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PROFESSOR FRIEDRICH HAYEK: Nobel Prize winner in Economics in 1974

ROBERT MOORE, ABC: Executive Producer and Programme Anchorman

AND AN AUDIENCE at the Sydney Opera House

Broadcast: Monday, 11th October, 1976.

ROBERT MOORE: Good evening. Welcome to MONDAY CONFERENCE again.

In 1944 a book was published which went very much against the temper of the time then. Its title was The Road to Serfdom, and what it did was to warn against what its author saw as the inevitable dangers of State planning. The book argued that economic planning led to Big Government and the shrinking of individual freedom. Motives didn’t matter; any continuing expansion of Government for any reason ended in authoritarianism or totalitarianism.

The author of The Road to Serfdom was Professor Friedrich Hayek. The book made him famous. It also caused him to be regarded as extremely reactionary in many quarters at the time. In the years since then Professor Hayek has been both arguing against this view of himself and expanding his views about economics and politics in a great number of books and very many articles indeed.

Friedrich Hayek was born in Austria in 1899. He lives there now but in the meantime he spent many years teaching in Germany, the United States and Britain and is a naturalised British citizen. Perhaps the most public highlight of his career was the award to him of a Nobel Prize for Economics in 1974.

And in the course of his Alfred Nobel Memorial Lecture, Professor Hayek made these points among others:

(a) Economists don’t know as much as they think they do.

(b) Economists are being called upon to solve a problem — inflation — which is largely the result of their own bad advice in the past.

(c) And perhaps most sadly, and here are his direct words, “as a profession we have made a mess of things.”

Well among the other challenging points which emerge from his writings are:

1. Individual freedom depends on economic inequality in society. So does economic growth. The more unequal the slices, the bigger the cake.

2. The present high level of unemployment is — ironically — largely the result of Governments pursuing full employment policies. So is inflation. Keynes and his followers have been wrong!

3. Trade unions can do little in the long run to raise the general level of “real” wages but they do a great deal to lower it.

4. There’s no such thing as “social justice”. It’s either a meaningless or a tendentious term. People should not be rewarded according to their presumed need or presumed “merit” but according to their “value” as measured in the marketplace.

Well Professor Hayek, before we get into the substance of the argument, I wonder if I could ask you whether there shouldn’t be a special dispensation for professors of economics to be rewarded on the basis of merit or need as well as on market value.


MOORE: Not at all?

HAYEK: [inaudible: maybe Goodness gracious.]

MOORE: Right, now when we’re talking about a free enterprise economy or an economy based on market forces, are we talking about something that’s been and gone or is there a possibility of unscrambling the omelette as it were and restoring the whole eggs? Can we do anything about what has happened in the last 50-odd years?

HAYEK: Well we have approached it at one stage more closely than at the present moment, but the gradual abandonment of it is largely the result of intellectual confusion.

I wanted to correct you at the very beginning when you said I was opposed to all Government action as though all Government action was dangerous. It’s not as simple as that.

I am concerned mainly with the coercive powers of Government, now coercive powers are not only powers of Government, Government can render all kinds of useful services for which it need not use coercion, but I do believe that the coercive powers of Government ought to be very strictly limited; that in exercising coercive powers it ought to be confined by general rules and that the main task of the economist and social philosopher is really to design an appropriate framework of such general rules within which the spontaneous activities of the individuals would be most beneficial. Now to a large extent such a framework has been evolved by a sort of process of spontaneous evolution, but it is not yet ideal and I would never deny that there is not an important field or task for reform. But this reform as far as it is intended to give the Government coercive powers, must be limiting Government to the application of uniform, equal rules to all.

MOORE: Professor, I’m sorry, I’m not clear on this. In the real world, then, say in societies in what we’ll call “the West” at the moment, is the trend towards more collectivism or more individualism? Which way is the trend going?

