Is Friedrich Hayek a libertarian?

[Originally published on a weblog called “What Is Liberalism?”]

Friedrich Hayek is not a libertarian. Many on the libertarian right-wing of American politics worship Hayek for taking a strong stand against socialism when socialism was at its peak in England during the 1940s. Oddly enough, there are libertarians in America today who honestly think the Democrats are in favor of those things that Hayek opposed. Such libertarians are misled. Hayek offers a reasonable description of those economic policies that the Democrats are fighting for. In fact, so much has the political landscape shifted since 1944 that at this point the Democrats do a better job of championing the ideas of Hayek than the Republicans do. I’ve been active in progressive politics since 1991, and I’ve never met anyone in progressive circles who favored the kind of planning that Hayek opposed. The nearest I’ve come to that kind of reasoning is a faction within the environmental movement that would like to see something like the old planning put in place so as to protect the environment.

During the first half of the 20th century, an idea spread across the West that modern economies could be run more efficiently if the government took over the running of them. Production could aim to fill certain quotas, and knowing the desired output of any given item also meant that the inputs for that item could be planned exactly, with no waste. In other words, if society knew that it wanted to build products that, in total, would need 10 million tons of steel, then that amount of steel should be produced, no more or less. It was argued that the usual waste of a market system, which always made too much or too little of something, could be replaced with a system in which there was never any waste and all resources went to serving the social good. The boom and bust cycle of a market economy, with its painful episodes of depression mixed with delirious moments of wild excess, would be replaced with an economy that always ran at an even keel, offering greater security to its citizens. So that the resources of society should be shared fairly, all goods would be rationed, with everyone receiving roughly equal portions. Labor would be planned to fit neatly with production, so there would never again be any unemployment. The government would decide what jobs people held, ensuring that there was always enough workers in any given industry for the industry to meet its production targets. The goal was stability, which both the labor unions and the capitalists had been seeking through the growth of monopoly. The public heard their arguments, and was increasingly persuaded that if some monopoly was good, then total monopoly would be better. And what monopoly was more total than the government control of everything?

Against this kind of planning, where the government decides before hand all that will be produced and how it will be rationed, Hayek made a strong case. But he also makes clear that he is not against all forms of planning. This next excerpt is from page 134 of The Road To Serfdom, 1994 edition, The University Of Chicago Press.

There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them. This is, of course, one of the gravest and most pressing problems of our time. But, though its solution will require much planning in the good sense, it does not – or at least need not – require that special kind of planning which according to its advocates is to replace the market. Many economists hope, indeed, that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible with even 19th century liberalism. Others, it is true, believe that real success can be expected only from the skillful timing of public works undertaken on a very large scale. This might lead to much more serious restrictions of the competitive sphere, and, in experimenting in this direction, we shall have carefully to watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure. But this is neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security. In any case, the very necessary efforts to secure protection against these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom.

No reasonable person can read these words and think that Hayek would disapprove of the economic policies put forward by the Democrats. At no time in my lifetime (I’m 38) have the Democrats aimed at that type of total planning that would ration all goods. The nearest we’ve come to that were the emergency measures that President Nixon took to combat inflation in the early 1970s, when he imposed wage and price controls. However, even Nixon never set out production schedules for the American economy, outside of a few agricultural goods. Even if he had, I think we can agree that both parties have moved away from the kind of planning that Hayek speaks of. President Carter began the modern era of deregulation when he deregulated the airlines in the late 1970s. A recent book argued that bi-partisan support of increased economic competition is what won the war against inflation.

