies. In Hoover’s account, his homosexual adventures as a young man and his failure to father children after he married also made him think a lot less about the future impact of present policies.

Hayek, on the other hand, resented the rules and regulations that come with greater government control of social and economic affairs because of a bad marriage he entered into when he was a young man and a difficult divorce immediately after World War II. Untangling himself from an unwanted marriage, according to Hoover, supposedly is the key to understanding Hayek’s desire for a society with fewer restraints on the choices of individuals.

The difficulty with taking all such psycho-ideological analyses seriously is that they can be used to explain almost anything, and therefore explain nothing. There have been Jews who renounced their religious and cultural ancestry and became classical liberals. There have been free-spirited homosexuals who became social and political conservatives. And there have been people trapped in bad marriages and difficult divorces who became radical socialists.

An equally crucial weakness in Hoover’s book is his failure to come to grips with many of the important issues and arguments that separated these three protagonists in the decades between the two world wars. He gives the clearest analysis when critically evaluating Laski. He shows that Laski could not reconcile a desire for participatory democracy and greater human freedom with his ideal of economic planning. Hoover points out that as the years went by, the argument for centralized government control increasingly replaced Laski’s defense of personal liberty. And he explains that Laski never attempted to seriously grapple with the practical difficulties of centrally planning the production and consumption activities of tens of millions of people.

But in many ways Hoover’s discussion of Laski is a sideshow to his central purpose: to argue that Keynes and his political-economic views represented the level-headed and moderate course that was relevant in the 1920s and 1930s, and is still important and relevant today. In making this case, Hayek becomes a foil, the extreme “right-wing” opponent of reasonable government action, blinded by a near-irrational hatred of political power applied for good social purposes.

Through all the details of Keynes’s and Hayek’s personal lives and academic activities in the period between the wars, Hoover devotes practically no time to an exposition of their competing theories of what caused the Great Depression or how to get out of it. Hayek is merely portrayed as the advocate of “do-nothingism” in an epoch of massive unemployment, while Keynes was designing practical policies to save society from want and waste.

The shallowness of Hoover’s understanding comes out most clearly in his discussion of Hayek’s critique of socialist planning. Hayek argued that the division of knowledge that inevitably accompanies the division of labor precludes any group of central planners from being able to integrate all the information required for central planning to succeed. Only the system of competitively generated market prices can coordinate the activities of multitudes of interdependent human beings.

Without any detailed discussion of the types and qualities of the knowledge used in a market society (which Hayek spent a good deal of time explaining in many of his writings), Hoover merely asserts that he sees no reason for thinking that most if not all such knowledge and information could not be absorbed and used by intelligent regulators and planners. And he conveys an unbelievably naïve conception of democracy as a forum for inclusive social participation, which suggests a total unawareness of the Public Choice literature about the actual special-interest-group workings of the political process.

In a nutshell, Hoover’s book is another rear-guard action by one who wishes to rationalize the continuation of the interventionist-welfare state and the presumed ability of an intellectual elite to guide the economic affairs of others—all for their own good, of course.

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