[Paul Samuelson:]
Just prior to Hayek’s departure from post World War II mainstream economics came what must be hailed as his greatest important contribution to economic science. It can be well understood if I make reference to the famous debate between Lerner–Lange and Ludwig von Mises (1935) over the role of the supply-and-demand mechanism in a socialist state. Lerner (1934), as well as Lange and Taylor (1938) quasi-independently, suggested that playing the game of parametric supply–demand auctioning could optimally organize a socialist society that had evolved beyond historic capitalism. Arguably this general notion might be traced back to Adam Smith’s legendary Invisible Hand, which led society unconsciously to achieve the maximal “general good.” Individual avarice, under market checks and balances, achieved this happy state. A more sophisticated version of the same idea came in the 1890s from Pareto (1896–97) and Barone (1908), long before Arrow-Debreu
breakthroughs. Pareto deduced the mathematical theorem that the determinative equations of Walrasian general equilibrium mimicked exactly the maximizing welfare conditions for utopias.
By contrast, Mises in his polemics prior to Lerner–Lange, had contended that only under actual capitalism could one even define a post-Bentham welfare economics. Autobiographically, I can testify that most economists born after 1910 at that time would have voted Lerner and Lange to be the debate winner, with Mises as the prime loser. (Even my Harvard mentor Schumpeter saw some merit in the Lerner–Lange conjectures.[1] ) In the 1940s Friedrich Hayek in an invited Harvard lecture introduced a new dynamic element into the debate. Call it “information economics.” The broad competitive markets, Hayek proclaimed, were the recipients of heterogeneous idiosyncratic bits of individuals’ information. Playing for matches rather than for real money or blood was as different an economic dynamics as night is from day. I was not at all the only one to be converted to the view that, as between Abba Lerner, Oskar Lange and Ludwig von mises, Friedrich Hayek was
actually the debate’s winner. (After the U.S. State Department persuaded Lange to go back to Stalinesque Poland, Lange reportedly lost his lust for auction markets.)
The jury of history judges innovators not by adding linearly their plus and minus contributions. Hayek’s 1974 Stockholm Nobel Prize was importantly won for him by his notions about decentralized information economics discussed that day in Cambridge, Massachusetts. Never mind that Hayek over-praised the optimality of individualistic spontaneity. Charles Darwin’s genius long earlier had eclectically enumerated both the pluses and minuses of individualistic natural selection. [....]
Anthropological experts in “content analysis,” focusing their microscopes on the Hayek text (1944), might score its impact to be traceable to both (1) its version of history and (2) its projection of the future. Post Bismarck social legislation and Weimar unorthodoxies allegedly bred Hitler’s horror state and horror camps (sic). When Frank Knight peer reviewed Hayek’s book for an American edition, he blessed its message but demurred at its shallow handling of history (see Hayek, 2007).
Two-thirds of a century after the book got written, hindsight confirms how inaccurate its innuendo about the future turned out to be. Consider only Sweden’s fig-leaf middle way. As I write in 2007, Sweden and other Scandivanian places have somewhat lowered the fraction of GDP they use to devote through government. But still they are the most “socialistic” by Hayek’s crude definition. Where are their horror camps? Have the vilest elements risen there to absolute power? When reports are compiled on “measurable unhappiness,” do places like Sweden, Denmark, Finland and Norway best epitomize serfdoms? No. Of course not. American conservatives like my old friend the late David McCord Wright, confronted by such counter evidence would say to me up to his last years: “Paul, just you wait.” I never tired of waiting.
Actually, let the contents-analyst anthropologist go on to put her microscope on the many forewords to The Road to Serfdom quoted in forewords by the late Milton Friedman (see Hayek, 1994). She will conclude that the “serfdoms” believed to have occurred in accordance with Hayek’s 1940 crystal ball are not at all the Nazi-Burma-Mao-Castro totalitarian catastrophies. Instead _they are the mixed economies that have flourished almost everywhere in the post-1945 years_!
The Hayek I met on various occasions – at the LSE, at the University of Chicago, in Stockholm (1945), at Lake Constance-Lindau Nobel summer conferences – definitely bemoaned progressive income taxation, state-provided medical care and retirement pensions, fiat currencies remote from gold and subject to discretionary policy decisions by central bank and treasury agents. Not only is this what constitutes his predicted serfdoms, do notice that when the same anthropologist scans Milton Friedman’s various admiring forewords, her verdict will be that Hayek and Friedman were in essential agreement on what their singular verbal definitions are connoting.