HAYEK: Well, the actual trend of legislation is certainly towards more collectivism. The trend of opinion is beginning to be in the opposite direction. These two things do not completely coincide in time. The present trend of actual policy towards more and more Government intervention has been prepared by three generations of intellectual development justifying this and it is just now that people are beginning to be doubtful about the desirability of this development and I have now lived long enough to have seen a very curious reversal. When I became concerned about these problems, only the old people were opposed to more Government control and all the young people seemed to be enthusiastic about it. Now it’s the other way round. The people who are now middle-aged and old have got so used to plenty of Government intervention that they readily accept it and it’s the very young people who are becoming very doubtful and sceptical about it. I think that’s a hopeful element of the present position.

MOORE: Well, supposing your philosophical viewpoint wins out. In the harsh world of political realities, would it be able to overcome the vested interests which the present distribution of resources and the present mix of private enterprise and State enterprise favour?

HAYEK: I don’t think it could do without considerable alteration of the structure of Government as we have it now. We have developed a form of democracy which unfortunately most people believe is a necessary form of democracy, where the one representative Assembly is all-powerful. We are really, although we are not likely to admit it, living under an unlimited form of Government where the elected Assembly can do whatever it pleases and is no longer, in its Governmental action, under a law which it cannot alter. And that raises a great problem.

I believe that the very existing political institutions tend to drive us into more collectivism and more Government control, because, under what we call “democracy”, we are not being governed by the opinion of the majority, but the majority which governs us is formed by buying-off particular interests. And so long as the Government has the power to make specific concessions to particular groups, this is an inevitable development.

It’s a great paradox that an omnipotent Government which can do everything is in effect a very weak Government, because you can extort from it assistance to every particular group. An omnipotent Government which relies on a majority vote has to buy the support of a sufficient number of groups to have a majority

MOORE: Are you saying that a democratic Government, as we know it, wouldn’t be brave enough to do what you think is required?

HAYEK: Exactly.

MOORE: Perhaps we can come back to it later on. Why did you …

HAYEK: Would you let me add one thing?

MOORE: Yes, sorry.

HAYEK: I’m very concerned about this, because the particular form of democracy which exists now is greatly discrediting democracy and public opinion. And I am quite certain that in 5 or 10 years time the opinion will have spread “democracy has failed”. What has failed is not democracy as such, it’s a particular form of democracy which we have had.

MOORE: In your Nobel Memorial lecture, why did you say, speaking of economists, “we have made a mess of things”. Now can I ask you this, why have economists made a mess of things? Why have they? Are they blind or are they …

HAYEK: No, it was the seduction of a very impressive and ingenious man, John Maynard Keynes, who persuaded economists that there was a simple way of permanently securing full employment. He was wrong, but exceedingly persuasive, and he had gained the support of probably 95% of the current international economists. I have been arguing against this ever since. I have been arguing with him when he was still alive, but there was no chance of getting a hearing so long as it seemed plausible that by a simple monetary device you could assure full employment.

And that monetary device was in fact of such a nature that in the short run you could do it, that in fact at the same time you created distortions of the structure of the economy which in the long run was bound to bring about unemployment, a thing which a few of us had pointed out. What seemed to be in contradiction was the actual experience — currently it worked beautifully — that we have been predicting you will have to pay for this in the future, people just wouldn’t listen to you. Well what we have predicted has come to be very true. We found out that the Keynesian method of creating employment by accelerating inflation works only for a limited period and creates a condition for the following unemployment and that is the state of disillusionment in which we are now. A great many economists feel that what they have — I mean the economists who have been trained between the middle 30s and the present, are now finding out that they have been taught a wrong doctrine.

MOORE: One last point. What is the relationship between equality and liberty? And if we have to choose one, which one do we choose?

HAYEK: Well equality, like most political terms, is a term of a great many meanings. Equality before the law, the application of the same rule to every citizen, is an absolute essential foundation of liberty; but if you have equality before the law, you cannot make people materially equal, because people are, in fact, very unequal in their gifts, in their environment, in their opportunities. If you want to make people who are very unequal in their gifts and opportunities equal, you have to treat them differently. So in this sense, treating under the same rule and making people equal are absolutely in conflict. I’m all in favour of treating people under the same rule for equality under the law, but I’m all against Governmental effort of making people equal because that requires treating them differently.

