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Charles Koch to Friedrich Hayek: Use Social Security!

September 30th, 2012 · No Comments

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The Nation September 27, 2011

Publicly, in academia and in politics, in the media and in propaganda,
these two major figures—one the sponsor, the other the mandarin—have been
pushing Americans to do away with Social Security and Medicare.

Yasha Levine and Mark Ames*

There’s right-wing hypocrisy, and then there’s this: Charles Koch,
billionaire patron of free-market libertarianism, privately championed the
benefits of Social Security to Friedrich Hayek, the leading laissez-faire
economist of the twentieth century. Koch even sent Hayek a government
pamphlet to help him take advantage of America’s federal retirement
insurance and healthcare programs.

This extraordinary correspondence regarding Social Security began in early
June 1973, weeks after Koch was appointed president of the Institute for
Humane Studies. Along with his brothers, Koch inherited his father’s
privately held oil company in 1967, becoming one of the richest men in
America. He used this fortune to help turn the IHS, then based in Menlo
Park, California, into one of the world’s foremost libertarian think tanks.
Soon after taking over as president, Koch invited Hayek to serve as the
institute’s “distinguished senior scholar” in preparation for its first
conference on Austrian economics, to be held in June 1974.

Hayek initially declined Koch’s offer. In a letter to IHS secretary Kenneth
Templeton Jr., dated June 16, 1973, Hayek explains that he underwent gall
bladder surgery in Austria earlier that year, which only heightened his
fear of “the problems (and costs) of falling ill away from home.” (Thanks
to waves of progressive reforms, postwar Austria had near universal
healthcare and robust social insurance plans that Hayek would have been
eligible for.)

IHS vice president George Pearson (who later became a top Koch Industries
executive) responded three weeks later, conceding that it was all but
impossible to arrange affordable private medical insurance for Hayek in the
United States. However, thanks to research by Yale Brozen, a libertarian
economist at the University of Chicago, Pearson happily reported that
“social security was passed at the University of Chicago while you [Hayek]
were there in 1951. You had an option of being in the program. If you so
elected at that time, you may be entitled to coverage now.”

A few weeks later, the institute reported the good news: Professor Hayek
had indeed opted into Social Security while he was teaching at Chicago and
had paid into the program for ten years. He was eligible for benefits. On
August 10, 1973, Koch wrote a letter appealing to Hayek to accept a shorter
stay at the IHS, hard-selling Hayek on Social Security’s retirement
benefits, which Koch encouraged Hayek to draw on even outside America. He
also assured Hayek that Medicare, which had been created in 1965 by the
Social Security amendments as part of Lyndon Johnson’s Great Society
programs, would cover his medical needs.

Koch writes: “You may be interested in the information that we uncovered on
the insurance and other benefits that would be available to you in this
country. Since you have paid into the United States Social Security Program
for a full forty quarters, you are entitled to Social Security payments
while living anywhere in the Free World. Also, at any time you are in the
United States, you are automatically entitled to hospital coverage.”

Then, taking on the unlikely role of Social Security Administration
customer service rep, Koch adds, “In order to be eligible for medical
coverage you must apply during the registration period which is anytime
from January 1 to March 31. For your further information, I am enclosing a
pamphlet on Social Security.”

* * *

The private correspondence between two of the most important figures
shaping the Republican Party’s economic policies—billionaire libertarian
Charles Koch and Nobel Prize–winning economist Friedrich Hayek, godfather
of today’s free-market movement—were obtained by Yasha Levine from the
Hayek archives at the Hoover Institution at Stanford University. This is
the first time the content of these letters has been reported on.

The documents offer a rare glimpse into how these two major free-market
apostles privately felt about government assistance programs—revealing a
shocking degree of cynicism and an unimaginable betrayal of the ideas they
sold to the American public and the rest of the world.

Charles Koch and his brother, David, have waged a three-decade campaign to
dismantle the American social safety net. At the center of their most
recent push is the Koch-funded Americans for Prosperity, which has
co-sponsored Tea Party events, spearheaded the war against healthcare
reform and supported Wisconsin Governor Scott Walker’s attack on public
sector unions. FreedomWorks, another conservative group central to the rise
of the Tea Party and the right-wing attempt to dismantle Social Security
and Medicare, emerged from an advocacy outfit founded by the Koch brothers
called Citizens for a Sound Economy. FreedomWorks now exists as a separate
entity that champions the “Austrian school” of economics.

Hayek, a founder of that school of thought, is primarily known for two
major works. The first, The Road to Serfdom (1944), grudgingly accepts the
possibility that some “free” countries might find it necessary to set up a
bare-minimum catastrophic social insurance program limited to the very
neediest, so long as the benefits do not incentivize productive members of
society to abandon free-market retirement savings or medical insurance.

