Hayek v. Krugman – Cyprus’ Capital Controls

An Article from the Austrian Economics Center (AustrianCenter.com)


HAYEK v. KRUGMAN – Cyrpus’ Capital Controls

Cyprus banks remain shut in Greece

by Steve H. Hanke


Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some Readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling.

Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.

Prof. Krugman then takes a charactceristic whack at all those “idealogues” who might dare to question the desirability of capital controls:

                      “But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.”

Fine. But, not once did Prof. Krugman mention that there just might be a significant cost associated with the imposition of capital controls – a cost with which Prof. Krugman is surely familiar.

Before more politicians fall under the spell of capital controls, they should take note of what another Nobelist, Friedrich Hayek, had to say in his 1944 classic, The Road to Serfdom:

                          “The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.”

When it comes to capital controls, I think the Cypriots – even the non-ideologues – might be inclined to agree with Hayek over Krugman.



About RightFromYaad

A view from "the Right", as a source of ideas to create a new vision of freedom and what it promises for Jamaicans, to counter the tyranny of the status quo of Jamaica's reality since 1962. Website: RightFromYaad.wordpress.com Email: rightfromyaad@gmail.com Twitter : @rightfromyaad Facebook: https://www.facebook.com/pages/Right-From-Yaad/244886608978438?ref=ts&fref=ts
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5 Responses to Hayek v. Krugman – Cyprus’ Capital Controls

  1. Funnily enough as I read this, I am ion the process of writing an essay on capital controls. There are costs to controls, but its an exaggeration to link them with totalitarianism. I think Hayek was discussing more the extreme levels of controls under Communism that in some cases forbid the holding of any foreign currency. Obviously, Krugman does not support that. Its quite possible to drive a middle and moderate ground between extremes.

    • The road to serfdom is a path taken (unknowingly) by citizens, led by most governments.

      “There is nothing as permanent as a temporary government program.”-Milton Friedman

      What right does the govt have in directing or restricting how I choose to transact my money/property? Krugman wants what both you and he hope will happen…some sort of arbitrary balance….who decides what this balance is?

      The exact outlook that guys like Hayek have is that freedom will lead to better outcomes in the long run.


      • Actually The Road To Serfdom is a critique of central planning in the case of Soviet satellites, not “most” governments. I’m not sure what temporary government programs you are referring to or what it has to do with capital controls as most of them were repealed. Malaysia for example installed temporary capital controls after the 1997 financial crisis and removed them a year later (I warned you I’m studying it).

        What right does the government have to make decisions? That’s a bigger question than can fit in this comment, but suffice to say that we the people give the government the authority to make decisions that affect us on our behalf.

      • The use of “road to serfdom” was meant to be taken literally and not an exact reference (but in the spirit of) to the content of the classic Road to Serfdom. I corrected the statement and gave credit who said: There is nothing as permanent as a temporary government program….it’s a guide and not a hard rule.

        We give the government authority over our property? Is it moral and just that the govt has supreme power to authorize how you and I choose to use our earnings? I think you are confused Robert, the people are above the government. The loss of Liberty in the aim of doing or pursuing what? Central control? You see where that could lead?

        By the way, I was hoping to continue the discussion on your Communism posts.


  2. Confused? Perhaps but for the reasons you expect. I think you’ve jumped ahead of yourself again, going from capital controls to the right of the government to do anything. We the people delegate part of our power and rights to the government in order to act collectively.

    You fall into the common Libertarian fallacy of imaging the worst possible world. Hence the regular operations of government get transformed into a totalitarian regime.

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