Hayek differs from classical liberalism because of his attempt to re-ground the doctrine of liberalism without recourse to the fiction of the social contract, and by attempting to avoid the critiques usually made of rationalism, utilitarianism, the postulate of a general equilibrium or of pure and perfect competition founded on the transparency of information. The re-grounding is evolutionary, in that the market evolves. The market comes about at a particular time in history, as part of the emancipation from traditional society of the feudal order during the emergence of modernity.
Modern society constitutes a "spontaneous order" which no human will could ever reproduce or surpass, which came into being according to a Darwinian model. Modern civilization is neither a product of nature nor an artifice but the result of cultural evolution where selection operates automatically. From this viewpoint, social rules play the role attributed to mutations in neo-Darwinian theory: certain rules are retained because they are "more efficient" and provide an advantage to those who adopt them ("rules of correct behavior"), while others are abandoned.
The market is obviously the key to Hayek's understanding of modernity. In a society of individuals, exchange takes place within the context of the market, which is the only conceivable means of integration. For Smith and Mandeville, the market is an abstract mode of social regulation. It is governed by an "invisible hand" following objective laws which supposedly regulate relations among individuals, independently of any human authority. This theory takes into account habits, customs and even the traditions which have accompanied the emergence of the market. To some extent, as with Ferguson, market exchange becomes the specific modality of social relations based on custom.
For Hayek the market is not ordered according to goals: it leaves them undetermined and only deals with reconciling means.y combining the evolutionist theory and the doctrine of the "invisible hand," the "naturality" of the market it established without having to posit it as original. He does away with the idea of a natural order or self-evident truth. At the same time, he appropriates the liberal postulate according to which there are objective laws such as the free interaction of individual strategies leading not only to order but to the best possible one.
For Hayek, the market is no longer simply an economic mechanism for the optimal allocation of resources in a universe traditionally described as governed by scarcity -- a mechanism ordered by some positive finality (individual happiness, wealth, well-being); rather, it is a sociological as well as political order, an instrumental formal support for the possibility of individuals to freely pursue their particular objectives. In short, it is a structure, i.e., a process with no subject, spontaneously managing the coexistence of the plurality of private goals, which imposes itself on everyone to the extent that, by nature, it prevents individuals as well as groups from trying to reform it.
The law's objective is no longer to organize individual actions in terms of the common good or of some particular project, but to codify the rules whose only function is to protect individual freedom of action, i. e., to indicate to each person what he can count on, which material objects or services he can use for his projects, and the kind of action he can engage in. It is equivalent to the rule of the catallactic game in which there are winners and losers.
Does Hayek approve of state planning? Is he engaged in fostering state action to shape the activity of free individuals in a market order? Does Hayek transgress the libertarian and classical liberal duality of individual freedom versus the state unfreedom?
In this text by Viktor Vanberg in The Cato Journal it is argued that Hayek in both his 1939 article "Freedom and the Economic System" as well as in The Road to Serfdom took particular care to point out that his criticism of modern planners was not about whether we ought to choose intelligently between the various possible organizations of society but about the ways in which we can reasonably hope to improve the order of society by planning and rational construction. Vanberg says:
There is, [Hayek] argues, an important distinction between two kinds of "social planning," namely the "distinction between the construction of a rational system of law, under the rule of which people are free to follow their preferences, and a system of specific orders and prohibition" (1939: 9). While liberalism denies that the latter kind of social planning can be a suitable tool for social improvement, it is not only compatible with the former type of planning, but, in Hayek's understanding, has to consider it the principal means by which we can hope to improve our social condition.
Vanberg adds that in a handbook article on Liberalism, written in 1973, Hayek included a section entitled "Positive Tasks of Liberal Legislation" in which he refers approvingly to certain "neoliberal" approaches that explicitly address the issue of what the positive content of the legal framework must be in order "to make the market mechanism operate satisfactorily" ..... Though he did not specify which neoliberal approaches he had in mind, his description certainly fits German Ordo-liberals of the so-called Freiburg School, like Walter Eucken and Franz Boehm... It corresponds to their understanding of the role of liberal legislation when Hayek...notes that the "attitude of the liberal toward society is like that of the gardener" who seeks to create favorable conditions for natural growth.
Hayek is mostly definitely engaged in planning' a system of general rules for a liberal order.
Many on the libertarian right-wing of Australian politics defend Hayek for taking a strong stand against socialism (social democracy) when socialism was at its peak in England during the 1940s. Road to Serfdom was a trenchant defense of laissez-faire in the face of planned economies, wherein Hayek argued that we should never have a naive trust in the good faith of people who happen to find themselves empowered by bureaucracies to start making decisions regarding how a society’s resources will be doled out. Socialism is a nursery for the growth of totalitarian policies.
However, I've never understood Hayek to be a libertarian; he is a combination of market libertarian and social conservative-in that his "free people" in a spontaneous order are always "submitting to the discipline" required by society's current moral conventions. How does this fit with democracy?