Hayek’s comparatively liberal attitude toward social insurance hardened
considerably by the time he published his 1960 opus, The Constitution of
Liberty. Despite privately spending the intervening years paying into
Social Security, Hayek devoted an entire chapter—titled “Social
Security”—to denouncing the modern welfare state as a gateway to tyranny
and moral decay. Ironically, one of Hayek’s main objections to government
programs like Social Security was the “fundamental absurdity” of using tax
dollars to promote their benefits. In other words, Hayek publicly objected
to the kind of brochure that Charles Koch sent him. In their private
correspondence, however, we could find no objection to this “fundamental

By the mid-1970s, Hayek had fully distanced himself from the modest
benefits he’d originally conceded to in The Road to Serfdom. In his preface
to the 1976 edition, he explained his “error”: “I had not wholly freed
myself from all the current interventionist superstitions, and in
consequence still made various concessions which I now think unwarranted.”

Publicly, in academia and in politics, in the media and in propaganda,
these two major figures—one the sponsor, the other the mandarin—have been
pushing Americans to do away with Social Security and Medicare for our own
good: we will become freer, richer, healthier and better people.

But the exchange between Koch and Hayek exposes the bad-faith nature of
their public arguments. In private, Koch expresses confidence in Social
Security’s ability to care for a clearly worried Hayek. He and his fellow
IHS libertarians repeatedly assure Hayek that his government-funded
coverage in the United States would be adequate for his medical needs.None
of them—not Koch, Hayek or the other libertarians at the IHS—express
anything remotely resembling shame or unease at such a betrayal of their
public ideals and writings. Nowhere do they worry that by opting into and
taking advantage of Social Security programs they might be hastening a
socialist takeover of America. It’s simply a given that Social Security and
Medicare work, and therefore should be used.

* * *

Shortly after this exchange, in 1974, Hayek won the Nobel Prize in
economics. The next year he went on something of a victory tour of the
United States, which ended at the IHS, where he spent the summer as a
resident scholar. Hayek returned to Menlo Park again in the summer of 1977.
The Nation has filed a Freedom of Information Request with the Social
Security Administration to discover if, in fact, Hayek received Social
Security payments or used Medicare during his residencies at the institute
or at any other time. At press time, these requests have not been answered.

Meanwhile, in 1974, Charles Koch founded the Cato Institute (called the
Charles Koch Foundation until 1977). This think tank has done more than any
other to push for an end to Social Security. In 1983 the Cato Journal
published a blueprint of how to destroy Social Security, “Achieving a
‘Leninist Strategy,’” by Stuart Butler and Peter Germanis. The authors
acknowledged that a strong coalition of Americans backed Social Security
and thus saw the need for “guerrilla warfare against both the current
Social Security system and the coalition that supports it.” Victory could
be far in the future, “but then, as Lenin well knew, to be a successful
revolutionary, one must also be patient and consistently plan for real
reform,” they write.

As part of Cato’s campaign, the institute has launched various groups and
projects, including the Project on Social Security Choice, whose co-chair
is José Piñera, architect of Augusto Pinochet’s controversial pension
privatization scheme in Chile. Cato Institute members and alumni also
dominated President George W. Bush’s commission on Social Security in his
first term and spearheaded Bush’s failed attempt to privatize the program
in the early months of his second term.

Thanks in part to Hayek’s writings and to the Koch brothers’ decades-long
war on the social safety net, Americans are among the Western world’s few
citizens without universal healthcare. Not surprisingly, life expectancy
here has fallen to forty-ninth place in the world, while medical costs are
double those of other Western nations. By contrast, Hayek’s native Austria,
which has a public health plan that covers 99 percent of the population,
boasts a healthcare system ranked ninth in the world by the World Health

* * *

When Texas Governor Rick Perry, a front-runner in the Republican primary
for president, derides Social Security as a “Ponzi scheme” or a “monstrous
lie,” that rhetoric can be traced back to the work of Hayek and Koch. And
yet we now know that in private practice, Hayek was perfectly content to
pay into Social Security and that Koch encouraged him to draw upon both
Social Security and Medicare. Did they really believe what they wrote? Or
were these attacks just scare-talk meant for the rubes, for you and us,
“the public”?

Calling this mere hypocrisy downplays the seriousness of their fraud. Koch
and Hayek are no more hypocritical than the used-car salesman who knowingly
sells a lemon to a gullible buyer, or the financial agency that rates “AAA”
instruments it knows are crap. This is a grand swindle played on a
trusting, gullible public, a scam whose goal is to con America’s dying
middle class into handing over their retirement money to the richest 0.1
percent, convincing them that in doing so, they’re “empowering” themselves
and protecting their “individual liberty.”

Another question hangs over all this: Why didn’t Charles Koch offer to put
up some of his enormous wealth to pay for Hayek’s temporary medical
insurance? One obvious answer: because the state had already offered a
better and freer program. But perhaps Koch’s stinginess also reveals the
social ethic behind libertarian values: every man for himself; selfishness
is a virtue.

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