Year LVII, 2015, Single Issue, Page 159
FEDERALIST THOUGHT IN FRIEDRICH VON HAYEK
Many free-market conservatives like to make frequent reference to the liberal authors of the past in order to strengthen the basis of their own arguments. One of the authors most often quoted is undoubtedly Friedrich von Hayek, who tends to be cited in order to back up criticism, or rather rejection, of the idea of a federal Europe. Generally speaking, this position is accompanied by criticism of the European civil service, which is accused of being bureaucratic and excessively large. However, those who hold these views often end up depicting despotic scenarios, in which the freedom, democracy and civil rights of European citizens are undermined by a tyrannical Soviet-style government. In so doing, however, these thinkers equate these values with defence of national sovereignty, consistently both with the idea that these principles can be defended only at national level, and with a mistaken interpretation of the Hayekian principle of “methodological individualism” in international relations, which, in the way they interpret it, basically becomes “methodological nationalism”. This error of interpretation derives from the opinion that individuals do not constitute subjects of international law, and thus from the failure to make them the focus of reflection.
Instead, von Hayek focused very much on the individual, and in all his intellectual output he took great care to emphasise this aspect of his thought. In the decades between the two World Wars, and subsequently in the period leading up to the start of the Cold War, he elaborated his own theory of international relations, which was completely at odds with that of the thinkers and liberal politicians of the nineteenth century, who in his view had failed to understand and address the political and economic tensions that had led to the two World Wars. In particular, he believed that their main intellectual shortcomings had been their failure to draw a clear distinction between nationalism and political liberalism, and the fact that they had forgotten the universal dimension of liberal thought.
In working out this stance, von Hayek was led to elaborate a theory of international federalism; however, over the years this theory has been obscured by other, more widely analysed and more extensive, aspects of his philosophical output and, as a result, has tended to be ignored by many free-market conservatives.
Friedrich von Hayek expounded his internationalist theory in his essay “The Economic Conditions of Interstate Federalism”, in chapter XII of his collection of writings Individualism and Economic Order, and in “The Prospects of International Order”, a chapter of his book The Road to Serfdom. Some elements that allow us to view von Hayek as a supporter of European unity can also be found in his book Denationalisation of Money, even though the federalist issue did not emerge clearly in this work; this latter book may actually be regarded as von Hayek’s contribution to the debate on the introduction of a single European currency that unfolded in the 1970s and 1980s.
What distinguished the international order presented by von Hayek was, essentially, the fact that it was based on the objective of limiting state intervention in the economy and preventing distortions of free trade and competition deriving from public action. He thus supported the idea of creating a supranational government, seeing it as a way of limiting the power of the nation-states, and believed that it should be an authority organised according to strict federal principles.
“The Economic Conditions of Interstate Federalism”.
This essay was first published in 1939, in the scientific journal New Commonwealth Quarter; it was subsequently included, as the last chapter, in Individualism and Economic Order. It illustrates the need to get rid of economic barriers between states in order to achieve the objective of founding a federation: an “interstate federation that would do away with the impediments as to the movement of men, goods and capital between the states and would render possible the creation of common rules of law, a uniform monetary system, and common control of communications.”
While von Hayek recognised that the main objectives of federalism are internal peace between the federation’s member states and harmonious relations between the states and the federal authority, he nevertheless believed that a simple political union would not be sufficient to ensure an enduring federation, and therefore that an economic union should also be created, together with a common foreign and defence policy.
The federal system, as conceived by von Hayek, helps to prevent national governments from intervening in the economy, and in particular from introducing protectionist policies that distort free trade and competition. Realising that a central government in a multi-ethnic and multinational federation would find it more difficult to launch, plan and support economic policies, due to issues of heterogeneity and lack of internal cohesion, von Hayek considered the creation of a federal system a way of restricting, on a constitutional basis, recourse to the economic policy measures typical of nation-states. This is not to say that heterogeneity does not also exist at national level, for example between different regions, between urban and rural areas or between social classes, producers and economic sectors, but the fact is that national governments, thanks to the “myth of nation”, are ultimately able to generate consensus on such measures and overcome any kind of opposition to public intervention.
The conclusion reached by von Hayek was that, in a federation “certain economic powers, which are now generally wielded by the national states, could be exercised neither by the federation nor by the individual states” and he realised that this opened the way for “less state”.
