View Full Version : Who’s Afraid of Friedrich Hayek? The Obvious Truths and Mystical Fallacies of a Hero

Bradley in DC
05-20-2008, 10:19 PM

Who’s Afraid of Friedrich Hayek? The Obvious Truths and Mystical Fallacies of a Hero of the Right

By Jesse Larner

Right wingers love Friedrich Hayek. The Austrian-British economist is revered by true believers at the American Enterprise Institute, the Cato Institute, the National Review, and the Weekly Standard. Ronald Reagan and Margaret Thatcher cited his ideas as central to the social revolutions they hoped to spark. Antigovernment ideologues admire him as one of those few who kept Adam Smith’s fires burning during the dark reign of John Maynard Keynes in the West; his most famous book, The Road to Serfdom, has sold more than 350,000 copies in the United States alone. And the modern right has enlisted Hayek as a political weapon: Why can’t those loony lefties acknowledge the simple and obvious truths that he understood?

I try to keep abreast of right-wing thought, so I’d been aware of Hayek for a long time, and aware of his status in certain circles. Recently I decided I should study his work, much as, in my twenties, I decided I really ought to read the Bible. Influential, whether I like it or not.

Hayek was a surprise, in several ways. He’s nowhere near as extreme as his ideological descendants. He admits that there are a few rare economic circumstances in which market forces cannot deliver the optimum result, and that when these occur, the state may legitimately intervene. He recognizes such a thing as the social interest and will even endorse some limited redistributionalism—he goes so far as to suggest that the state ensure a minimum standard of living, an idea that surely embarrasses the good folks at Cato. Politically, Hayek is not the cynic I had braced for. Plainly, transparently—and in stark contrast to many modern conservative intellectuals—he is a man concerned with human freedom. One of the unexpected things in Road is that he writes with passion against class privilege.

Hayek is by no means as rational and irrefutable as the right would have it. Indeed, he is often eccentric. He is a romantic, a serious deficit in a social theorist. Many of his arguments rest on a reductionist idea of socialism, and his conception of the sources of law can only be called mystical. But Hayek is not merely an eccentric mystic. In Road, first published in 1944, he makes a powerful and far-ranging critique of state control of economic life. At least as far as he takes the argument in this book, there isn’t much that thoughtful modern liberals or even democratic socialists who understand the power of markets would necessarily object to—although they might feel that there is more to the story than Hayek acknowledges.

If this seems odd, recall that Keynes wrote of Road, that “it is a grand book. . . . Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in deeply moved agreement.” George Orwell wrote, “In the negative part of Professor Hayek’s thesis there is a great deal of truth . . . collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamt of.”

These endorsements may be less solid than they appear. Keynes followed up his seven famous lines of praise with eighty-four little-known lines in favor of expanded economic planning, and Orwell was, after all, a libertarian democratic socialist. But credit Hayek with this: In Road, he thoroughly, eloquently, and convincingly demolishes an idea that virtually no one holds nowadays.

The core of Road is an exploration of why a planned, state-managed economy must tend toward totalitarianism. If this is one’s concept of socialism, it could hardly survive a fair-minded encounter with Hayek. He lays out the complex ramifications of a relatively simple set of ideas, always with their impact on individual agency at the center of his analysis.

His argument takes a familiar classical liberal stance. Economic planning assumes a social goal at which the plan aims. But whose goal? In a society of competing interests—a condition that would describe every human society—any goal, any plan, inevitably favors some interests against others. Who is to say whether the favored interests are “better” for society as a whole? There may be consensus in government, or on a delegated planning board, but this only reflects the consensus of immediately interested parties.

A complex economy is something no person or institution can understand. But it can generate a sustainable order, with a rational allocation of resources, as individuals respond to their own circumstances and make choices as consumers and entrepreneurs, signaling the subjective value that they place on goods and capital stock through the price mechanism: One of Hayek’s most original contributions to economic theory is the insight that economic systems are based primarily on information rather than resources. To plan an outcome and to direct economic inputs and outputs toward this outcome is to stifle the emergence of a spontaneous, democratic response to the needs of the individuals who make up the community—a response that will necessarily have winners and losers, but that will not privilege the vision or depend on the limited information of a governing elite, and that will encourage further experimentation. The responsibility of a government that fosters individual freedom is to set up transparent and impartial rules so that the legal reaction to personal choices can be predicted for all, regardless of social station; to tolerate no privileged access to the law; to provide security; and to protect contracts and private property, so long as doing so does not conflict with the very small set of social assumptions on which there truly is broad consensus (arguably, Hayek’s suggestion that government should be responsible for a minimum standard of living would have fit into this consensus when Road was published.)

