Sunday, September 9, 2012

Republican Worship of Hayek’s The Road to Serfdom: Part 2. What Hayek Stood For

Note: This is the second part of a 4-part commentary that makes the most sense when read in sequence--for the first part see:

In my earlier post (Part 1) I talked about Hayek’s time in history when he wrote this book in 1944, and how issues that seemed alive and vital then have significantly faded today—a point widely ignored by Hayek’s adoring fans in the world of economism.
Ignoring the historical background of Hayek’s work is not the only thing that those who worship at his altar today are guilty of ignoring. In this and later posts I’ll take apart just what Hayek actually seems to have stood for—and whether it bears any resemblance to today’s economism belief system. I’ll begin by reviewing the position that Hayek advocated.
            As one widely worshipped as a high priest, if not the patron saint, of economism, Hayek is somewhat disappointing as a source of descriptions of what the ideal society envisioned by economism would look like. Hayek was quite convinced that democratic people of his day, particularly Americans and English, had two choices—either maintain steadfastly a society run according to market-competition principles, or else sink into totalitarianism. He did not, therefore, have to argue for his version of economism by telling us in detail about the wonderful world it would create; he simply had to warn us of how terrible the alternative, totalitarian world would be.  Indeed, even if the world that resulted from his vision turned out to be not so great, it could hardly be worse than Hitler’s Germany or Stalin’s Russia. And in fact much of The Road to Serfdom is taken up with the grim description of the evils of totalitarianism.
            Of the things that Hayek did include about his own positive vision, he naturally stressed the central role of freedom. Since he thought that totalitarianism and collectivism went hand in hand, he saw individualism as the opposite of collectivism. To him individualism meant above all the freedom of persons to decide how to live their own lives. This freedom led, he thought, to a “sense of power over their own fate, the belief in the unbounded possibilities of improving their own lot…” (70).
            Hayek’s view of European history was that this sense of individual freedom became prominent in the early years of the nineteenth century, and resulted in a rise in living standards that surpassed anything previously known in human history. As Hayek saw it, even though he admitted that the story contained some “dark spots” (70), this rise in living standards was quite evenly distributed throughout society. Economic plenty and individual freedom were flip sides of the same coin: “a free growth of economic activity,” Hayek postulated, was “the undesigned and unforeseen by-product of political freedom” (69). (Many historians, reviewing the effects that the Industrial Revolution had on the laboring classes in its early decades, would say that the “dark spots” were dark indeed and much more widespread than what Hayek lets on, but for now let’s not quibble with his account.)
            Individual freedom has two other important implications from Hayek’s standpoint. Individualism, he insists, does not mean that “man is egoistic or selfish or ought to be.” (102) The point rather is that (going back to his stark choices as to how to run a society) either people are free to choose what they value most in life, or else some central planning authority tries to do it for them. The latter way, for all the reasons Hayek has listed, will spell disaster; so the only sound way to manage society is to allow maximal freedom to choose.
            Second, Hayek saw in private property the most important insurance policy for preserving individual freedom. This is true, he added, both for those who own property and those who don’t. He reasoned that when property, which he equated with the means of production, was held in many hands, then “nobody has complete control over us, [and] we as individuals can decide what to do with ourselves.” (136)
            Hayek thought this individual freedom to choose found its ideal expression in market competition, leading to another key element of his vision. How can a society be managed in a coordinated fashion when all individuals are free to choose what they value the most? We need some means of communicating all relevant information about individuals’ value choices and their resulting behavior. For Hayek, this system of communication must be complete, instantaneous, and infallible. “This,” he concludes, “is precisely what the price system does under competition, and which no other system even promises to accomplish.” (95)
            Here Hayek reveals what sounds today like a naïve faith in the power of neoclassical economic theories. Economists of that stripe are so enthralled with the mathematical precision and elegance of their theoretical models that they simply assume that the world must function in accord with the models, and reject the idea that their models may be at best a very rough approximation of reality. There are a great many ways that a price system in any real-world market can be manipulated by various parties to take advantage of other parties, and will generally fail to record accurately people’s true preferences and values. (Just look at what happens to the price of gasoline in any average year.) But Hayek can say that no other system comes even close to the competitive free market in conveying the needed information, simply because he assumes that the pricing system in the market functions to perfection. Quite naturally, no other system can achieve perfection, so according to Hayek, capitalism has no peer.