MOORE: Thank you. Now is there anyone … yes? In the second row.

MAN: In Australia we enjoy great equality of income distribution through the populus. Under your policies, how much would this change and would the change be good or bad, both economically and socially?

HAYEK: Well I hope I have understood. I would say that no correction of income distribution is compatible with the functioning economic system beyond providing a flat uniform minimum for everybody, a sort of law below which nobody can sink. That can and should be provided outside the market without interfering with the market order, but the market order owes its efficiency and productivity to the fact that people are being paid what their services are actually worth to their fellow members and the worth of a person’s services to his fellow citizens is unfortunately frequently quite independent of his merits or needs. Therefore, we cannot have an efficient society which at the same time is just in the sense of distribution. We can have a society in which nobody needs to suffer acute distress, but that is as much as we can hope. We cannot hope to have a society of free men in which people get what we think they ought to have.

MOORE: I think there was a second part to the question. Apart from the matter of wealth or equity or whatever we call it, what are the economic, the economic consequences of inequality of wealth?

HAYEK: Greater productivity.

MOORE: I was going to say, that’s what I was going to say. Right. I thought you argued that economic growth depended on inequality of … Yes, in the …

MAN: Professor Hayek, wouldn’t you accept the prognosis that the market value of anybody, whether they’re professional or labouring, is a created and fictitious value created by the mass media today?

HAYEK: Yes, and yet I believe that on the whole the mass media are merely an expression of public opinion. Now I’ve not a great respect for public opinion, but I think in a peaceful society we have to defer to public opinion. And as long as the mass media themselves are competitive, I have no objection. I become very doubtful about it where you have a broadcasting monopoly and similar institutions, then it does become dangerous.

MAN: Professor Hayek, I submit that your views and the views of Professor Friedman are very much akin to the view of the present Australian Government and the present Australian Treasury, which have been responsible for our present level of unemployment of 300,000, which will rise certainly to 400,000 by the end of this year. Now I submit in those circumstances, that that kind of policy which will give us something like 500,000 towards the end of next year, will give us 3 years of substantial unemployment without any significant tradeoff in terms of the inflation. I find it very difficult to appreciate how you can justify an economic policy which you say, in your writings, is short-term as a means of achieving full employment, short-term unemployment as a means of achieving full employment. After 3 years we’ve had substantial unemployment. No tradeoff. Now the fundamental factor of the Australian economy, of course, is that we’ve had a substantial cutback in consumer demand and a substantial cutback in private investment. Those economies that have recovered, Japan, United States, West Germany, and of course Sweden that’s had no unemployment, are the ones that have substantially raised their public spending, and in the Reserve Bank Report which is not a radical report, the Reserve Bank Report this year states quite bluntly that the Japanese economy’s recovery has been based on public sector spending. Now in those circumstances, with the declining consumer demand, the decline in private investment, how do you justify the argument that there should not have been a reflation through additional public sector spending? (APPLAUSE FROM AUDIENCE)

HAYEK: Well I’m not sure I have followed it in all detail, and certainly would require a long discussion. I think the basic fact is still that those countries who over the past 5 or 10 years have managed to maintain a very high rate of employment, by a high rate of inflation, are now suffering worst from unemployment.

MAN: Sweden and West Germany have had both low unemployment and low inflation with high levels of public spending.

