Grand Pursuit

by Sylvia Nasar

  Even in the depths of the Great Depression, the Communist Party of the United States of America (CPUSA) never remotely attained the status of a mass political movement, much less an independent one. Its membership peaked in 1944 at eighty thousand or so, the overwhelming majority of members drifted away in less than a year, and it exerted scant influence beyond a few neighborhoods in the Bay Area, Boston, and New York and a handful of trade unions. The spies were sometimes poor or economically insecure, often first in their family to attend university. Many smarted under casual anti-Semitism and snobbery. The rise of Hitler and Franco, with their explicitly anti-intellectual and militaristic threat to civilization, gave the Party some cachet at universities. Fighting the Great Depression became a political movement, like Civil Rights in the fifties and sixties. Just as physicists at the Manhattan Project saw themselves as part of the war effort, cranking out forecasts at Treasury was part of the fight to defeat fascism.

  In the 1930s, Lauchlin Currie had been an instructor at Harvard and had coauthored several prostimulus and New Deal manifestos with his best friend, Harry Dexter White. In 1939 he become one of six administrative assistants on the president’s staff and was soon advising Roosevelt on momentous matters such as mobilizing the economy for war, the wartime budget, and Lend-Lease for China. Currie organized the Flying Tigers. He practically ran Lend-Lease for China and was closely involved in US-British and US-Russian loan negotiations, and in the talks leading up to the Bretton Woods conference. Compelling evidence from multiple independent sources shows that Currie and White were not innocent victims of dirty anti–New Deal politics, and certainly not of McCarthyism. The charges against them were made by two independent sources and corroborated by Soviet cables captured and encrypted by the US government long before Senator Joseph McCarthy made his sensational claims, and confirmed decades later in material from the KGB archives.

  The charge against Currie was that he, and possibly at the behest of the president, pressured the OSS to return purloined Soviet cipher traffic and to suspend encryption operations. The evidence against Harry Dexter White was particularly damning. According to two of his biographers, David Rees and R. Bruce Craig, Whittaker Chambers, a Time magazine editor and former agent of the GRU, Russia’s foreign intelligence service, who went to the assistant secretary of state in 1939 with the names of other Soviet agents, volunteered that White and Currie were agents. Chambers produced copies of a Treasury document that White had given him to deliver to the GRU (Chief Intelligence Directorate). His charges were corroborated independently by at least two other ex-agents. One Venona cable, dated November 1944, concerns an offer to White’s wife, delivered by Nathan Gregory Silvermaster, to help with college tuition for the Whites’ daughter. Two other cables document unauthorized discussions between White and a KGB general, Vitaly Pavlov, including one in 1941 over lunch in a Washington restaurant.

  Although Moscow valued them as spies, Currie’s and White’s real importance was as agents of influence. Occupying positions of great sensitivity, reach, and authority, they took actions and promoted measures that may or may not have served the interests of their government but were definitely intended to advance those of the Soviet Union. Ironically, they were as clueless about Soviet intentions as the most naïve American politician. Unlike FDR and Truman, whose views shifted sharply after the Yalta conference in 1945, these calculating, hard-nosed, duplicitous men reacted with the shocked incomprehension of jilted lovers when Stalin made fools of them.

  The generation that came to economics during or as a direct consequence of the Great Depression seized the message of The General Theory of Employment, Interest and Money like drowning men lunging toward a lifeline. Keynes was their hero and they were his disciples—intellectual disciples, that is; the “Keynesian” label did not imply support for Keynes’s policy proposals, much less his politics. Some were political conservatives. Some, particularly in Europe, were Socialists. Most fell within the spectrum defined by mainstream parties. That some rose to positions of power and influence and used those positions to pursue hidden agendas out of loyalty to a totalitarian regime says a great deal about them and their times, but very little about Keynesian ideas, much less about Keynes the man—except perhaps that, like everyone else, he could not imagine how such smart men could be so stupid or so bad.