            Hayek has already told us that individualism need not mean that “man is egoistic or selfish or ought to be.” Yet in one place, in presenting his ideal vision, Hayek seems to come rather close to saying exactly that. Hayek has to grapple with one implication of his extolling individual freedom so highly. One way that we can all lose some measure of freedom is by becoming involved in any collective enterprise with our fellow citizens. When we agree to become a part of any joint activity, we lose some freedom to do things our own way.
Hayek is therefore forced by his theory to take a very dim view of almost any sort of collective. What does he do, then, when faced with the fact that some worthy social ends require cooperation among large numbers of individuals? Hayek first finds it necessary to admit that there are some such projects that are worthy of support—but he then has to backpedal lest he seem to be endorsing a too great a loss of individual freedom. So he adds important restrictions. First, he says that the only social goals that are worthy of being pursued in this way are those that people in society agree to as self-interested seekers of their own benefit—as Selfish Calculators (see the definition of economism). Second, he suggests that it would require that all people in society agree unanimously, and any one individual, who did not find it to his personal benefit that the project be completed, might veto the whole thing. Only in this way, he suggests, can these worthy social goals be pursued in a manner truly consistent with individual freedom.
These restrictions show just how critical individual freedom is to Hayek’s ideal vision of society. Imagine a football team that could not take the field unless every member of the team fully agreed with every part of the coach’s game plan. Or imagine a construction site where nothing could happen unless every proposal made by the foreman was endorsed by a unanimous vote of all the workers. It doesn’t take much thinking to see that if we demanded the preservation of individual freedom that Hayek asks for, we’d have to give up almost every worthy social goal that could be achieved by human teamwork and cooperation. Either Hayek is quite willing to give up on all those important and worthy goals, or else he believes that getting unanimous consent at every step of the process is much easier than experience proves.
            Hayek’s unwillingness to accept any restrictions on freedom has important implications at a more general social level. Why, we might ask, shouldn’t the United States government sell off the U.S. Capitol to be developed as a shopping mall or as luxury condominiums, or maybe paved over for a parking lot? Why shouldn’t the government sell off the Grand Canyon to be strip-mined? The answer for Hayek seems to be—those actions would only be wrong, insofar as every single individual U.S. citizen decides that maintaining the Capitol and the Grand Canyon as is serves his or her personal benefit. All it would take would be one person saying that his benefit would be increased by selling the property off and thereby having a lower tax burden—and the properties would have to go on the auction block. The possibility that we might have a common social commitment to preserve the grand works of our history or of nature simply is not part of any calculation that Hayek engages in. So in this regard at least, Hayek’s insistence that his vision is not that of an “egoistic or selfish” society seems strained.
            To summarize, let’s list some of the features that emerge from Hayek’s discussion in The Road to Serfdom:
  • Individual human freedom is the highest value.
  • Individual freedom is preserved in a capitalist society and destroyed by a totalitarian state. Any state that deviates only slightly from ideal capitalism is in danger of sinking into totalitarianism.
  • The most important exercise of individual freedom is deciding what to do with our own lives. Only strict protection of private property rights can preserve this freedom.
  • In order to have control over our own lives, we need an infallible information system to find out the actual consequences of any actions we might take. Only the price system under an ideal capitalist market economy functions as this sort of perfect information system.
  • Any collective action has to be viewed with suspicion because it is a threat to individual freedom.

We have now reviewed some of what Friedrich Hayek, as a sort of founding father of economism, had to say about human freedom. In the next post I’ll compare Hayek’s thinking to that of a Mystery Economist—and invite you (and all the Hayek fans out there) to guess who this mystery person is:


F.A. Hayek, The Road to Serfdom: Text and Documents: The Definitive Edition, ed. Bruce Campbell (Chicago: University of Chicago Press, 2007).

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