When Hayek wrote Road—and this is a measure of how much the world has changed in a short time—he felt he had to defend the idea of a relationship between political liberty and the economic system in which it exists (or doesn’t exist). He points out that any economic master plan would necessarily have to delegate so many important issues of policy to non-elected technocrats as to be inherently antidemocratic, and that a society in which the value of goods and labor were defined according to their utility to the plan would necessarily allow no room for individual choice and subjective valuation. By way of partial illustration of what happens when special interests are imposed on spontaneous order, he observes that the socialists and the traditional conservatives of his day had to a great extent collaborated with one another in carving out spheres of influence, mutually reinforcing monopolies in labor and in markets, and that both of these new models of class privilege had damaging social results. Hayek disapproved of prebendal institutions that increase the wealth and power of an elite—whether that elite be composed of union members, holders of exclusive concessions, or hereditary lords—at the expense of other members of the class in whose interests the elite is supposedly working, and of society at large. He recognized that institutions that interfere with the price mechanism encourage relations of patronage.

TODAY, THESE observations are merely obvious. Yet it is worth pointing out that Hayek understood at least one very big thing: that the vision of a perfectible society leads inevitably to the gulag. Experience should have taught us by now that human societies are jerry-built structures, rickety towers of ad hoc solutions to unforeseen problems. Their development is evolutionary, and as in biological evolution, they do not have natural end-states. They are what they are continuously becoming. Comprehensive models of how society should work reject the wisdom of solutions that work and deny the legitimacy (indeed, from Lenin to Mussolini to Mao to Ho to Castro to Qutb, deny the very right to exist) of individuals who demonstrate anti-orthodox wisdom. Defenders of these models are required by their own rigidity to invent the category of the counterrevolutionary.

To Hayek, this is what socialism, communism, and collectivism—he makes little distinction between them—mean: the dangerous illusion of perfectibility. The only kind of socialism he considers in Road is state-managed, perfect-society utopianism, in which the direction of the economy and all of its inputs and outputs are planned, with the accompanying political and moral degradation that Hayek demonstrates quite convincingly. In many ways, the warnings in Road prefigure those in 1984 and have the same intimate feel for the totalitarian state. This focus on state-led socialism should not be particularly surprising in 1944, and perhaps Hayek (like Arthur Koestler, in a different but not unrelated way) deserves some credit for warning European idealists about the true meaning of the major romantic movement of the postwar period. But other visions of socialism, and other socialistic traditions, were certainly available to Hayek when he wrote. The absence of any consideration of more libertarian, less top-down approaches (the socialisms of Luxembourg, Kropotkin, Proudhon, many others; or of the possibility of nontotalitarian models of social democracy, like those that emerged in Europe after the war) should alert the reader to Hayek’s limitations. Admittedly, Kropotkin’s ideas had little impact on the world of 1944, Stalin’s a great deal.

The omission of these other viewpoints is important nowadays, because Hayek’s ideological descendants often assume, either sincerely or disingenuously, that in a world very different from that of 1944, socialism by definition still means state control of the economy in the interest of perfecting social relations. To Hayek, as to such diverse right-wingers as Ayn Rand, Margaret Thatcher, William F. Buckley, Thomas Sowell, or Phil Gramm, collectivism is defined as something imposed and policed by the state. It is the Borg Hive, the submersion of individual will and agency to the greater good.