  Chapter XV

  The Road from Serfdom: Hayek and the German Miracle

  It cannot be said too often—at any rate, it is not being said nearly often enough—that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of. . . .

  Since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.

  —George Orwell, review of The Road to Serfdom, 19441

  On March 31, 1945, Isaiah Berlin reported in his weekly dispatch from Washington that “The Reader’s Digest, which in effect is the voice of Big Business, has printed a digest of Professor Hayek’s notorious work” and that “the imminent arrival of the Professor himself is eagerly anticipated by the anti–Bretton Woods party, who expect him to act as the heavy artillery.”2

  Hayek’s transatlantic crossing “by slow convoy” in stormy March weather was considerably less agreeable than Keynes’s the previous June, but when he stepped onto the pier in New York, he was greeted by flashing cameras and a mob of reporters. Three thousand people turned up at New York University for his first lecture, and for the next six weeks—four weeks longer than he had originally planned to stay in the United States—his schedule of speeches, radio broadcasts, and press interviews was so tightly packed that he could hardly manage a brief late-night rendezvous with his old friend Fritz Machlup, who had been faithfully sending Hayek food parcels with Spam, nuts, prunes, rice, and the like since 1943.

  “The voice of Big Business” had turned Hayek into an instant celebrity. A front-page New York Times book review by Newsweek writer Henry Hazlitt did the rest. The sensational success of The Road to Serfdom was partly timing. In the spring of 1945, the recently concluded Yalta conference and the imminent defeat of Nazi Germany by the Red Army had focused American public opinion on postwar settlements and, in particular, on future US-Soviet relations. Among the issues before Congress were a trade bill, a huge loan to the British, and, of course, ratification of the global monetary agreement endorsed at Bretton Woods the previous July—all administration initiatives to which Republicans were strongly opposed. Although most of the references in Hayek’s book were to Nazi Germany, not Stalin’s Soviet Union, his antistatist message resonated with opponents of the New Deal. As Berlin predicted, American conservatives were ecstatic and rushed to embrace the Viennese professor. But Hayek proved to be an unreliable poster boy. In his next dispatch, Berlin reported with some amusement that the American Bankers Association was wavering in its opposition to the Bretton Woods Treaty, thanks “curiously enough” to a Professor Hayek, who, “at a meeting of influential New York bankers attended by both Winthrop Aldrich and various Morgan partners as well as by Mr. Herbert Hoover and others, argued passionately in favor of Bretton Woods.”3

  A month later, Berlin gloated, “Professor Friedrich von Hayek, upon whom the economic Tories in this country placed so much hope, founded upon the Professor’s indubitably anti–New Deal views, has proved a most embarrassing ally to them since his passion for free trade makes him no less hostile to tariffs and monopolies.”4

  Unbeknownst to his Republican sponsors, Hayek had begun to warm to FDR before the war. “I suppose Roosevelt knows what he does,” he wrote to Machlup, confessing that Roosevelt’s 1938 “Message to Congress on the Concentration of Economic Power” had prompted “a considerable revision of my views about him.”5 Hayek was by no means intimidated by the discomfiture and embarrassment of his supporters. On his final night in Washington, Albert Hawkes, a R
epublican senator from New Jersey, gave a dinner for him. Bored and disappointed by Hayek’s abstract argument and dry delivery, another senator rose to demand his opinion on a piece of pending trade legislation. Hayek responded icily, “Gentlemen, if you have any comprehension of my philosophy at all, you must know that the one thing I stand for above all else is free trade throughout the world. The reciprocal trade program is intended to expend world trade, and so naturally I would be for such a measure.”

