On Hobhouse, Hayek, Belloc (pt 3) and the Road to Serfdom.

Up to this point a thoroughly consistent individualism can work in harmony with socialism, and it is this partial alliance which has, in fact, laid down the lines of later Liberal finance. The great Budget of 1909 had behind it the united forces of Socialist and individualist opinion. It may be added that there is a fourth form of monopoly which would be open to the same double attack, but it is one of which less has been heard in Great Britain than in the United States. It is possible under a competitive system for rivals to come to an agreement. The more powerful may coerce the weaker, or a number of equals may agree to work together. Thus competition may defeat itself, and industry may be marshalled into trusts or other combinations for the private advantage against the public interest. Such combinations, predicted by Karl Marx as the appointed means of dissolving the competitive system, have been kept at bay in this country by Free Trade. Under Protection they constitute the most urgent problem of the day. Even here the railways, to take one example, are rapidly moving to a system of combination, the economies of which are obvious, while its immediate result is monopoly, and its assured end is nationalization.

Thus individualism, when it grapples with the facts, is driven no small distance along Socialist lines. Once again we have found that to maintain individual freedom and equality we have to extend the sphere of social control. But to carry through the real principles of Liberalism, to achieve social liberty and living equality of rights, we shall have to probe still deeper. We must not assume any of the rights of property as axiomatic. We must look at their actual working and consider how they affect the life of society. We shall have to ask whether, if we could abolish all monopoly on articles of limited supply, we should yet have dealt with all the causes that contribute to social injustice and industrial disorder, whether we should have rescued the sweated worker, afforded to every man adequate security for a fair return for an honest day's toil, and prevented the use of economic advantage to procure gain for one man at the expense of another. .--Hobhouse (1911) Liberalism Chapter IV ("Laissez Faire")

A few weeks ago, I noted in two related posts (here and here) that Hayek credits Belloc's (1912) The Servile State with articulating a road to serfdom thesis. To be sure, it's well known that road to serfdom theses predate Bellow in texts familiar to Hayek and Mises. In Book 4, chapter 1, of Democracy in America, Tocqueville claims that the principle of equality generates a 'road to servitude.' But while the phrase seems to have inspired Hayek, it would be a mistake to treat Tocqueville's version of the road to serfdom as providing the template for Belloc and Hayek (and Mises). Tocqueville is not diagnosing the effects of a welfare state or state capitalism. In my earlier posts I also noted that Belloc's own favored alternative is more akin to a property-owning democracy than anything one might wish to associate with Hayek's version of neoliberalism. So, while the Austrian economists' road to serfdom is modelled on Belloc's template, their substantive commitments differ (recall Ed McPhail here).
 
Be that as it may, I am pretty sure that Belloc was familiar with Hobhouse's writings and I would be a bit surprised if he had not read Liberalism before he wrote The Servile State. In fact, I can readily imagine that The Servile State, which is really a (1912) pamphlet unencumbered by any citations, was triggered by the very passage I have quoted above. Regardless whether that speculative hypothesis is correct, Belloc is clearly reacting to the kind of developments articulated and celebrated by Hobhouse in passages like the ones above in his Liberalism (on it recall also here; here).
 
One telling reason for thinking that Belloc is responding to this particular passage is Hobhouse's claim about the "fourth form of monopoly which would be open to the same double attack, but it is one of which less has been heard in Great Britain than in the United States." Much of Section Five of The Servile State, is devoted to alerting his readers to how familiar "the numerous Trusts which now control English industry," really are to the public. Belloc describes in colorful detail how this facilitates what we would call rent-seeking and the corruption of the rule of law, even impartiality of the courts. And "the reason" that they are little discussed "is that political freedom is not, as a fact, protected here by the Courts in commercial affairs."* The point, which involves a kind of conspiracy of silence among elites, is essential to Belloc's argument" "it must always be remembered that these conspiracies in restraint of trade which are the mark of modern England are in themselves a mark of the transition from the true Capitalist phase to another" more servile one.
 
Now, Hobhouse himself is clearly not a friend of monopoly as such. But he does seem to accept the Marxist idea that monopoly capitalism is inevitable, especially in non-tradeable industries and services. Hobhouse also seems to accept Hobson's diagnosis (recall) about the reciprocal relationship between empire, militarism, and monopoly (see, especially, chapter IX of Liberalism), although Hobhouse is less obsessed with the influence of finance.
 