HAYEK: Well that happens to be a case I know fairly well and of which I can talk. Germans have had — well I must really begin a little earlier. Now the basic problem is that with a new Keynesian economics they’ve given a charter to the trade unions to ask as much as they want and imposed the duty on the monetary authorities to offset this by providing enough money. Now the German situation, up till quite recently, was very different for a simple reason. The trade union leaders had experienced and knew what inflation really meant, and all you needed to do in Germany if a trade union ever asked too much was to raise a finger, be careful, you will cause unemployment, and the trade union leaders would collapse. So they never made excessive demands and it never was necessary to offset excessive trade union demands by inflation. In that respect Germany is, or I’m afraid I must say was, rather exceptional, because that generation of trade union leaders, which had an acute experience of inflation, is now going off duty and is replaced by a younger generation who no longer understands this. I think Germany is now going to get into exactly the same difficulties as the other countries. It will have a position in which the trade unions make high demands in complete disregard of the effect of the demands on employment in the confidence that it is the duty of Government to provide enough money so that at these high rates full employment will be maintained. Well that is the whole situation now, I mean there has been a great deal of dispute about whether wage pressure can cause inflation. Now there is confusion about it. Wage pressure as such could not cause inflation if a Government did not provide the additional money. Wage pressure would, with a constant supply of money, lead to unemployment. But in the situation which existed in the last 25 years, the trade unions need not concern themselves about it, because it was the recognised duty of the Government or the central banks to provide enough money that any wage rate there would be full employment. So there is this complex interaction wage pressure — exposes government to the choice of either allowing unemployment to occur or to produce inflation. Now the answer was to inflate by which it temporarily avoided the affect of the wage pressure. It did not happen in Germany for the reasons I have mentioned, that the German trade unionists understood this and all you had to do then was to point out to them, if you ask for more you will have inflation, and they gave in. Now that may no longer be true in the future so I think we shall have in all Europe the same position that the pressure for higher wages will make it necessary to meet a more monetary expansion which Governments cannot resist and so we’ll have more inflation.

MAN: Can I come back?

MOORE: Well very briefly, you’ve had a pretty fair run. I’d really rather have somebody else who takes …

(Interjection: Fair go, Bob, fair go!)

MAN: In those circumstances, in those circumstances, why can’t you have a social contract with the trade union movement to reduce wage growth, and at the same time maintain high levels of public spending? It would seem to me that there would be no case for your policy of having small Government if at the same time you can get a social contract with the trade union movement to hold down the level of wages that’s occurred of course in Sweden.

HAYEK: Because such a social contract completely suspends the mechanism OF the adjustment of relative wages, which of course is essential for full employment. I mean you need a continuous adjustment of wages relative to the others, which can only be done by the market. You cannot politically determine what some wages are allowed to rise and others are not, so social contract produces absolute rigidity of the wage structure …

MAN: This is not the case in Sweden, it’s certainly not the case.

HAYEK: Well, it certainly is in England.

MOORE: Now, my friend, what was it you wanted to say? We’ve upset you.

MAN: No, you haven’t upset me. I wanted to ask, Governments have got the power to reduce interest rates …

HAYEK: To do?

MAN: To reduce interest rates. The Government have got the power. Now the Government in this country have been telling people for weeks to go out and spend; they’ve been telling business people to expand their business and to employ people. Now, with the high interest rate, anybody with any money would not be right in their heads if they did not invest their money in the marketplace where they can get 14%, 15% interest with no risk whatsoever.

HAYEK: Well, of course, in the present situation the high interest rates are an effect of inflation and not the other way around. But let me add here that I have come to the conclusion that so long as the control of money is in the hands of democratic Government, there is no chance at all of getting a sensible monetary policy … (LAUGHTER AND APPLAUSE FROM AUDIENCE)

… and my latest and very serious suggestion is that we ought to take from Government the monopoly of issuing money and allow private enterprise to do so. (LAUGHTER AND APPLAUSE FROM AUDIENCE)

Don’t laugh, I have come to the conclusion that it was the fact that private enterprise has not been allowed to provide us with decent money, which the public like to use, but that we were forced to use the Government money, that the main weakness ascribed to capitalism and industrial fluctuations are really due. If private enterprise had been allowed to provide itself with decent money, it would have long ago escaped industrial fluctuations.

