RELOCATING GIBRALTARIANS: Friedrich Hayek’s 1944 plan to use market forces to move Gibraltar’s civilian population into Spain

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Date:
28 Mar 2015

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In 1944, the celebrated economist Friedrich Hayek was commissioned by the British Colonial Office to undertake a report on the economy of Gibraltar. His conclusion was that the government of Gibraltar should use market forces to relocate working class Gibraltarians into neighbouring Spain. Yet despite the libertarian credentials Hayek had established via his work of the same year, The Road to Serfdom, such a policy would have moved Gibraltarians into the dictatorship of General Franco.

In a study presented to the Economic History Society’s 2015 annual conference, Chris Grocott argues that Hayek’s proposal to relocate Gibraltarians into Spain shows an alarming lack of political astuteness on the part of the winner of the 1974 Nobel Prize for Economics.

In the first instance, the British Colonial Office conveniently lost Hayek’s report. When it re-surfaced in early 1945, the Colonial Office then sent the report to the Admiralty who, unimpressed with Hayek’s condemnation of educational facilities in Gibraltar’s dockyard, moved to delay its publication. Meanwhile, Hayek himself was on a lecture tour of the United States, promoting The Road to Serfdom, and oblivious to the dismay that his report has caused.

In Gibraltar itself, the Governor, Sir Ralph Eastwood condemned Hayek’s report and in particular the proposed ‘cynical process of compelling British subjects to accept reduced standards of subsistence and education in a foreign country’. He went on, ‘and it seems to me that such a conception is alien to the fundamental ideas governing the development of the British Colonial peoples’.

Once correspondence on the matter had been formally established by the Colonial Office and the government of Gibraltar, considerable agreement between the two was found. An official in London commented that the report would ‘arouse a pretty little storm in Gibraltar’. Wisely, Eastwood decided not to show the report to his Executive Council, which contained Gibraltarian members.

Hayek’s political misjudgement seems doubly strange. First, as Grocott has argued elsewhere, Hayek’s basic argument in The Road to Serfdom was that economic planning tends towards totalitarianism. On this basis, Hayek argued for the operation of market forces and from this perspective establishing a free market that would relocate Gibraltarians into Spain made sense. But crucially, Franco’s Spain operated a policy of economic self-sufficiency, or autarky, from 1939-1959; quite the opposite of the sort of economy of which Hayek was to become a celebrated advocate.

Second, colonial government had become increasingly interested in the development of local economies and this involved a degree of planning. While it might be a leap to describe officials in the Colonial Office and colonial service as Keynesians, certainly the idea of planning and stimulating demand in economies had taken hold by the 1940s.

Set against this background, the rejection of Hayek’s proposal was extremely likely. Perhaps this helps to explain the origins of Hayek’s later, somewhat bitter, accounts of how his political economy was rejected in the UK in favour of Keynes.

When Hayek returned from his tour of the United States in June 1945, the Permanent Secretary at the Colonial Office, Sir Arthur Dawe, met Hayek to see if he could be persuaded to alter his report. Buoyed by the success of his American lecture tour Hayek refused and the report was shelved. In 1950, Hayek moved to the University of Chicago. But perhaps scarred by his experience with Gibraltar, Hayek seldom undertook any further work for government.

ENDS

Chris Grocott
Lecturer in Management and Economic History, University of Leicester School of Management

c.grocott@le.ac.uk

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