For thoughtful democratic socialists, this line of attack is surely an amusing or infuriating distraction. Yes, when they feel like it, right-wingers can dig up someone like “Maoist economist” Raymond Lotta of the Revolutionary Communist Party, who will argue that a completely planned economy is more efficient and more just than the market. Former leftist turned left-basher David Horowitz, for example, loves to do this kind of thing, in the same way that Dinesh D’Souza, with equal intellectual seriousness, recently blamed the attacks of September 11, 2001, on cultural liberalism. But how relevant is the RCP to the ongoing American political debate? Does it represent any school of democratic socialism? The RCP quite explicitly despises liberal democracy.

BECAUSE THEY understand so little about the thoughtful left (and former association doesn’t translate into knowledge; Horowitz and his cohort, like the earlier generation of converts led by Irving Kristol, still think of the modern left as a crypto-Castroite conspiracy), it is hard for many on the right to acknowledge that as a critique of socialism, Hayek’s ideas are limited rather than devastating.

Hayek doesn’t seem to grasp that human beings can exist both as individuals and as members of a society, without necessarily subordinating them to the needs of an imposed social plan (although he acknowledges that the state can legitimately serve social needs, he contradictorily views collective benefits as incompatible with individual freedom). He rejects the very concept of social justice, for much the same reasons that he rejects the arbitrary valuation of labor: in Hayek’s view there is no way to put an objective value on a grievance or to weigh it against other claims. And because he locates all responsibility and agency only at the level of the individual, he sees no way in which any claim can be generalized to society. Hayek’s political philosophy recognizes only negative rights. Positive fulfillment beyond the most basic needs is a matter of individual striving.

Perhaps it is because of this outlook that Hayek does not, in Road, address collectivism as a spontaneous, nongovernmental, egalitarian phenomenon. This kind of socialism does exist, and can certainly fit comfortably within the structures of market capitalism. It has a broad and complicated pedigree. To what extent can Bakunin’s unbalanced idealism or Emma Goldman’s exasperating individualist anti-authoritarianism still speak to us today? (In philosophy, if not in economics, she and Hayek had more in common than either might wish to acknowledge: “The individual is the true reality in life. . . . he does not exist for the State, nor for that abstraction called ‘society,’ or the ‘nation.’ . . . Man, the individual, has always been and, necessarily is the sole source and motive power of evolution and progress,” wrote Goldman in a 1934 pamphlet, “The Individual, Society and the State.”) In a more cautious age, perhaps some of the ideas of the zealots of libertarian collectivism can be salvaged through modern synthesists like David Ellerman, who understands the theory of surplus value as well as the power of markets. What happens when free people, living under a limited government that respects their right to make choices, band together to form an egalitarian corporation in which all are entitled to the full value of their labor—including the right to make decisions about how to reinvest or otherwise dispose of the fruits of that labor—and who then stand or fall together, on their ability to provide products or services whose value is assessed by the market?

Even a brief survey will show that there are all kinds of imaginative ways in which libertarian collectivism can coexist with capitalism and markets. There’s the example of fishing co-operatives, in which investors and crew are paid in shares of the catch—a form of economic organization that is found wherever fishing is pursued as a way of life, and which has ancient origins. Consider those “fair trade” coffee collectives, from Guatemala to Ghana, that negotiate a common interest within a market environment. Or the Argentine workers who are buying out—or taking over—their factories. What about the original ethos of the kibbutz, explicitly socialist, collectivist, voluntarist, democratic (in both the political and the personal sense), and engaged with a free market? The right-wingers have never quite known what to do with the kibbutzim. Even, to come down a notch, think of corporate stock ownership plans or the limited employee ownership of companies like Avis or United Airlines.

To present this model is not to express any opinion on the practicality of libertarian collectivism. It is a comment on the narrowness of Hayek’s terms. This is a socialism that is not incompatible with democracy, markets, or liberty. It is not subject to the perfectionist fallacy. And, to a great extent, it avoids the subtle, ambient humiliations of other models of the market.

