[…] the most important change which extensive government control produces is a psychological change, an alteration in the character of the people. This is necessarily a slow affair, a process which extends not over a few years but perhaps over one or two generations […]
My comments, first made on Prof. Delong's blog:
But how could he validate this hypothesis? He did not have one or two generations of data to back it up and history was no guide; there had never been anything like a 20th century industrial economy in history. In this, he sounds remarkably like the current freshwater economists arguing that hyperinflation and an explosive rise in interest rates are around the corner, any day now.
There is also the problem of what is meant by “socialism.” Is the pursuit of full employment by policies based on Keynesian theories socialism? So far as I know, most political socialists, then and now, say not. Socialism is a political as well as an economic idea, and socialists are uncomfortable seeing some of their goals realized without a political victory. On the other hand, there is Keynes famous remark about “a somewhat comprehensive socialisation of investment.” Would a society which pursued full employment and various social benefits through a benevolent ruling class have the same effects on the character of the people as a democracy which did so? By Hayek's reasoning, apparently yes; only a full-on anarchy would escape the destructive effects of “socialism.”
I don't think the terms are well-enough defined for scientific reasoning; we don't know what is lasting and what is an evanescent political phenomenon.