MOORE: When you say “money”, do you mean money? I mean literally …

HAYEK: I mean money, yes.

MOORE: … private enterprise coining its own coins? Or …

HAYEK: Just don’t make one mistake. Of course I do not suggest that competing firms should be allowed to issue dollars. I think they would have to issue monies with different denominations which would compete with each other and give the public the opportunity to use the money which they trusted. Those who abused the position would very soon be driven out of the market and the few that survived would provide us with … would survive because they provided us with decent money.

MOORE: Yes, in the front row.

MAN: Professor, you say that incomes are decided in the marketplace and so that’s why there’s inequality. And you also say that incomes are a product of the worth of society, of a certain person’s activity in the marketplace, so why is it that the activity of people in the boardroom of a company like BHP is worth more than the activity of somebody who works for BHP and actually produces the …

HAYEK: What is BHP, I’m sorry.

MOORE: Oh, it’s the biggest company in Australia …

MAN: Australia’s steel manufacturing company.

MOORE: … I think that’s what you need to know, isn’t it. In our terms it’s an enormous company.

HAYEK: Well in … the main point about a market order is that incomes are determined by a great number of circumstances which nobody knows and it is necessary for a functioning market that the determination of incomes is affected by all these circumstances. Therefore, no attempts deliberately to regulate relative incomes can provide incomes which will assure a functioning market. The market incomes have that great advantage that in them there is precipitated, as I call it, as I like to call it, the effects of the knowledge of hundreds and thousands of people whose demand and supply affects the market and which create this order in which this first knowledge is used to maximum effect, something which no control either by Government or by monopolies can equal.

MOORE: You say that these forces create order. What would disorder be? How would you know?

HAYEK: Well disorder for instance is the position where in every market the demand and supply do not equal and therefore people can either not sell what they hope to sell or what they try to produce for selling, or cannot buy what they expect to buy. An orderly market is where only hold the expectations which have guided people’s efforts are being borne out, and that of course is the normal condition of affairs. We owe our incomes to the fact that in the majority of circumstances the expectations which have guided people’s income in producing are being borne out and people in consequence are able to continue producing what they have; it’s always only a very small proportion of them who are forced by a disappointment of their expectation to change it. Now this force to change your plans is a necessary part of this adjustment process.

MOORE: But we have State Boards which are set up precisely to bring about orderly markets.

HAYEK: Well so people believe, yes, but he certainly doesn’t do it.

MOORE: Right at the back. On the aisle, yes. With the glasses and the … Yes?

MAN: The first is a comment and the second is a question. I’m curious about Professor Hayek’s attitude to the role of the State …

HAYEK: Attitude to?

MOORE: The role of the State.

MAN: The role of the State, because he shares, if it is taken to its logical conclusion, this attitude with another 19th century economist, Marx, that is the withering away of the State. Perhaps Professor Hayek might comment on this.

The second one is, what is Professor Hayek’s attitude towards anti-monopoly or anti-Trust legislation, for example in the United States, and does he think that it has been sufficiently effective in ensuring that the market operates in the way in which he would like to see it operate?

HAYEK: Well that’s really three issues, let me take them one by one. So far as the ordinary processes of production and distribution are concerned, the whole necessary function of the State is to provide a framework of legal rules within which this process will proceed fairly steadily and efficiently. In addition to this, providing and enforcing a framework of rules for the market, there are certain services which the market cannot provide, what is commonly known as public goods, things which already Adam Smith knew that there are certain services which, if they are rendered at all, must be rendered to everybody and not only to people who are willing to pay for it, and which for this reason the market cannot in the present state of affairs provide.