IT IS A BIT chilling to read the words of the British socialists quoted by Hayek—E.H. Carr, C.H. Waddington, Sir Richard Acland, H.J. Laski—who, when Hayek wrote, were calling complacently for what can only be read as an enlightened totalitarianism, even in the shadow of Hitler. And Hayek is very convincing, and most interesting, when discussing the romantic roots of German antiliberalism and of the illiberal statism of the left and right. But this does not mean that public disbursements in the social interest necessarily start us down a slippery slope to the totalitarian state, and Hayek, in suggestively conflating government spending with government planning, pulls a bit of a sleight of hand in Road. With more than sixty years between us and the first edition, we are able to put his ideas to some empirical tests. In fact, various episodes of Labour government in Britain—and the British Labour party of the 1920s and 1940s was no watered-down “third way” Blairite party—did not destroy British democracy. Nor did the New Deal in the United States. In a rebuttal of the government spending part of Hayek’s thesis, economic historian Rick Tilman points out that civil liberties in the United States expanded dramatically from the New Deal through the Great Society. Democracy turned out to be a lot stronger than Hayek expected. Perhaps he never quite escaped his Austrian roots. Although he frequently acknowledges that culture and institutions matter at least as much as economic policies, he never seems to notice that the countries he studied in which totalitarianism flourished were all countries in which there had never been a culture of liberal democracy.

Tilman notes that Hayek does not say what particular level of government spending must lead to totalitarianism, and because Hayek does not reject government involvement in the economy in principle, it’s hard to pin him down here. Suffice it to say that he’s much more convincing on planning than on spending. One can come away from Road still convinced, for example, that there is no reason for democratic, market-respecting socialists to reject the benefits of a national health care system, which could be handled as social insurance without involving government in services. Of course, a classical liberal would argue that single-payer health care funding would amount to controlling inputs and outputs by other means. But it is possible to imagine market forces at work under a social insurance plan, and the market distortions could not be greater than those produced by the health maintenance organizations we have now. In any case, no one argues that a government monopoly in a specific sector vital to the national interest—the military, say—must lead to totalitarianism. Because the benefits of socialized medicine have been so apparent in Western Europe and in Canada, without any erosion of political freedoms, to deny them would be to put a free-market ideology above empirical evidence. Indeed, now that polls show that a plurality of Americans support such a plan above any other proposal, it may well be in the domain of public consensus that Hayek acknowledges to be a legitimate focus of policy. The only question is whether the parochial interest associations in the world of for-profit medicine will be able to defeat it.

WHEN HAYEK strays from discussing the evils of the planned economy he becomes markedly less convincing, and the political strength of for-profit medicine rather ironically suggests something that Hayek misses about spontaneous collectivist tendencies. This is the unfortunate but inevitable tension between institutional rent-seeking and civil society. Yes, it is true that unions and chambers of commerce and gun enthusiasts and environmentalists and industrial sectors and doctors and lawyers and Indian casinos will band together and attempt to capture the machinery of government to further their own particular interests, often—usually—at the expense of rivals who are locked out of participation (and of the social and economic choices of individual citizens). Hayek’s solution is to deny the legitimacy of any movement to impose restraint on competition. The paradox is that forming spontaneous associations for the collective good of insiders seems to be a universal human activity. When individuals are free to make choices, this is invariably what they choose to do. Hayek’s principle might be sound, if applied universally, which it could never be. The practice would devastate civil society, and with it democracy. And in the real world, most of Hayek’s admirers have been content to thunder against unions while indulging industrial lobbies. Perhaps the best that we can hope for is some reasonable restraints on outright collective gangsterism of the left or the right, monitored, assessed, and readjusted as necessary. Democracy is a ramshackle structure.

It is curious that Hayek, although he argues for spontaneity and innovation in economic relations and against the arbitrary direction of social or economic life, seems very uncomfortable with this democratic ramshackle-ness, with the truth of that old adage about legislation and sausages. In Law, Legislation, and Liberty, he sees a great evil in allowing legislative bodies to address specific measures rather than abstract, general rules—and sees in majority rule the creation of a government of unlimited powers, which can override any general rule for a specific purpose. What, then, are constitutions for?

In The Constitution of Liberty, Hayek directs a great many words against laws designed with a specific purpose or remedy in mind—what modern conservatives call “outcome-based” legislation. He proposes the strict separation of the power to make rules from the power to dispose of resources, since otherwise conditions are created for bargaining between competing factions in the interest only of maintaining a power share, thus diluting some reified “will of the people.” Isn’t it a bit odd to assume that such a thing can exist in measurable form—or that it would take concrete expression in some way other than the vulgar partisan horse trading that Hayek decries? The concept of a legislature that can express an abstraction such as the “will of the people” in its everyday actions is the perfectionist fallacy writ large.