Alex Robson points out Knowledge, Demagoguery and Democracy in the CIS Policy magazine
Democracy is desirable only to the extent that it ensures freedom in the negative sense, and an unchecked democracy is just as undesirable as unchecked totalitarian rule. Democracy can only ever be only a means to an end—the end being freedom—and not an end itself.
Consider this passage from the 1956 Preface to Road to Serfdom:
Of course, six years of socialist government in England have not produced anything resembling a totalitarian state. But those who argue that this has disproved the thesis of The Road to Serfdom have really missed one of its main points: that "the most important change which extensive government control produces is a psychological change, an alteration in the character of the people." This is necessarily a slow affair... attitude[s] toward authority are as much the effect as the cause of... political institutions under which it lives.... [T]he change undergone... not merely under its Labour government but in the course of the much longer period during which it has been enjoying the blessings of a paternalistic welfare state, can hardly be mistaken.... Certainly German Social Democrats... never approached as closely to totalitarian planning as the British Labour government has done.... The most serious development is the growth of a measure of arbitrary administrative coercion and the progressive destruction of the cherished foundation of British liberty, the Rule of Law... [E]conomic planning under the Labour government [has] carried it to a point which makes it doubtful whether it can be said that the Rule of Law still prevails in Britain...
The implication is that Hayek would countenance an abridgement of democracy to support the freedom of the spontaneous order. If democracy endangers free markets though regulation then it can legitimately be suppressed. What sits under this is the historical difference between classical liberal constitutionalism and democracy. Classical liberals have always had a healthy suspicion of democracy, fearing that it might amount to mob rule. if Kant called democracy despotism, then Hayek argued that arbitrary majoritarianism was no better than other methods of oppression.T he core principle is freedom from arbitrary (that is, "ruleless") coercion, whether emanating from the crown, the parliament, or the people.
This opens the possibility of a liberal authoritarianism that preserves freedom.
Hayek's The Road to Serfdom and The Constitution of Liberty are works of political philosophy in which he defends market institutions against interventionist policies designed to achieve "social justice." Hayek's antipathy toward socialistic (social democratic) intervention was an expression of his more general concern with what he called the "knowledge problem".
What is less frequently mentioned is that Hayek also argued against the whole neo-classical tendency in all modern equilibrium analysis, to turn economics into a branch of pure logic, a set of self-evident propositions which, like mathematics or geometry, are subject to no other test but internal consistency. The assumption is that individuals have perfect rationality and foresight, and so they then unfailingly make decisions about the allocation of their resources that maximize their utility. This assumption was deeply flawed, given that human knowledge which people will acquire in the course of their economic activity is intensely personal and irretrievably limited or incomplete.
n the 1937 essay "Economics and Knowledge," Hayek formulated the "knowledge problem", which he understood as a problem for all the social sciences, thus:
"How can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?"
To show that in this sense the spontaneous actions of individuals will, under conditions which we can define, bring about a distribution of resources which can be understood as if it were made according to a single plan, although nobody has planned it, seems to me indeed an answer to the problem which has sometimes been metaphorically described as that of the "social mind."
I have come across F. A. Hayek's 1974 Noble Prize speech entitled The Pretence of Knowledge. He opens by saying the:
failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."
Referring to a wellfunctioning market Hayek says that into the determination of these prices and wages there will enter the effects of particular information possessed by every one of the participants in the market process
.. a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain. It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess. But because we, the observing scientists, can thus never know all the determinants of such an order, and in consequence also cannot know at which particular structure of prices and wages demand would everywhere equal supply, we also cannot measure the deviations from that order; nor can we statistically test our theory that it is the deviations from that "equilibrium" system of prices and wages which make it impossible to sell some of the products and services at the prices at which they are offered.
This is the message which is developed from his article “Economics and Knowledge” of 1937 through his well-known article, “The Use of Knowledge in Society” of 1945; and the series of articles on “scientism”.
John Gray in his F. A Hayek and the Rebirth of Classical Liberalism asks a very pertinent and contemporary question:
if free markets have corrosive effects in respect of the moral traditions which support them, so that capitalism institutions contain cultural contradictions which make them over the long run self-destroying, what is to be done?
There is in Hayek's work an argument for voluntaristic traditionalism which goes some way toward answering this question. Hayek sees that the principal cause of the erosion of definitive moral traditions in advanced societies is not so much the market itself, but rather interventionist policies sponsored by governments. Often with the support of business, governments have contributed to the erosion of moral traditions by their educational, housing, and welfare policies. Hayek's argument for a voluntaristic traditionalism distinguishes him from neo-conservatives, firstly in that he would argue that it is government interventionism which causes much of the contemporary moral malaise and because he would not seek to use government power to prop up faltering traditions...
I"m not persuaded by Hayek's response. It is does not recognize the differences between the family and market spheres of social life --it just wishes them away on the basis of hope in an evolutionary process towards liberal institutions.
