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Hayek and Contemporary Neo Liberalism

In the spirit of “know thy enemy”, I  recently read Hayek’s The Road to Serfdom. (Note to the anxious – I survived the experience, and remain a convinced left Keynesian democratic socialist.)

Hayek is, of course, the totemic figure of neo liberalism who fought Keynes and Keynesian economics in the 1930s and is the intellectual figurehead of today’s “austerians”; the political theorist who, the right wing mythologizers tell us, kept the  torch of market freedom alive during the dark days of post War managed capitalism; the intellectual guru  of Milton Friedman, Chicago school economics,  and  Alan Greenspan.

There is an enormous amount to disagree with in Hayek but, somewhat to my surprise, I found his political theory at least to be a bit more nuanced that that of many of his contemporary followers.

There is no doubt that Hayek was a fervent believer in so called free markets and the virtues of market liberalism, espousing the classically liberal principle that government intervention should be severely limited. The core argument of The Road to Serfdom captured in the title is that abandonment of that limited government principle by socialists ultimately leads to the death of liberal democracy.

That said, the book was published in 1944, and the enemy he concentrates his attack upon is Stalinist Communism – sometimes lumped together with National Socialism as “totalitarianism” – not the mixed economy and post War social democracy which has been attacked since the mid 1970s by neo liberalism. He defines socialism as the more or less complete replacement of the market and private ownership by public ownership and central planning, and barely has a word to say about forms of socialism – from Austro Marxism to Scandinavian social democracy – which envisage some continued role for the market and a mix of forms of ownership.

Especially in Chapter 9, “Security and Freedom”, Hayek endorses a role for government which goes somewhat beyond Adam Smith and would bring down jeers of derision from most of today’s extreme neo liberals. Contrary to Thatcher’s famous view that “there is no such thing as society” he does see a role for government in pursuing “social ends” which command broad agreement. (p102.)

He supports a minimum income guarantee by the state  …  “security against severe physical privation, the certainty of a given minimum level of sustenance for all.” (p.147.) At a minimum, that sounds like a universal entitlement to welfare.

He also supports social insurance. “Nor is there any reason why the state should not assist individuals in providing for those hazards of life against which, because of their uncertainty, few individuals can make adequate provision… the case for the state helping to organize a comprehensive system of social insurance is very strong.” (p.148.)

He explicitly cites the need for social insurance to cover the risk of sickness — which sounds a lot like Obamacare, at a minimum.

“There is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.” (p.148.)

In Chapter 8, Hayek clearly puts market freedoms before equality of outcomes  in his scale of values, but is also much more clear-eyed about the inherent inequalities of capitalism than most of today’s neo liberals.

” In a system of free enterprise, chances are not equal since such a system is necessarily based on private property and (though perhaps not with the same necessity) on inheritance, with the differences of opportunity which these create.” (p.134.)

“The opportunities open to the poor in a competitive society are much more restricted than those open to the rich.” (p.135.)

He agrees on this basis that “there is a strong case for reducing inequality of opportunity” through at least limited government action. (p.134.)

In short, Hayek strikes me as a classic nineteenth century liberal who should be more closely read by today’s neo liberals.

(Page references are to Volume 2 of the Collected Works, edited by Bruce Caldwell, University of Chicago Press, 2007.)

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Comment from jin
Time: September 2, 2012, 2:22 am

soviet non-democratic market-abolishing state socialism is clearly Hayeks main target. But he did also make (severely dubious and historically disproven) empirical claims about social democracy inevitably shifting into totalitarianism. See these posts for details.

I think that is very important to point out. Yes, Hayek has some important points. But he also has a lot of exaggerations disproven by historical events since his views where published. In that regard Hayek flaws where similar to those of many on the right who now try to equate social democracy with totalitarianism.

Comment from Schofield
Time: September 2, 2012, 7:55 am

The points you make are made in greater detail in Raymond Plant’s “The Neoliberal State.” Well worth borrowing through your local public library if you don’t want to buy it. Hayek’s only really significant contribution to economic and political theory is his understanding of the role of knowledge in markets but from this stems powerful arguments for structuring modern human societies:-

Comment from Purple Library Guy
Time: September 4, 2012, 12:06 am

When I think of Hayek I always find myself thinking of Hilary Wainwright’s “Arguments for a New Left”. She spends a fair amount of time in that book talking about Hayek, particularly about what she considered one of the core Hayekian issues underpinning and probably more influential than the actual economics: His philosophy of knowledge. According to Wainwright, Hayek posits an idea of knowledge which is very individual in nature, in which it is difficult to know anything much outside one’s personal experience. It is this limitation on knowledge which leads to the conclusion that one cannot effectively organize society in a social way. This idea is needed for the whole “the market ‘knows’ things but people don’t” concept which has been such a big gun for right wing forces.
Wainwright counters that to the contrary, knowledge is inherently a social phenomenon, that it can be built up, and the way this is done is by social exchange (fact checking, dialogue, peer review, ‘standing on the shoulders of giants’, debate . . . ). Thus it is not limited by the lone individual experience, and possibilities open for people to make useful decisions rather than bowing in ignorant submission to the oracular market.