Hayek’s concept of the sources of legal legitimacy is even more problematic. He wisely rejects “natural law,” which amounts in practice to the idea that the universe inherently supports one’s own view of justice. Yet he finds the foundation of law in emergent common rules of conduct that predate human society and make it possible (Hayek calls this nomos, after the Greek, as opposed to thesis, the body of positive law). The articulation of the nomos by judges is merely “[the correction] of disturbances of an order that has not been made by anyone and does not rest on the individuals having been told what they must do . . . the judge is in this sense an institution of a spontaneous order.”

So to Hayek, the common law is a spontaneous phenomenon, without obvious human direction. In a sense law is related to custom in this manner, but there is no guarantee that honoring this concept of the nomos leads to an enlightened condition of liberty. Isn’t the barbaric (I use the word with no relativistic embarrassment) practice of female genital mutilation derived from this sort of nomos? Hayek is susceptible to this mistake precisely because he is distrustful of all human attempts to define authority and so prefers a mystical, holistic origin for it. I did begin this essay by remarking that Hayek is a romantic.

In titling his individualist manifesto The Road To Serfdom, Hayek clearly was equating collectivism with a tendency to slavery. It is surprising that he apparently did no research on the historical roots of serfdom. For serfdom in Russia came about through the loss of collective solidarity, as free peasant communes, starting in the mid-fifteenth century, first lost their community right to negotiate terms with estate holders throughout the year, except on St. George’s Day; then saw this exception suspended, and finally terminated by decree. With no bargaining power, and with the state on the side of its aristocratic vassals in underpopulated rural Russia, the peasants became the property of the estate and later of the manorial lord.

The ineptitude of Hayek’s title suggests the shallowness with which he has considered patterns of collective life in human societies. No doubt this statement would shock his many disciples, for Hayek produced mountains of paper on a great many aspects of social life, writing not only on economics and law but in the fields of cognition, philosophy, social psychology, and biography. In most of this work he shows a tendency to an abstract idealism that it is hard to imagine as compatible with actual human social life, and with the exception of his powerful critique of the planned economy, his ideas have not been resoundingly vindicated by historical experience. This is not what those who honor Hayek as the valiant individualist who destroyed the intellectual foundations of the left would like to believe. To them, Hayek is the author of universal truths, and he has taken on the status of a prophet. The rest of us, I hope, have learned to be wary of prophets.

Jesse Larner is the author of Mount Rushmore: An Icon Reconsidered (Nation Books, 2002) and Forgive Us Our Spins: Michael Moore and the Future of the Left (Wiley and Sons, 2006).

05-20-2008, 10:35 PM
eh. the major flaw I see in that is the guy considering spontaneous collectivism(basically people working together to do something, I guess) as something that needs to be argued against by Hayek. Or even brought up.

I don't really see how the government could be involved with anything spontaneous like that.

05-20-2008, 11:14 PM
eh. the major flaw I see in that is the guy considering spontaneous collectivism(basically people working together to do something, I guess) as something that needs to be argued against by Hayek. Or even brought up.

I don't really see how the government could be involved with anything spontaneous like that.

I don't see how that's collectivism at all. Collectivism is an ism - theoretical, an way of thinking more so than of doing. A small group of individuals is not collectivism, while a collective of collectivists is. Does that make sense? :)

05-21-2008, 06:05 AM
I don't see how that's collectivism at all. Collectivism is an ism - theoretical, an way of thinking more so than of doing. A small group of individuals is not collectivism, while a collective of collectivists is. Does that make sense? :)

yea, collectivism is more of a thought-crime than an all out hate-crime (like all out kicking someone's azz would be).


05-22-2008, 10:12 PM
I don't see how that's collectivism at all. Collectivism is an ism - theoretical, an way of thinking more so than of doing. A small group of individuals is not collectivism, while a collective of collectivists is. Does that make sense? :)

I agree. I was thinking about this because of a musical collective I know(elephant 6) and how so uncollective-minded it was.