Hayek on 'Meet the Press'

0:00Our guest is Dr. Friedrich von Hayek, one of the world's leading economists. You just met Irving R. Levine of NBC News. The other questioners on our panel today are George F. Will of the National Review, Hobart Rowan of the Washington Post, and Eileen Shanahan of the New York Times. We'll continue the questions now with Mr. Will. Dr. von Hayek, in the 30 years since World War II, some nations' economies have done very much better than others. What is the secret to success and the secret to problems?

0:59Dr. Von Hayek, we have a basically conservative administration in the United States today, but even it is facing planned deficits, more or less planned deficits, exceeding perhaps $100 billion in the next two years. Do you think this will cause a renewed and perhaps socially destructive inflation? It is not unlikely, I am afraid, and so long as the governing people are persuaded that inflation of this sort is even beneficial in its effect, the tenders in that direction will be very great. And I think it all depends on persuading the responsible people of the danger of inflation.

1:44Mr. Rowan. Dr. van Hayek, you talked in response to Mr. Levine of a painful adjustment of the unpleasant effects that we would have to endure in order to beat inflation. With all due respect, sir, aren't your theories somewhat unrealistic in a political sense? You visualize governments today being able to take such steps as you recommend? Well, to be specific, what rate of unemployment do you think that this country ought to be It's not a question what the country is willing to tolerate.

2:48The longer you have inflation, the greater unemployment becomes inevitable. You will have no choice. It's not a matter that government can avoid the unemployment which is caused by the previous misdirection of labor which inflation has produced. But when you speak of unpleasant effects, just what are you talking about that the country would have to endure? It must be some level of unemployment that you're thinking of that would result if we do cure inflation. For a period of inflation, not a lasting inflation, when if you want to achieve a tolerably stable position, you will have to go through a period of unemployment which may well last more than a year. and how high could that get? I couldn't say, we would have to know much more about specific conditions, but it would not exclude a temporary rise to 13-14% or something of the sort.

3:46Do you think the social fabric of this country could tolerate a 14% rate of unemployment? For a few months certainly. Ms. Shanahan. Professor von Hayek, you're a fellow Nobel Laureate. Professor Leontief is an advocate of planning and two of our prominent senators, Humphrey and Javits, have introduced legislation to implement his idea, which is largely a matter of study by various government agencies and recommendations, nothing compulsory. Do you see in that kind of planning the same dangers that you see in a more mandatory form? Well, if it's really not incompatible, it will also be completely ineffective and therefore we do no harm. I think that's a very simple answer.

4:32He really imagines that somehow people are being made to do what he is planning. The thought, I believe, that they have expressed is that such things as foreseeing shortages of industrial productive capacity could be highlighted. and the industries encouraged to go ahead with building new plants, that sort of thing. Do you encompass that in your thought that it would be completely ineffective? But I call that planning, if you can give industry better information, by all means do. Can we then say you support that legislation despite your fears of planning? Well, nothing to do with planning. Dr. Van Hayek, did I understand you to say in answer to Mr. Levine's question question that the way to stop inflation is to stop the printing presses. Now are you suggesting that that's what we're doing here, that we're just printing money and that's the way this inflation has started and that's the way this is continuing and that's the way it will continue?

5:27In a sense, stopping the printing press is a figurative expression because it's being done now by creating credit by the Federal Reserve system. But this government action, All inflation is ultimately the product of activities which the government determines and can control, and all inflation has been stopped in the past by the government stopping creating money or preventing central banks from creating more money. May I just say one thing, since all inflation has been stopped by people who believe in a very naive form of the quantitative theory and acted on them, it may be wrong, but it is adequate, the only adequate theory effective to stop an inflation. Well, now you've been a student, I'm sure, of the United States because you taught here for many years. What do you think has started our inflation? We've had inflation for a number of years, and I don't think that we were printing money at that time or that the Federal Reserve was necessarily dumping a great deal of money. What do you think was responsible for the beginning

6:30of our inflation? The belief in deliberate increase of aggregate demand as a means of creating employment and, in effect, what's popularly called belief in Keynesian policies to create employment. Mr. Levine. Dr. von Hayek, the general belief among administration economists now is that we are near or at the bottom of the recession that we've been going through. Do I understand you to be saying that we should be willing to experience a continuation of this period of low economic activity for another year or so rather than to take the kind of efforts that the government has taken of a tax cut in order to stimulate the economy? Because the method of a tax cut again aims at increasing aggregate demand and the present difficulty is not due to a deficiency of aggregate demand.

