On July 14, 1927, a jury acquitted three right-wing nationalists who were accused of attempted murder after firing on a protest staged by Austrian Social Democrats a few months earlier. Two people had been killed and five wounded by their gunfire. The next day a mass protest against the verdict was announced in Vienna. A swarm of demonstrators passed through the Vienna Ringstraße to the Palace of Justice. Windows were smashed, fires were set, and police attempting to quell the violence began to fire wildly into the crowd. At the end of the day, the building was a shambles, 94 people were dead, and hundreds were wounded, many severely. In the turbulence that marked Austria between the wars, it was perhaps the single blackest day. And it sharply influenced a whole generation of Austrian thinkers who were forming their political consciousness at the time. But to listen to Tony Judt, the events of July 14-15, 1927, have a great deal to do with America’s clumsy attempts to cope with its own economic crisis today. That may sound a little crazy, but Judt’s got a point.
In an article entitled “What Is Living and What Is Dead in Social Democracy?” in the December 17 New York Review of Books, Judt makes a case for European social democracy and the need to preserve its accomplishments. America, he tells us, has been hardwired to reject even the slightest hint of social democracy by the Austrian School economists who have come to dominate economic theory—Ludwig von Mises, Friedrich August von Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker. “All were profoundly shaken by the interwar catastrophe that struck their native Austria… All were forced into exile by these events, and all… were to cast their writings and teachings in the shadow of the central question of their lifetime: Why had liberal society collapsed and given way… to fascism?” There’s no doubt that each of these writers cherished the golden age of the Viennese Ringstraße, a time of artistic brilliance, fertile academic inquiry, and a good measure of tolerance (though occasionally suffocated by the embrace of the Double-Monarchy). It’s equally clear that each blamed the collapse of the liberal era on the Austrian Left, whose militancy had, in their view, provided the perfect growth matrix for fascism.
This helps us understand why Hayek was so vehement in his opposition to British Labour and Keynes. He felt their policies, pursued to their logical ends, would trigger a right-wing backlash that would bring fascism to Britain, and in The Road to Serfdom he wrote as much. Hayek was, of course, stunningly wrong about that, but his followers hardly notice that fact.
[T]he Austrians have had their revenge… We are today living out the dim echo—like light from a fading star—of a debate conducted seventy years ago by men born for the most part in the late nineteenth century. To be sure, the economic terms in which we are encouraged to think are not conventionally associated with these far-off political disagreements. And yet without an understanding of the latter, it is as though we speak a language we do not fully comprehend.
The problem in America today may be even more complicated than Judt supposes. Right libertarians like Richard Epstein speak of “Hayekian socialism,” and almost all of the Austrian School writers saw plenty of room for state intervention and for the rigorous program of public works that formed the backbone of continental liberalism. Hayek was quite emphatic about not being a “conservative.” And although Judt is certainly correct that the vehemence with which some of these writers portrayed social democracy was driven by the bitter experience of Austria of the twenties and thirties, even today their criticisms pack a strong intellectual punch. It still strikes me that John Maynard Keynes’s reaction to The Road to Serfdom was one of almost unchecked praise, notwithstanding the harsh criticism of his own work that it implied. One of the greatest differences between Keynes and Hayek was the former’s unwillingness to be a prisoner to dogma. And today it’s far from clear which of these two giants can be seen as more influential. Crisis management of the period since September 2008 shows that many of the nation’s experts may well quote Hayek, but they follow Keynes.