He was thus led to declare that “the abrogation of national sovereignties and the creation of an effective international order of law is a necessary complement and the logical consummation of the liberal program”, or as Lionel Robbins put it, “There must be neither alliance nor complete unification; neither Staatenbund, nor Einheitsstaat, but Bundesstaat”. Furthermore, in von Hayek’s view the liberals’ support for nationalism, between the end of nineteenth century and the dawn of the First World War, constituted their greatest political and intellectual mistake. In Hayekian thought, liberalism and nationalism are completely incompatible and it is fundamental to prevent them from being combined. Liberalism serves man understood as an individual, whereas nationalism sets out to subordinate the individual to a supposed collective interest.
The Austrian philosopher thus created a new vision of federalism, which has been defined “functional”, in the sense that it is not meant to be an end in itself, and is not defined in positive terms, but is, rather, conceived as a means of curbing the powers and action of nation-states. From this perspective, supranational coercion is essential in order to defend and strengthen the freedom of individuals.
Federalist elements in The Road to Serfdom.
The last chapter of The Road to Serfdom is entitled, and focuses on, “The Prospects of International Order”.
This chapter may be regarded a continuation or expansion of “The Economic Conditions of Interstate Federalism”. In it, von Hayek stresses, from the outset, that supranational institutions could provide a solution to the need both to limit the power of the national governments, and to return powers to individual citizens and political units at subnational level. The system he proposes thus integrates a top-down and a bottom-up approach: on the one hand, the national governments are restricted from above, thanks to supranational federalism, and on the other, their action is limited from below, as a result of the return of power and competences to individuals and local communities. These two processes must advance in parallel and both are parts of a federalist and liberal vision of inter- and intra-national relations.
Hayek devotes the first pages of the chapter to the crucial topic of his liberal position, that is to say his criticism of economic interventionism and of the proposal that the federal government should have industrial policy powers. He also strongly attacks the very idea of national solidarity: “[t]here is little hope of international order or lasting peace so long as every country is free to employ whatever measures it thinks desirable in its own immediate interest, however damaging they may be to others. Many kinds of economic planning are indeed practicable only if the planning authority can effectively shut out all extraneous influences: the result of such planning is inevitably the piling up of restrictions on the movements of men and goods.” Hayek is also harshly critical of the New Deal approach, and of the idea of economic planning at federal level, even if this is implemented through a democratic procedure, because, in his opinion, it would give numerous privileges to minorities at the expense of others and because the federal government of a heterogeneous state would end up having to use a greater degree of coercion than that which is required by more homogeneous or smaller states in order to carry out economic policy programmes. The “international government” should be guaranteed narrow and limited powers, sufficient to achieve its aims, whereas the role of national bureaucracies should be weakened in favour of the underlying units and centres of power, which should once again assume responsibility for their own needs and tasks.
By this, von Hayek does not mean that the international government should be weak and at the mercy of its member or federated states, but rather the opposite, that it must be strong. “While for its task of enforcing the common law the super-national authority must be very powerful, its constitution must at the same time be so designed that it prevents the international as well as the national authorities from becoming tyrannical”. What is needed, therefore, is a very even balance of power.
The federalism described in The Road to Serfdom is federalism conceived in global rather than European terms. According to von Hayek’s analysis, it should succeed in realising the liberal principle at every level, from that of the individual to supranational level. This, as far as he is concerned, is the most genuine definition of federalism: it is not in itself an ideology, but the application of a purely liberal system whose only possible dimension is global and in which, therefore, “reasons of state” and nationalism can no longer be used as excuses.
For this reason, an “international authority which effectively limits the powers of state over the individual will be one of the best safeguards of peace. The international Rule of Law must become a safeguard as much against the tyranny of the state over the individual as against the tyranny of the new super-state over the national communities. Neither an omnipotent super-state, nor a loose association of “free nations”, but a community of nations of free men must be our goal”.
Federalist thought in von Hayek after the Second World War.