7:24It is due to the fact that without continued inflation, you cannot maintain the people in those employments in which they have been drawn by the inflation of the past. I would like to pursue the first part of my question. Do you see a necessity in order to avoid a resurgence of inflation that the government undertake policies which will continue us at the present low level of economic activity for a period of a year or more? Well, not necessarily at the low level, but we should not produce more than a very slow recovery. I would like to add, the slower the recovery is, the better are the chances that it will last. In a speech before a congressional group not long ago, you said that the threat to the free enterprise system of our society has never been more imminent than it is now.

8:19What did you mean by that? 30 years ago, Dr. Von Hayek, you stressed and have subsequently stressed that political and economic liberties must either flourish together or perish together. Do you see signs, specifically in the United States today, or in Great Britain, with which you're familiar, that political liberty is endangered? In Great Britain, certainly, when it is quite clear that by the established democratic process, you cannot conduct that kind of economic policy the present governing party wants to conduct.

9:15The danger of a reduction of political liberty in the Great Britain is considerable. This country is not so imminent, very largely for the reason that the efforts have not been directed so much towards nationalization and direct government controls of industries, But the attempts have been made by redistribution of incomes by taxation, and there is a much slower process. I think it tends in the same direction, but much more slowly than the other one. Mr. Rowan. Dr. von Hayek, how do you rate the impact of market power wielded by either unions or corporations as a factor in inflation?

10:05You seem to be putting all of the stress on the quantity of money in the printing press. Isn't part of our inflation and part of the inflation in some other parts of the world due to the excessive market power of labor unions and corporations? Never directly, when it may well be and frequently happens that because of the power of the unions, perhaps all the corporations, government feels compelled to inflate. Well now, returning to the crisis in Great Britain, the Chancellor of the Exchequer told me on Wednesday that the Cabinet will consider a return to a formal wage price incomes policy.

10:57What effect, if any, do you think that would have on the very high level of British inflation I don't think it will help at all. It might be necessary as a temporary measure at the moment when you are in a position to stop the increase in the quantity of money. I do not see any prospect at all in the near future the British government effectively stopping an increase in the quantity of money. In that situation you just disguise the effects of inflation for the time. What would be your prescription for the ills that afflict Great Britain? Well, it's a problem of first persuading the public that in the present situation the pressure of the trade union does not deserve public support.

11:48That you must achieve before you can do anything by legislation reducing the powers of the trade unions. It must be a long process. I don't see any immediate cure. Ms. Jenahan. Professor Hayek, you have always stressed government actions that inflate and government planning and controls as the great dangers to our political freedom. Many Americans see another scenario for loss of freedom in this country, which is economic policies that now have unemployment in the center cities among black youths over 40%, and that their anger and frustration can lead to violence, which in turn will lead to repressive governmental action. What do you say to that scenario? Can we just sit idly by and let that happen?

12:38No, but it goes back to the same cause, the unemployment of which you speak, which is the initial cause, is due to labor being temporarily directed into places or activities or industries where they cannot be maintained without further inflation, therefore you can only cure that by achieving a new redistribution of labor between employments, adaptation to a condition in which aggregate demand need not progressively to increase to maintain their employment. But you have said, and everything you've written said lately, that this is a lengthy process, that we won't get back to stable money quickly.

13:23Meanwhile, what do you do with these urgent problems and human hardships? Well, you mustn't assume that all problems are solvable in the short instant, the short But in the meantime, what do you do with the human hardship and the mounting rage that is certainly building up? Well, I don't think there's anything I can do about it. We have to tide over the storm which may be threatening. Dr. Van Hayek, may we get a bit specific on one particular thing, and that is Great Britain. You're a citizen of Great Britain. You taught there, and I think you know something about the economy there.