Crucially, while Hobhouse is a critic of a variety of socialisms (recall), Hobhouse treats various kinds of state capitalism as inevitable in such areas (the "assured end is nationalization.")_Beloc, by contrast, claims that such piecemeal nationalization is financially and politically impossible (in a society where both capital and labour can organize). And so the state transforms into one where corporate monopolies are accepted and become a controlling arm of the welfare state (and its interests control it in turn). Belloc's despotism is one in which the state mandates large corporations to do its job, and in which many coercive welfare provisions ultimately undermine the freedom of employees. As Belloc discerns, this will also undermine political freedoms. Belloc's fears strike me as rather prescient.
 
But for present purposes, the key point here is that Hobhouse accepts that there is an underlying dynamic of capitalism that requires an ever expanding welfare state to manage and ameliorate it:

On all sides we find the State making active provision for the poorer classes and not by any means for the destitute alone. We find it educating the children, providing medical inspection, authorizing the feeding of the necessitous at the expense of the ratepayers, helping them to obtain employment through free Labour Exchanges, seeking to organize the labour market with a view to the mitigation of unemployment, and providing old age pensions for all whose incomes fall below thirteen shillings a week, without exacting any contribution.--Chapter VII ("The State and the Individual.")

The underlying purpose is not, to be sure, the management of capitalism. Rather, it is "to secure the conditions upon which mind and character [of individuals] may develop themselves." This is, in fact, the Mill-ian individualist strain (as developed by T.H. Green) with its commitment to individual authenticity and autonomy in Hobhouse. And while iI doubt Hayek was familiar with Hobhouse (see below), Hayek clearly intuited that Mill was the source behind the strain of modern permissiveness he decried (see this post by me; and this one by Erwin Dekker.) Belloc's response is to claim that the very conditions that are meant to secure such freedom ultimately, through a slippery slope, undermine it.+

In the appendix to his (1927) Liberalism: the Classical Tradition, Mises treats Hobhouse's Liberalism as an instance of 'moderate socialism' and as one of the exemplars of the modern change of meaning of 'liberalism.' (One need not agree with Mises to notice that this contestation of the revised meaning of 'liberalism' really pre-dates the New Deal.) To the best of my knowledge neither Mises nor Hayek acknowledge that Hobhouse has developed the framework of the road to serfdom. Hobhouse anticipates the crucial features of the slippery slope argument that Belloc and Hayek articulate. But rather than treating these features as a descent, he treats them as an ascent.

Belloc and Mises refuse to acknowledge the presence of any such individualism in the Hobhouse program. Belloc consistently describes it as 'collectivism.' This is not altogether unfair because earlier Hobhouse had been an articulate defender of 'collectivism' before (see this (1898) paper "The Ethical Basis of Collectivism," in International Journal of Ethics.) 

What's interesting to me here, in conclusion, is that in Road to Serfdom Hayek uses Belloc's template articulated in response to the the developments championed by Hobhouse to challenge the much more far-reaching welfare state envisioned in the Beveridge plan. For Hayek, England is going down the dangerous road initiated by Bismarck in Germany. Here follows the final twist in the story.

As Hayek notes ruefully near the conclusion of Road to Serfdom, (p. 188) Hobhouse died in 1929 and is surely not Hayek's intended target. But I doubt Hayek ever realized how much he is echoing Hobhouse here. Hobhouse's 1998 paper is itself a response to the authoritarianism of "Bismarck's State Socialism" (p. 143).** And his Liberalism has a whole chapter (VI) treating Gladstone as the exemplary liberal statesman who understands the liberal art of government. 

Hobhouse is largely absent as an interlocuter for the liberals who came together at the Lippmann colloquium and later the Mont Pelerin Society. They largely treat the period in which he writes as decades of retreat from the ideals of true liberalism, as decades in which empire, militarism, and monopoly encroach on true individualism. And so they end up obscuring, I think, that the liberal contribution to welfare state was itself intended to promote a species of individualism in the process often battling the influence of the same figures that Hayek fought against. 

*I have slightly rearranged Belloc's words, but not his point.
 
+Belloc thinks this is also an effect of the oligarchic initial conditions that preceded the development of modern capitalism.
 
**In fact, Belloc and Mises miss to what extent by 1911 Hobhouse had really re-embraced key features of nineteenth century liberal creed. (That's for another time.)