Now such services a Government ought to provide, although I must at once add the proviso: the fact that it is desirable that the Government step in and provides them does not mean that the Government ought to have a monopoly of doing so, because it is usually a temporary position which makes it impossible for private enterprise to do so and to give it just one illustration: it was argued, not very long ago, that the Government monopoly of broadcasting was necessary because anyone who broadcasts could not confine his services to those who are willing to pay, so you had to put it in the hands of Government. Now we know now that it can either be financed by advertising and it certainly would have led to the development of devices which made it possible to confine the reception of particular broadcasting to the people who are willing to pay for it. That has not taken place because in most countries the Government has been given the monopoly and there was no incentive.

And the second point. I concede that, apart from enforcing the framework of legal rules which we need to secure personal freedom in the functioning market, Government ought to render certain services but have no monopoly of rendering these services.

The third question was what need Government do to prevent monopoly. Well my main answer to that is a simple one: not to assist it, because most monopolies which exist are due to the assistance rendered to it by Government. And there are very few monopolies which would exist if Government did not assist them by import tariffs, by the peculiar form of our law of industrial [inaudible], by the peculiar form of our law of industrial organisation and I believe that if we removed various forms in which Government assists the formation of private monopoly, there would be very little left to worry about. There might still be a few. I think we might need some development of the rules of competition — I have been much playing with the idea of enforcing some sort of non-discrimination rule, which probably would greatly help in preventing the development of monopolies. But let me repeat, I believe that, if we really could persuade Government not to help protecting monopoly, the remaining monopolies would be very uninteresting and unimportant.

MOORE: On the aisle, yes. With the beard, yep.

MAN: Professor Hayek, if we may go back to your book in which you’ve forecast the tyranny of socialism, my question is in two parts. Firstly, how do people living under the tyrannies of socialism as in the countries of Eastern Europe reform their Government, liberate themselves, without creating a bloodbath at the same time?

Secondly, how do people living in semi-socialist societies such as Australia, dismantle the system without at the same time provoking a reaction from monopoly trade unions which might wreck the economy. (SOME LAUGHTER AND APPLAUSE FROM AUDIENCE)

HAYEK: In order to answer this I must draw your attention to what socialism meant 40 years ago when I wrote the book. At that time socialism had a very precise meaning — the nationalisation of the means of production, distribution and exchange; the transfer of all industrial equipment under the control of the State; and central economic planning. Now I still would maintain that all countries which have attempted this form of socialism, corresponding to the original Marxian tradition, all have turned totalitarian. But the fact is that since I wrote, The Road to Serfdom, and that’s partly because this danger was recognised, the socialists have changed their programme and have attempted very largely to achieve their ultimate goal of changing the distribution of incomes not by controlling production but by taking money by taxation and redistributing it. Now that creates a somewhat different problem, and if you really could … well I should say it creates a somewhat different problem and has at least greatly slowed down the process which I think would have been very rapid if the socialist Government had stuck to their initial programme of nationalisation and central planning.

Now this distribution, this socialism, if I may call it that, acts much more slowly and of course doesn’t require, or doesn’t seem to require, that Governments undertake complete control of industry. Most of you will know that, for instance, Sweden, which is supposed to be a highly socialist country, has nationalised fewer industries than any other country of Europe. It has completely shifted from the traditional concept of socialism, meaning Government direction of industry, to redistributionist socialism. Now I personally believe — but that’s a very long and complex story — that this form of redistribution socialism leads much more slowly and indirectly to the same result as a direct one, because in constantly interfering with the price mechanism in order to transfer enough income, you make the market more and more inefficient and are driven by your own measures to interfere more and more. So what I would say is that the changed strategy of the socialists have postponed the evil day, has made it less imminent — but I think we are still tending in the same direction. But I would have to write a second book to deal with this form of socialism to compliment what I said in my discussion of the traditional orthodox type of socialism.

WOMAN: Professor, you have argued that the law of property and contract sets the rules for our market economy and I am pointing out that a very large part of production in our economy is not set by any such laws and in fact there is no guarantee whatsoever that these who contribute through those activities will receive a fair wage.