14:09I understand that their inflation rate may hit as high as 50%. What is the consequences of something of that kind? What do you see is going to happen in the country of which you're a citizen? When you get a very severe economic crisis, with fairly extensive unemployment, the moment inflation stops, We will probably have repeated attempts to restart the process by returning to inflation. We'll probably combat the wrong thing, the effects of inflation on prices by price controls that will lead to a centrally directed economy which will weaken the international economic position of Britain even worse.

15:00On that we probably decide in a position that somebody may decide that the direction of economic policy has to be completely changed. I almost hope that the severe crisis we consume, there won't be a long, dragged out process of misery. But I don't see any immediate chance, with the present political situation in England, of such a complete change in economic policy as would be required. Well, are you saying that England is either going to go bankrupt or that England is going to become a dictatorship? What specifically do you mean is going to happen in Great Britain? You know that the English people will be beginning to experience, which they hardly have yet, that they have become very much poorer and are rapidly getting poorer still.

15:51And that will lead to the resolution or the recognition that the policy of the past was wrong. The amazing fact is that a great majority of the British people are not yet consciously aware that they are living in a very severe economic crisis. And for that reason they are not willing to consider themselves a complete change in policy. What do you think is going to happen since you believe that? What's going to happen there? Are they going bust or are they going into dictatorship? All that happens is that the economic conditions of daily life are getting much worse. There will be scarcity. People will find that their income is no longer sufficient to maintain their standard of life.

16:37And we've come to distrust both the present government and present policies, and may then be willing to return to altogether different systems. But I'm no prophet, I can't say how soon... And do you think that if we follow along our present footsteps, the same thing is going to happen to us? Yes, but in 10 or 20 years' time, there's a problem for the immediate future. Mr. Levine? Dr. von Hayek, to try to translate some of the things that you've been saying into the terms of the pocketbook of the average American, what advice would you give an American with savings of 20, 30, maybe $100,000? What should he do with that money to protect it against the problems of inflation that you've been discussing?

17:23Well, I still believe there's nothing better than putting into equities, although that Dr. von Hayek, these theories that you've gained such recognition for over a period of years have worn consistently, as has been pointed out, of the dangers and threats of inflation and yet this country has undergone inflation for a great many years and the standard of living has consistently increased. Does this lead you to question in any way your thesis? Not in the least, because the dangers of inflation are very different ones. They're exactly the kind of unemployment which is now arising.

18:10I mean, in the usual discussion, there's quite a wrong emphasis. There are many bad effects of inflation, but the worst is that it draws labor into employment, where they can be kept employed only by accelerating inflation. The point is inevitably arises where inflation cannot be accelerated sufficiently fast to keep them in that inflation. We just make one point. The situation is like overeating and indigestion. Overeating is very pleasant, so is inflation. The indigestion comes only afterwards, and therefore people do not see the connection. We have less than two minutes, Mr. Well. Dr. von Hayek, capitalism, and particularly American capitalism, would seem to have a good record at giving people a rising standard of living. Why are so many intellectuals, and particularly so many economists, skeptical about and even hostile to capitalism?

19:06Well, I've been puzzling about for a long time, particularly about the economists who ought to understand better, and it's very difficult to know why they don't. I think it's an attraction of a system which you can, the intellectual attraction of a system you can deliberately control, which is fascinating to the intellectual. Mr. Rowan? Dr. Menhaier, coming back quickly to Great Britain, isn't it possible that if we pursued your philosophy and theory, that we might destroy capitalism there rather than save it, looking at the analogy of the Italians? No, it's not likely to become worse. The present tendency would destroy capitalism inevitably.

19:55I think the important thing is that people are given a chance to change their mind, I'm sorry to interrupt, but our time is almost up and we won't be able to get in another question and another answer. Thank you Dr. Ben Hayek for being with us today on Meet the Press.