Friedrich August von Hayek, Review of Snyder, Capitalism the Creator

Hayek’s journal book review, originally published in Economica in 1940 and reprinted with editorial notes in 1997, combines a strong endorsement of Carl Snyder’s defence of capitalism with a criticism of its methodological foundations. Its central distinction is between the value of Snyder’s statistical evidence and the adequacy of his explanations. Hayek largely shares Snyder’s economic conclusions, but argues that facts cannot settle disputes whose participants interpret them through competing theories. The review moves from an assessment of the book’s reception and intellectual courage to its empirical contribution, then examines its theoretical weaknesses before identifying particular material deserving further study.

Hayek begins by anticipating resistance to the book: its defence of capitalism, methodological commitments, and sometimes verbless prose may repel different groups of readers. These obstacles should not obscure the importance and clarity of its argument. His praise concerns not merely agreement with Snyder’s conclusions but the independence required to maintain them:

And the author shows in consistently maintaining a highly unpopular attitude towards the great problems of our day an intellectual courage which is rarely found.

Snyder’s unusual position is crucial to this assessment. Trained as a scientist and enthusiastic about applying natural-scientific methods to social phenomena, he also shares the associated contempt for theoretical speculation. Yet he does not draw the conclusions Hayek commonly finds among scientists and engineers addressing economic questions: advocacy of planning, conscious control, or unconventional monetary doctrines. Instead, Snyder supports freedom of enterprise. His acceptance of monetary control places him closer to nineteenth-century liberal writers, particularly the Currency School, than to contemporary fashions. The reprint’s editorial note explains that school’s proposal to regulate paper currency so that its behaviour would resemble gold’s; this contextual clarification is distinct from Hayek’s original argument.

Hayek credits Snyder with assembling impressive evidence of the progress capitalism enabled over the preceding two or three generations. The book brings specialised statistical research to a wider readership and illuminates economic evolution through unusually varied knowledge. The difficulty arises when Snyder asks this evidence to refute arguments about excessive saving, the necessity of planning, and the desirability of abolishing capitalism. Hayek agrees with him on almost all these matters, but doubts that readers holding contrary views will be persuaded. Sound common sense cannot by itself answer elaborate theories capable of giving the same facts a different interpretation.

Although he would probably not admit it, his own interpretation of facts is everywhere, and inevitably, based on theories which differ from those of the theoreticians only by not being stated explicitly.

This is the review’s decisive methodological move. Hayek does not oppose empirical investigation; he denies that it can dispense with theory. He urges economists who discount sufficient saving as a condition of industrial progress, or reject the prevention of credit expansion as the feasible means of preventing depression, to study Snyder’s evidence. Nevertheless, the controversy must be resolved through abstract reasoning. Leaving theoretical assumptions implicit also weakens an argument by leaving its central terms insufficiently defined.

To give a single, but characteristic instance, the author leaves it rather obscure, whether by 'capitalism' he merely means production with the help of large quantities of capital, or the system of free enterprise and private ownership of the means of production to which it is commonly applied.

The distinction separates capital-intensive production from an institutional order defined by ownership and enterprise. Snyder’s reference to Böhm-Bawerk and application of “state-capitalism” to the Russian system suggest the former meaning, but Hayek observes that much of the book’s argument would lose its point under that interpretation. Evidence for the benefits of abundant capital does not automatically establish the merits of the institutions usually called capitalist.

The review closes with qualified recommendations: Snyder’s account of Federal Reserve policy in 1927–1928 is illuminating, and his forty-four statistical charts warrant separate study, although their relationship to the text is insufficiently developed. Hayek’s lasting contribution here is the insistence that even compelling evidence and congenial conclusions require explicit concepts and theoretical argument.