HAYEK: The law of property need not provide that everybody has property, it merely requires that the disposal of material assets is governed by the process of competition. The system of property, even if it gives property to only a few, still benefits all, because the fact that property is being used according to considerations of the market makes it very much more efficient than it would be under any other system. The aim is not to give property to those whom it will most benefit, but to give it to those who use it most beneficially and those are in the market those who use it most profitably.

MOORE: On the point? Following it up?

MAN: Yes.

MOORE: Yes, good.

MAN: Professor Hayek, you are wrong in everything. (LAUGHTER AND APPLAUSE FROM AUDIENCE) First you are not logically consistent. Secondly, your theories are morally bankrupt. And finally, they do not have any empirical validity whatsoever. And I’ll point out one by one. The first one, as in the market mechanism, first it doesn’t exist except in your mind, in real life it doesn’t exist, and the poor people, especially the poorer section of the population at the national level, would always be deprived of their legitimate share, they will be out of the mainstream of the market mechanism. At the international level, the poorer countries will never be able to participate to their fullest extent; there will be aggression of the strongest country, richer countries, stronger people.

And morally it’s bankrupt because you are giving us the law of the jungle, survival of the fittest, survival of the strongest so that there will be no more orphanage, no more old people, no more unemployed people, shoot them out.

Finally, empirically, if you look at the history — I’m not going to mention about the socialist countries which don’t have any inflation, don’t have any unemployment because of Government supervision, but even Paul Samuelson, another Nobel Laureate, in the latest issue of Newsweek, pointed out that income equality, equality of distributional income, wealth and property, leads to more efficiency and more economic growth. So what you are suggesting is totally empirically wrong and not accepted by anybody in this world. (CHEERS AND APPLAUSE FROM AUDIENCE)

HAYEK: I don’t want to trade discourtesies with you … (LAUGHTER AND APPLAUSE FROM AUDIENCE) … but I might just take you up on your last sentence in which you are sure that the things which I have said are not believed by anybody in this world. I think if you want to reflect for a moment you would have to admit that this is a sheer untruth and I think I will leave it at this, you’re being self-convicted, because that applies to the rest of your statement. (APPLAUSE FROM AUDIENCE)

MOORE: There is one topic that was mentioned, though, that no one’s touched on yet and I think this is an important case to deal with. In your view what should be the attitude of countries like Australia to the developing countries. Is there … I mean how does this fit in, where does … what values do we use to decide what degree of aid we should give or any at all or to whom or how or whatever?

HAYEK: Well I think the first principle is not to give a penny to any country that uses it for socialistic experiments because we know … (LAUGHTER AND APPLAUSE FROM AUDIENCE) … it’s being wasted. I don’t want to give any money where it’s not going to help the people whom it is intended to help.

I think, secondly, we might well make arrangements which provide capital for investment where it will be profitably invested rather than that we contribute very much more, and have in the past, contributed very much more to raising the standard of living of the people of the countries concerned than any inter-governmental lending which handed over to Government money which they almost-invariably wasted. (APPLAUSE FROM AUDIENCE)

If you merely look around in your neighbourhood I would say from a world point of view, I mean eastern Asia and Oceania, there are a few underdeveloped countries who tried it the capitalist way, South Korea, and Taiwan, and Singapore, who have succeeded magnificently and have had a rise of average incomes which is not equalled either by the Western world or by the other underdeveloped countries who take the socialist way so I think the empirical evidence is all against financing … I mean I would really put it that way, that the big socialist countries finance the socialist underdeveloped countries and the big capitalist countries finance the underdeveloped capitalist countries … (LAUGHTER AND APPLAUSE FROM AUDIENCE) … we would get two parts of the world: one rapidly developing because it did it the capitalist way; and one hardly developing at all because it did it the socialist way.

MAN: But this is not true. Look at China! Do you know what China, mainland China, before 1949 when it used to follow so-called capitalistic way for donkey’s years, it was one of the poorest countries in the world. I have been to China and I come from India; China follows socialistic policies …

HAYEK: But so was Taiwan at that time and Taiwan has formed a rich country and China has remained poor. (APPLAUSE FROM AUDIENCE)

MAN: Look, I draw a comparison between India and China not between Taiwan and China, Taiwan is a small country and China is a big country.