What Gray means is that Hayek presupposes that the evolutionary natural selection of moral traditions will filter out those unfriendly to the market process. What then happens to the family and its values of care and obligation? Is it to be remodelled in market terms so that the principles of efficiency, fast turnaround and cost effectiveness, which are the principles of mass industrial production are applied to families, caring for children and the aged, and love? Does that mean a future of entrepreneurial childcare corporations (eg., ABC Learning Centres ) with the attention primarily fixed on making a profit from child care?
Does this not indicate that there are unresolved difficulties, tensions and conflicts in Hayek's writings?
I have to admit that I once saw Hayek as an ideological icon of what was called the New Right, an active publicist of market liberalism who was deeply opposed to socialism and social democracy. He stood on a soapbox to preach the mesage that that civilization was threatened by catastophe from state intervention, and that only a concerted effort by market liberals would ensure that a free society survived.
That is the Hayek of the polemical tract, The Road to Serfdom, is it not? Well, okay a political pamphlet that presented the conflict over the market order as a struggle between good and bad, between the forces of civilization and the forces of darkness. A crusade against Hegelianism (of course) Marx, and Keynes and all those false liberals (Rousseau, Bentham, Jefferson, Goodwin) who stood for state control and social engineering and were against free enterprise, entrepreneurship, the competitive order and the true liberalism that is grounded in the Scottish Enlightenment.
But Hayek is more complex than this is he not? He was no libertarian.
Hayek argued that a strong state was necessary to police the market order, maintain the value of money, protect life and property and enforce contracts and torts. He held that if all citizens were to enjoy their personal freedom, then the natural tendency of individuals to cheat, defraud, coerce and oppress one another must be restrained by a superior coercice power, and that could only be provided by the state. In these moments Hayek sounds like Hobbes, even though he is deeply hostile to Hobbes. And, heaven forbid, Hayek sounds like Hegel when he argues that what is most important for individual freedom is is the institutional framework which guarantees the market order, which has evolved out of the experiences, choices and experiments of many generations.
Hayek, in other words, was as critical of rational choice as he was of collectivism. That is why he is worth reading.
I find this Hayek quote, which I found on a Brian Tamanaha post over at Balkinization, interesting because it reminded me of the wooden insistance by some market liberals in Australia on the principle of laissez faire.
The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications. There is, in particular, all the difference between deliberately creating a system within which competition will work as beneficially as possible and passively accepting institutions as they are. Probably nothing has done so much to harm the liberal cause as the wooden insistence of some [conservatives] on certain rough rules of thumb, above all the principle of laissez faire.
I would insist on using 'market liberal' here, as 'conservative' is just the wrong word, as Hayek is probably the most important liberal political economist in the 20th century. In his work economcis, law and politcs overlap around the problematic of coordination. That is what makes him a significiant figure as he explores the way that the coordination of economic activity takes place within institutional legal and political framework.
Brian quotes Hayek, again, and this highlights the classical liberal position on the limited and legimate role of govenment in capitalist modernity:
There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody...Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance...the case for the state's helping to organize a comprehensive system of social insurance is very strong....
To the same category belongs also the increase of security through the state's rendering assistance to the victims of such "acts of God" as earthquakes and floods. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make provision for the consequences, such communal action should undoubtedly be taken.
However, Hayek rejected the view that capitalism is a form of Social Darwinism, as he argued that a coherent and impartial legal system is required in order to make free markets function effectively:
It is important not to confuse opposition against...planning with a dogmatic laissez faire attitude. The liberal argument is in favor of making the best possible use of the forces of competition as a means of co-ordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects.
A new journal devoted to Hayek. It is good to see, as he is a serious and influential political thinker whose philosophy underpins a neo-liberal market order.
From my perspective the weakness of Hayek is the polemical Road to Serfdom. It is a polemical text that speaks to a moment of history the 1940s and the period of central planning and totalitarianism that has little purchase on social democracy. Social democracy split the tight identity between planning and totalitarianism argued for by Hayek.
In contrast, one strength of Hayek is his critique of scientism in the social sciences, and his critique of a Cartesian deductive mathematical reason that has so dominated neo-classical economics, with its contempt for history, and its tendency to shape reality according to the dictates of utopia as a purely competitive market. With this move Hayek opens up a space for other kinds of rationality.
This was my pathway into Hayek and one that few 'economic rationalists' in Australia appear to have taken. It pushes to one side the view that policy formation and decision making is primarily economic, and that political problems can be solved by economics. This then opens up a space for the political and the philosophical in policy making. So policy making shifts to how does a liberal state govern a population through the dispersed knowledges, economic processes and spontaneous order of the market.
The shift that Hayek makes is to constitutional liberalism based on individual freedom and limited government, and he argued that this is what underpined the American constitution. Does it? Is that an accurate reading?
What is not clear to me is the connection between Hayek's idea of the market as a spontaneous evolutionary order arising from the unentneded consequences of free actions and his constitutional liberalism. Is not constitutional liberalism designed and imposed by political authority as the sovereign? Is that it not a constructive rationalist liberalism--the wrong kind of liberalism? So how does the spontaneous order in civil society relate to constitutional order?