  The Washington Post columnist Marquis Childs, who was among the guests, reported gleefully that “the temperature in the room went down at least ten degrees since the Republican Party had decided to take a stand against the extension of the trade program.” The cooling-off process continued when, a little later, Hayek repeated that while he did not like many of the features of the Bretton Woods Monetary Agreement, he was in favor of it. The alternative to such an agreement, he said, was “too grim to contemplate.”6

  Congress gave its approval to the Bretton Woods Treaty in July. The British Parliament waited until December, refusing its imprimatur until after Washington finally gave the green light to an $8.8 billion loan to Britain that Keynes had given so much to obtain. The choice between autarky versus globalization, free trade versus protection, had been made. The Russians shocked the Roosevelt administration—and its own moles—by refusing to ratify the treaty. George Kennan, the diplomat and architect of the Truman Doctrine, recalled:

  Nowhere in Washington had the hopes entertained for post-war collaboration with Russia been more elaborate, more naïve, or more tenaciously (one might almost say ferociously) pursued than in the Treasury Department. Now, at long last, with the incomprehensible unwillingness of Moscow to adhere to the Bank and the Fund, the dream seemed to be shattered, and the Department of State passed onto the embassy, in tones of bland innocence, the anguished cry of bewilderment that had floated over the roof of the White House from the Treasury Department on the other side. How did one explain such behavior on the part of the Soviet government? What lay behind it?7

  In contrast to Churchill, FDR and Truman had viewed Stalin very much as Neville Chamberlain had viewed Hitler prior to 1938: as a ruler with legitimate grievances and limited aims who would make deals and live up to them if handled properly. They took big-power rivalry and commercial conflicts for granted but assumed that the United States and the Soviets had a common interest in ensuring that those conflicts took place within a cooperative framework. But the view that Stalin could be negotiated with began to crumble even before FDR’s death of a cerebral hemorrhage on April 12, 1945, two weeks after Hayek’s arrival in America. The dictator’s abrupt refusal to join the IMF and the World Bank was one of the decisions that led to a radical reappraisal, beginning with the famous “Long Telegram” sent by George Kennan, the number-two minister in the US Embassy in Moscow, to the secretary of state in February 1946, describing a Soviet Union that did, indeed, resemble the totalitarian empires of George Orwell’s imagination.

  • • •

  Keynes and Hayek never fully resolved their long-running debate over how much and what kind of government intervention in the economy is compatible with a free society. Nonetheless, Keynes endorsed The Road to Serfdom and nominated Hayek, rather than his disciple Joan Robinson, for membership in the British Academy. When Keynes’s heart finally gave out on April 21, 1946, Hayek wrote to Lydia that Keynes was “the one really great man I ever knew, and for whom I had unbounded admiration.”8

  • • •

  By early 1947, Keynes’s hopeful vision of one world was half in ruins. One after the other, Poland, Hungary, and Romania fell to Soviet domination. Churchill had delivered his Iron Curtain speech. Truman announced that the United States would “support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures . . . primarily through economic and financial aid which is essential to economic stability and orderly political processes.”9

  Hayek had avoided returning to Vienna at the end of the war. His closest friends were either dead or in exile abroad. After the Yalta conference, Stalin had postponed the Red Army’s assault on Berlin to grab what he saw as a valuable bargaining chip. After heavy aerial bombardment and fierce street-to-street combat, Vienna fell to the Russians. Some of her finest buildings were reduced to rubble. Water, electricity, and gas lines were destroyed. Abandoned by the police and other local authorities, defenseless residents were terrorized by criminal bands. The Soviet assault forces showed some restraint toward the civilian population, but the second wave of troops to arrive in the city engaged in a six-week frenzy of rape, looting, and violence.

