I

I am grateful to Andrew Farrant and Edward McPhail for their comment on my article on the intellectual origins of neo-liberalism.Footnote ¹ My article focused on the overall shape of neo-liberalism as it first emerged between 1930 and 1947 (the date of the inaugural meeting of the Mont Pèlerin Society). I argued that the earliest exponents of neo-liberalism focused on socialist central planning rather than the so-called ‘Keynesian welfare state’ as their chief adversary. To make this case, I examined the writings of a number of different theorists. Inevitably, such an approach has the effect of flattening out intellectual differences within this group of thinkers in the interests of mapping the shared ground that linked them together. The comment by Farrant and McPhail prompts me to characterize more precisely how Friedrich Hayek's political thought developed in this period.

Farrant and McPhail think I underestimate the extent to which Hayek was hostile to Keynesian and welfare state type policies by ‘the mid to late 1940s’,Footnote ² and in this respect differed from the other early members of the Mont Pèlerin Society, who were (as they think I suggest) more sympathetic to this agenda. Neither part of this argument accurately captures the more complicated picture presented in my article.

II

As far as I am aware, no one denies that Hayek was consistently sceptical of Keynesian economics from the 1930s onwards. As I observed in the article: ‘Hayek was, of course, a leading critic of Keynesian demand management in this period’ (1930–47).Footnote ³ The specific question I raised is how important Hayek's opposition to Keynes was in the formulation of the argument of The road to serfdom (1944). I argued that in that book Hayek's critical energies were directed at a different, and more urgent, target: socialist economic planning.Footnote ⁴ Farrant and McPhail muster various statements written by Hayek after the publication of The road to serfdom to suggest that he intended the argument of the book to apply more widely to the less radical policy suggestions of Keynes and his disciples. My response to this is twofold.

First, we are to some extent talking about different issues. My point is that Hayek's primary aim in The road to serfdom was to combat the widespread enthusiasm for economic planning that had gripped the British intelligentsia in the 1930s.Footnote ⁵ Hayek defined planning as ‘a central direction of all economic activity according to a single plan, laying down how the resources of society should be “consciously directed” to serve particular ends in a definite way’.Footnote ⁶ This definition was not directed at the economic theory and policy prescriptions of Keynes, nor at social welfare spending. The best evidence for this is that Hayek actually voiced support for some measure of social welfare spending in the text of The road to serfdom, while he mentioned Keynesian economics only once, devoting a single paragraph to a critical discussion of public works policies as a cure for unemployment.Footnote ⁷ Farrant and McPhail quote some extracts from this passage, but I am unsure why they think it contradicts my argument. The strikingly limited discussion of Keynesian policies in The road to serfdom supports my claim that, while Hayek was indeed sceptical of Keynesian policies, he did not at this stage in his intellectual development see them as the chief threat to liberty. Apart from this paragraph, the rest of the book is devoted to a critique not of counter-cyclical public works, but of economic planning in a much stronger sense.Footnote ⁸

The final draft of The road to serfdom was in fact written in 1941–2 – before the publication of the Beveridge Report on social security and the later wartime vogue for the aim of ‘full employment’ – and drew on ideas that Hayek had already developed in the late 1930s. Although received as a reaction to wartime debates, the book was in fact a broader response to the politics and economics of the 1930s, fuelled by the emotions of the early years of the war.Footnote ⁹ In this sense, the publication date of 1944 is misleading: the text of The road to serfdom had been drafted by 1942. The 1944–6 articles by Hayek quoted by Farrant and McPhail are therefore not contemporaneous with the writing of The road to serfdom, but later reflections on the book several years after its composition.

So in contrast to my focus on Hayek's aims in writing The road to serfdom, Farrant and McPhail seem to be arguing that after its publication Hayek realized that the book's argument also offered an indirect line of attack against the Keynesian and welfare state policies that moved to the centre stage of Western democratic politics after 1945. I cannot disagree with this claim, since it is the point I was making in my article: that neo-liberal thinking only began to focus on the ‘Keynesian welfare state’ as its chief opponent after the Second World War. However, I do not think this transition was as quick and smooth as Farrant and McPhail imply. In this sense, Hayek's writings in the 1940s, and the debates at the inaugural meeting of the Mont Pèlerin Society in 1947, are transitional in character. They exemplify a body of ideas in flux, trying to come to terms with a changing political context, but not yet achieving a mature and stable ideological statement. They are not examples of the more coherent doctrine that neo-liberalism would become in the 1950s and 1960s. Indeed, they could hardly be otherwise, since it was not yet clear in the 1940s what a ‘Keynesian welfare state’ policy mix would look like.