Friedrich von Hayek remained a committed federalist after the Second World War. He was a longstanding member of Europa Union-Deutschland and remained a supporter of the process of European integration. He regarded the European Community as a suitable ambit for trying out a new form of economic governance. Accordingly, he believed that the European Community should be prevented from evolving into a kind of centralised nation-state, and called for a new form of federation able to prevent national governments from interfering with economy and free trade. On this basis, von Hayek opposed the idea of a single currency, not because he was opposed to the European project, but because he did not accept the idea that the state, whatever form it might take, should have a monopoly on the currency. “Though I strongly sympathise with the desire to complete the economic unification of Western Europe by completely freeing the flow of money between them, I have grave doubts about doing so by creating a new European currency managed by any sort of supra-national authority”. Instead, he proposed that Europe should have a free banking system in which private, local, national and continental/multinational currencies could compete with each other and be freely exchanged. He believed that European unification should advance not through the transfer of monopolies from national to European level, but through their total destruction; von Hayek did not like the idea of a single monetary authority as he thought it “highly unlikely, even in the most favourable circumstances, that it would be administered better than the present national currencies”.
Therefore, we can assume that if von Hayek were alive today, he would not approve of the European Central Bank and the role it is playing, but would very probably approve far less of all the proposals to return to the old national currencies, and to everything that is related to the idea of “monetary sovereignty”.
The fact that von Hayek’s works and studies on federalism dried up after the Second World War seems to suggest that, as the international situation stabilised around the US-Soviet duopoly and the European national governments embraced Jean Monnet’s functionalist approach, he gradually abandoned his federalist ideas. Nevertheless, von Hayek remained a strong supporter of the European integration process, although its slow pace led him to pursue his ideas through a more nation-based approach, according to which economic freedom and the reduction of the functions of government became political objectives to be achieved primarily at national level.
As he gradually became detached from the process of European integration, von Hayek progressively espoused a position more in line with Mises than with Robbins. Nevertheless, von Hayek, like Robbins, remained of the opinion that a form of international federalism could exist only between countries with a capitalist economy and a liberal ideology. These are elements that might be seen to explain the way in which his ideas evolved, from those set out in “The Economic Conditions of Interstate Federalism” and The Road to Serfdom to the rather more sceptical proposals contained in Denationalisation of Money.
Anyway, it can be said that during the post-war period von Hayek set aside the idea of top-down restriction of the actions of states. He never explicitly turned his back on this idea; it was simply that the unfolding of history led him to appreciate more the value of a bottom-up approach, or in any case, one based on the action of political forces at national or local level.
Whether or not one shares his ideas, examining federalism as interpreted in the work of von Hayek is interesting not only as an intellectual exercise, but also as a reminder of the liberal ideas underlying federalist theories, ideas that are also typical of the British federalist school during the inter-war period: restriction of the role of government and a growing acknowledgement of individuals as independent units. Furthermore, it should always be borne in mind that von Hayek’s ultimate objective was the elimination of the kind of economic tensions, present during the period in which he wrote the first two works discussed herein, that were cause of the two World Wars.
If we look at international law today, and consider how it has evolved since the Second World War, both globally and at European level, we can see that the international institutions now effectively play a role similar to the one von Hayek had in mind. The supremacy of the states in the international community has been progressively reduced, and various agreements and new practices of international law have tended, and are tending, to lead to the emergence of the individual as a subject of international law. In the same way, in Europe, the Union (previously the Community) often plays a role that is more “negative” than “positive”. In other words, it is tending to limit member states’ interventions liable to distort the economy, but at the same time lacks a true capacity for economic and industrial policy making. However desirable or undesirable this may be argued to be, the fact is that, voluntarily or involuntarily, Europe has adopted an “Austrian approach” to integration, and this is destined to co-exist for many years with new approaches of the positive type.
The other element that makes it valuable to study federalist thought in von Hayek is his belief in the principle that every political goal of universal significance, be it liberal or socialist or social-Christian, has its own raison d'être only if it is achieved at supranational level.
 F. von Hayek, Individualism and Economic Order, Chicago, Chicago University Press, 1948, p. 255.
 Ibidem, p. 266.
 Ibidem, p. 269.
 Ibidem, p. 270.
 F. Masini, Designing the institutions of international liberalism: some contributions from the interwar period, Constitutional Political Economy, 23. n. 1 (2012), pp. 45-65.
 F. von Hayek, The Road to Serfdom, London, Routledge Classics, 1944, 2006 Edition, pp. 225-244.
 F. von Hayek, Denationalisation of Money – The Argument Refined, 3rd Edition, London, The Institute of Economic Affairs, 1990, p. 24.