Comment from Mathieu Dufour
Time: September 4, 2012, 10:02 am

Interesting article, Andrew, and good point by Purple Library guy. Society is what makes us “humans” and large part of this has to do with the social nature of information.

At the same time, I don’t think Hayek’s point of view can be dismissed off-hand. It is a strength of capitalism that it can “function” with minimal aggregated information in some of its spheres (not in all – many socialised components are also necessary), that it can accomodate individual initiatives pretty well. It allows the system to constantly morph and survive many of its contradictions, staying around perhaps longer than some of us would like.

In that sense, I personally think the point is not so much the social nature of information, but the fact that its treatment by individuals is one of the propelling force of the system. It makes the system hugely inefficient, but does grant it a fair deal of dynamism. I further think that this has to be taken into account in the formulation of any exit strategy.

Of course, the ability to function with individual information has the weaknesses of its strengths… The ubiquity of negative externalities, environmental and otherwise, might well mean that we are killing ourselves with this system…

Comment from Iglika Ivanova
Time: September 5, 2012, 4:58 pm

Funny I should come across this the day after re-watching the Keynes vs Hayek youtube rap video. I think your analysis captures some of the nuances better, but their chorus is more catchy ;-)

Comment from Paul Tulloch
Time: September 6, 2012, 2:52 pm

“there is a strong case for reducing inequality of opportunity”, to me that is the key word that cements this to that period and is missing in the ideology of the right.

i.e. without some regulatory mechanism in place, “free” markets (markets controlled by those in power as nothing is invisible in my world) ultimately fail to deliver a systemic equilibrium and hence the threat to the power of those regulating the markets to maximize their gains. Hence a system that does not work.

So even the prophetic words of Hayek are historically revised as away inconvenient truths.

I guess history is considered a challenge by the right, maybe permanently dragging along the bottom is the new goal and maybe searching for an ever increasing depth that semi equilibrium for that bottom is the new version of Hayek- at least that is what is quite obvious in the actions and policies of the likes of Harper and the new new right.

The end of history and the last man was merely a ruse to dig deeper into commodification and profit maximizing polarization.

Potentially there is no bottom.

And that is not a good sign a very destabilizing economic austerity coming from either a very immature right wing distopians, especially given that we are living through 36 months of 1937 again.

Eventually the clock will move forward, and I do hope we can skip over a few years, if real history has any bearing on our cultural conveyors than we may just get lucky and skip right back to 1984 again.

Erin we need to get a beard growing on that baby face of yours- and then potentially- history will be allowed to scream its real truth to all those sitting by the trough.

Comment from Dirk
Time: November 25, 2012, 6:44 am

Some scholars are claiming to be Hayekian socialists:

Agafonow, A. (2012). “The Austrian Dehomogenization Debate, or the Possibility of a Hayekian Planner,” Review of Political Economy, Vol. 4, Issue 2

Comment from Impugned
Time: February 28, 2013, 11:18 pm

Edited after reading the comments policy :)

Very simply put, we are not good enough to manage a socialist utopia. Yes there is a strong case for addressing inequality of opportunity, but Hayek is certainly not advocating strict enforcement of outcomes. Humanity is neither smart enough to orchestrate the complexity of this nor selfless enough to play by the rules. Until we shed the instincts we developed in a primitive world, we cannot expect to come anywhere near the utopia you are chasing and even I idealize. In the interim, socialists dangerously chase a reality that simply cannot exist as we are currently constructed.

More effort needs to be placed into the advancement of brain computer enhancement, because it will become possible to exist as true socialists ONLY when we become something different. Meanwhile, we have to foster a system that allows the inherent self incentives of humanity to orchestrate the collective betterment of us all and do our best to manage this process with government efforts directed only to ensure transparency in business, police the creation of monopolies, educate the masses, provide mechanisms for reducing negative externalities, and ensure the minimal survival of those at the bottom of the heap. To do otherwise means inevitable futility, and it will only bring great suffering to us all despite the seeming altruism.

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