HAYEK: Well I think a big country, according to old traditional beliefs, the big country has much better chances than a small country and India, which you mentioned, is certainly a country which has destroyed all its chances by a very silly socialist policy. (LAUGHTER AND APPLAUSE FROM AUDIENCE)

MAN: Professor, I’d just like to ask you just how your policies differ from those put forward by the Australian Government and adopted by it and other Western Governments in 1929?

HAYEK: Well what I would not do is what the American Government did in the end of the 20s, that when an inflationary boom was on the point of breaking in ’27, by artificially prolonging it by more inflation by another two years with the result that the amount of misdirection of activities, of distortion of the structure, became very serious. I think the abuse of money which caused the Great Depression began during the preceding inflationary period. Then in addition once the crisis had come, the federal reserve system in particular, not only permitted but actually assisted a violent deflation, was of course equally absurd. I don’t think you could have given a better illustration of how it has been governmental policy which has been responsible for the harm which crises have done. (SOME APPLAUSE FROM AUDIENCE)

MOORE: (To questioner) Are you satisfied, or do you want to … no? You’re right. Over here.

MAN: Professor Hayek, may I bring you back to your earlier discussion. You said that you thought the laws of property should guarantee that property goes to the most productive sectors of the economy. Do you suggest that 50% of the people in the economy, that is women, are not productive, are not in fact equally productive with the other 50% of the economy? Do you suggest that the laws of property should not give them the right to share the economic goods of society. As a lawyer I know the laws do not give them equal property rights. Do you suggest that that 50% if the economy is not productive?

HAYEK: I’m afraid I assume that the women in all civilised countries have that right. I’m very surprised they have not that right in Australia. (LAUGHTER FROM AUDIENCE)

MAN: Can I come back on that?

MOORE: Yes, right.

MAN: Professor Hayek, it is not simply a question of mere ownership, it is a question of being paid for the work you do. Women are bound by custom, or law, in contracts of marriage, which do not allow for them to be paid for the work they do within the marriage situation. Do you suggest that, as a previous questioner said, they should merely abandon the child-rearing function, and go out into the market-place and earn money there, in the same way that most male breadwinners do, or should they be paid for their productive activity within the home, within the marriage contract?

HAYEK: I’m very prepared to consider and discuss alternative arrangements. None, to my knowledge, have been suggested which has been more satisfactory, but if somebody finds a way of improving upon it, it certainly ought to be considered fairly seriously.

MOORE: Professor Hayek, we’ve got to go, but I’m wondering if you’re more optimistic about the economists of the future than you have been about the economists of the past?

HAYEK: Yes, I believe I said to you at the beginning, for one very specific reason, that when I was young, only the old people believed in the traditional system and we young, including myself, we were all very critical of it. By now, when I have grown old, I find that my contemporaries believe in the mixed system, but the young are beginning to revolt for it and for my particular ideas about returning to economic freedom, I find now in most parts of the world, even if it doesn’t seem to be so in this room, in most parts of the world, more sympathy among the people in their early 20s than among the old people, and that makes me very optimistic. (APPLAUSE FROM AUDIENCE)

MOORE: And in more particular terms, are you optimistic or pessimistic about our chances of getting out of the unemployment-inflation complex in the short run, I suppose?

HAYEK: Oh, more optimistic only in a very limited sense. I think we know now how it can be done, but the interval from knowing till this is actually being used by politics may well be a generation or so, so I think for the near future I’m not optimistic. I think we are going to cause, by our own politics, a great more trouble than is necessary. I think we are on the way of learning and though I shall not live to see it, I rather anticipate that say in 30 years time we shall have learnt to master this particular problem.

MOORE: Professor Hayek, thank you very much indeed for joining us on MONDAY CONFERENCE.

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