  During the war Hayek had dreamed of re-creating his old Geist-Kreis on the Continent as a way of demonstrating that the ideals of the European Enlightenment were still alive: “The old liberal who adheres to a traditional creed merely out of tradition . . . is not of much use for our purpose. What we need are people who have faced the arguments from the other side, who have struggled with them and fought themselves through to a position from which they can both critically meet the objection against it and justify their views.”10 On his second visit to the United States, the conservative Volker Fund offered to sponsor a conference to found a community of like-minded liberals. Hayek convened the first meeting of the Mont Pelerin Society in Switzerland on a hill overlooking Lake Geneva on April 10, 1947. The majority of attendees were European émigrés from the United States or Britain, including Karl Popper, Ludwig von Mises, and Fritz Machlup. A contingent from the University of Chicago included Milton Friedman and Aaron Director. Henry Hazlitt from Newsweek and John Davenport from Fortune were there. The assembled individualists could not muster a unanimous vote in favor of the institution of private property, but did so with respect to the principle of individual freedom. They readily agreed that the organization would not publish books or periodicals, engage in political activity, or issue statements, but they rejected Hayek’s proposal that they call themselves the Acton-Tocqueville Society after Frank Knight from the University of Chicago objected to naming the group after “two Roman Catholic aristocrats.”11 Ludwig von Mises created a scene during a debate on income distribution by accusing others of harboring Socialist sympathies. Walter Eucken, an economist from Germany, ate his first orange since before the war. When three days of wide-ranging discussion threatened to end without a statement of principles, Lionel Robbins, a veteran of countless committees, managed to draft one that all but Maurice Allais of France felt able to sign. Noting that “freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own,”12 the statement emphasized free enterprise, opposition to historical fatalism, and the obligation of nations as well as individuals to be bound by moral codes and, above all, support for complete intellectual freedom.

  As soon as the conference disbanded, Hayek set out for Vienna. The condition of the city and its inhabitants was far worse than anything he had been able to imagine. Under occupation by the four allies for three long years, Vienna was as seedy, demoralized, and dark as it would appear to audiences who saw The Third Man, the film noir written by the English novelist Graham Greene, with its immortal line, added by the director and star, Orson Welles: “In Italy for thirty years under the Borgias they had warfare, terror, murder, bloodshed—they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love, five hundred years of democracy, and peace, and what did they produce? The cuckoo clock.”13

  The Russians were still in charge of the eastern suburbs, feared and despised by the Viennese. Hayek protested that the Allies were treating Austria “much worse than Italy or any of the other countries which joined Germany voluntarily.” The occupation authorities were applying essentially the same guidelines as in Germany, which meant that virtually all economic activity—except Harry
Lime’s black market—was banned. Hayek complained, “the Austrians have been prevented from helping themselves to get out of a desperate economic position.”14

  By one of those coincidences that seem to multiply in extraordinary times, Hayek once again ran into his cousin Ludwig Wittgenstein on a train leaving Vienna for Munich. Wittgenstein seemed more morose and angry than ever. He had spent most of his time in the Russian sector, where the Red Army had used the house Wittgenstein had designed and built for one of his sisters as a stable and a garage. Wittgenstein had been a great admirer of the Bolsheviks and had thought seriously of immigrating to Russia in the 1930s.15 Now, Hayek thought, the philosopher behaved as if he had met the Russians “in the flesh for the first time and that this had shattered all his illusions.”

  Hayek’s visit to Vienna was followed by a tour, arranged by the British Council, of a half dozen German cities. He found Cologne, including its great cathedral, “laid absolutely flat by the war; there didn’t seem to be a city left, just great piles of rubble. I climbed through the rubble into an underground big hole to speak.” In Darmstadt, he had “my most moving experience as a university lecturer,” he wrote to Machlup.

  I didn’t have any idea the Germans knew anything about me at that time; and I gave a lecture to an audience so crowded that the students couldn’t get in, in an enormous lecture hall. And I discovered then that people were circulating hand-typed copies of The Road to Serfdom in German, although it hadn’t been published in Germany yet.16

  Characteristically, Hayek’s first thought on returning to London was to organize a drive to collect books published since 1938 that censorship and war had kept out of the hands of Austrian and German scholars. By year’s end, the committee had already collected some 2,500 volumes, which were, with great difficulty, eventually shipped to Vienna.