Remembering Why Hayek Mattered

There’s nothing like reading Rex Tugwell to remind you why Friedrich Hayek won the Nobel Prize in Economics.

Rexford Guy Tugwell was an incredibly important figure in the New Deal era. A Columbia University agriculture economist, Tugwell was comfortably interdisciplinary and at home as a public intellectual. He was a prominent member of Franklin D. Roosevelt’s informal “brain trust” of advisors and became the chief architect of the Agriculture Adjustment Administration (which managed all of America’s agricultural production in accord with federal quotas) and the Resettlement Administration (which relocated unemployed rural workers to newly constructed suburban towns), both of which were struck down by the federal courts. He spent the postwar years lobbying for the creation of a world government and the replacement for the U.S. Constitution with a more up-to-date plan and writing memoirs (to which the Columbia faculty awarded the prestigious Bancroft Prize).

And Tugwell was very much a man of his time. Like many others in the 1930s, he looked at the developments of the previous few decades and saw the singularity approaching. For current technologists, the singularity will arrive with artificial intelligence and nanotechnology, transforming society and humans themselves in a world beyond scarcity. For the technocrats of the first decades of the twentieth century, the world was being transformed by corporations, mechanization, and scientific management. Frederick Taylor’s time management, Tugwell was convinced, laid the basis for profound increases in economic efficiency. Mechanization had lowered the time and cost of producing goods to a point where the only real economic problem was how to manage the surplus. Massive corporations had detached the profit motive from economic activity. Thorstein Veblen had concluded that the only work left for the “captains of industry” was the artificial manipulation of supply and demand; the engineers and technicians, by contrast, cared only about producing needed goods in an efficient manner. Businessmen worried about price and profit. The actual workers, guided by the technicians, cared only about serving the needs of the public.

Tugwell drew what he thought was the obvious conclusion – the Soviet Union was on the right track. The surprise was not that the Soviet system worked without prices and competition. The surprise was that the “anachronistic” system of decentralized competition and profitmaking “could operate at all” at this late stage of human development. Most liberals, he thought, could now see the promise held by “the institutions of the new Russia of the Soviets,” but few in 1932 yet appreciated what was required. “If we are to plan,” the nation would need “fundamental changes of attitude, new disciplines, revised legal structures, [and] unaccustomed limitations on activity.” It would mean the literal “abolition of ‘business.’”

As a practical matter, the corporations were already run by planners, who insured that rubber found its way to the tire plants which in turn fed the automobile assembly lines which sent finished cars out into the countryside. It was but a short, but significant, step to displace the stockholders, the financiers and entrepreneurs – in sum, the irrational “speculators” and “adventurers” – and to knit all the corporate planners together into a national government bureaucracy. Businessmen “have only a rudimentary conception of industry as a social function”; their spirit was one of “vast gambling operations.” The “disciplined aspects of production” had nothing to do with businessmen. That was properly the realm of civil servants “devoted to disinterested thinking” and “a planned public interest.” Rather than emerging and competing willy-nilly, new industries “will have to be foreseen, to be argued for, to seem probably desirable features of the whole economy before they can be entered upon.”

The “future is becoming visible in Russia,” but the “vested interests” were getting in the way. Tugwell could see how things would play out, but we should not expect the necessary changes to be adopted “all at once.” “Little by little, however, we may be driven the whole length of this road.” The destination: “Civilized industry” and a “new world.”

It was this vision – the vision that informed the First New Deal of FDR’s initial term of office – that made Hayek so crucial. For a popular audience, Hayek pointed out that Tugwell’s road led to serfdom, not civilization. For a more specialized audience, Hayek demonstrated that the price system was crucial to the efficient production and distribution of goods. When the bloom was still on the Soviet rose, economic crisis seemed to call into question “the ancient paradox of business – conflict to produce order,” and the presidential brain trust was convinced that the prices and profits should be replaced by bureaucratic planning, cogent analysis was desperately need to explain why market economies (what Tugwell dismissed as “laissez faire”) were valuable and how spontaneous order was possible. Hayek was not alone in responding to figures like Tugwell, but reading Tugwell and Hayek together is a useful reminder of how smart people can head off in the wrong direction and how the evident virtues of technicians can be misconstrued. And why Hayek was not just a propagandist for the rich.