This raises a second issue. Farrant and McPhail see Hayek's 1948 reflections on the 1945 British Labour government as confirmation that Hayek had by this time concluded that Keynes-style policies led to totalitarianism. But this assumes that the Labour government was pursuing a Keynesian strategy between 1945 and 1948. However, it has been well documented by historians of Labour politics that when Labour took office in 1945 it initially prioritized a form of physical planning indebted to wartime controls and notions of socialism. Stephen Brooke and Richard Toye, quoted by Farrant and McPhail in support of their case, are actually making a different point from the one that Farrant and McPhail report. Brooke and Toye show that it was only during the course of the 1945–51 government that the tensions in Labour's socialism were exposed and an explicitly Keynesian strategy substituted for it at the heart of Labour's policy-making, with the turning point traditionally seen as coming around 1947–8.Footnote ¹⁰ This is a brutal summary of a complicated issue, but it suffices to make the point that Hayek's experience of Labour government between 1945 and 1948 was not of Keynesianism, but of what Hayek regarded as a gradualist version of socialism. It was this experience that he was thinking of when he wrote that the British case showed ‘that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand’.Footnote ¹¹

Reflecting on these issues in his 1960 book, The constitution of liberty, Hayek argued: ‘Future historians will probably regard the period from the revolution of 1848 to about 1948 as the century of European socialism’. Socialism – understood as collective ownership and economic planning – thus ‘reached its peak after the Second World War, when Britain plunged into her socialist experiment.’ Since then, Hayek continued, ‘socialism in this strict sense of a method of achieving social justice has collapsed’, to be replaced by Keynesian economics and the welfare state as the key means of pursuing socialist egalitarian goals. ‘If, fifteen years ago, doctrinaire socialism appeared as the main danger to liberty, today it would be tilting at windmills to direct one's argument against it.’Footnote ¹² Perhaps thinking of his own intellectual biography, Hayek was therefore explicit in recollecting that in the ‘mid to late 1940s’ it was by no means clear that socialism was finished as an economic project. It was only during the late 1940s, and the early 1950s, that Hayek fully digested the implications of the transition on the democratic left from classical socialism to social democracy.

III

The other component of the argument made by Farrant and McPhail is that Hayek differed from the other neo-liberal thinkers of this period because of his greater hostility towards a ‘Keynesian welfare state’ agenda. This is an oversimplification of the more complex picture presented in my article. My claim is that the group of intellectuals who coalesced around Hayek in the 1940s was internally divided in its response to this emergent style of politics. As I note in the article, Ludwig Von Mises, Henry Simons, W. H. Hutt, and Wilhelm Röpke were also opposed to Keynesian economics, while the most vociferous critique of the Beveridgean welfare state in this period was actually articulated by the German ordo-liberals.Footnote ¹³ It is significant that the divisions over these issues did not prevent this diverse group of thinkers from gravitating together in 1947 and from seeing themselves as united against a common enemy. By presenting Hayek's outlook as distinctive, Farrant and McPhail underestimate the diversity of the rest of the early Mont Pèlerin Society.

There is little doubt, however, that Hayek's thought was more systematic and sophisticated than the ideas of most of the other members of the Mont Pèlerin Society. As a result, Hayek pioneered new concepts and arguments that would prove to be enormously influential. But he did not arrive full-formed at his mature position while writing The road to serfdom. Rather, his originality stemmed from his willingness in the 1940s and 1950s to wrestle with new ideas, and to reshape his thinking in response to changing historical circumstances. Farrant and McPhail neglect this protean quality in Hayek's thinking. But it was only in dialogue with the other members of the Mont Pèlerin Society after 1947 that Hayek fully worked out the character of the neo-liberalism that he would later become famous for espousing.