Hayek makes a good case that when the government must decide what jobs a person will work, so that people are no longer free to choose their own careers, then that society is on the road to serfdom, and freedom is under grave threat. This was the situation in England in the late 1940s. But no American politician of either party has been pushing for this kind of complete economic management in a very long time. A generation of left-leaning idealists devoted a good chunk of their lives to seeing socialism triumph in Britain, yet when the triumph occurred and they were confronted with success, many of them had second thoughts. The artists expressed their doubts in works that are famous to us. George Orwell at this time wrote 1984 and Animal Farm. Doris Lessing left the Communist party and later wrote in moving detail how hard it was to give up on the dream of building utopia during her lifetime. Hayek remarks in his preface of 1956 that he was simply treating the same themes that were handled better and far more popularly in Orwell’s book, 1984. Hayek was loyal to the socialist ideal in his youth, and his book has a friendly tone, for he addresses himself to British socialists, many of whom he thought of as good friends. Many British socialists were at that time reconsidering their project, and they were open to hearing Hayek’s criticism. However, the socialist idea was less advanced in America, and had been less put into practice, therefore those on the American left were less aware of its real flaws, and for that reason Hayek’s work drew a response in America quite different from the response it got in Britain. This is what he says in the preface of 1956:

Contrary to my experience in England, in America the kind of people to whom this book was mainly addressed seem to have rejected it out of hand as a malicious and disingenuous attack on their finest ideals; they appear never to have paused to examine its argument. The language used and the emotion shown in some of the more adverse criticism the book received were indeed rather extraordinary. But scarcely less surprising to me was the enthusiastic welcome accorded to the book by many whom I never expected to read a volume of this type – and from many more of whom I still doubt whether in fact they ever read it. And I must add that occasionally the manner in which it was used vividly brought home to me the truth of Lord Acton’s observation that “at all times sincere friends of freedom have been rare, and its triumphs have been due to minorities, that have prevailed by associating themselves with auxiliaries whose objects often differed from their own; and this association, which is always dangerous, has sometimes been disastrous.”

There are those on the right that believe that the Democrats, deep down in their hearts, are loyal to that kind of complete planning that Hayek wrote against. Some might point to President Clinton’s failed attempt in 1993-1994 to bring about national health care for all as an example of the old-style negation of competition. But had Clinton’s health care plan gone through there still would have been competition in health care. The change would have been that every citizen would have been insured. And Hayek makes clear that it is the job of government to offer its citizens every manner of social insurance. This is from page 133 of The Road To Serfdom:

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 – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supercede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state’s providing greater security in this way and the preservation of individual freedom. 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.

Clearly, when President Clinton set out to bring national health care to America, he was only being obedient to Hayek’s injunction that the government should create “a comprehensive system of social insurance”.

The liberal tradition is vast and contains many themes. At different times, leading liberals have emphasized different aspects of the tradition. Thus the word constantly mutates in its meaning. In the late 1800s it was associated with laissez faire economic policies, the rule of law and the protection of property. In the 1900s, especially in America, it became associated with social reforms of the type that Jeremy Bentham had advocated in the 1700s, and with the kind of individual freedom advocated by John Stuart Mill in his 1859 book, On Liberty. These themes are part of the liberal tradition, but they are not the whole liberal tradition. Those on the right-wing of American politics, and I’m thinking especially of the market fundamentalists, can not reasonably argue that laissez faire economics is a necessary part of a classically liberal political order. Hayek says it best, on page 21 of the Road To Serfdom:

There is nothing in the basic principles of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all. 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 harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire.

In America, the basic ideas of liberalism (the state limited by a constitution; government leadership chosen through contested, multi-party elections; protection of private property, freedom of religion and the press) are so universally accepted that both parties are primarily made up of factions that can be described as liberal. So as to gain a majority, both parties enter into alliances with non-liberal factions, and in fact both parties gain their distinctive flavors from the non-liberal factions that join up with them. The Republican party contains agricultural factions that have grown so used to government subsidy they now fight against any attempt to reintroduce market forces into the provision of water or the sale price of certain commodities. The Republican party also contains certain Christian fundamentalist factions whose aims would crimp the separation of church and state in ways sure to make non-Christians uncomfortable. The Democrats, on the other hand, enjoyed majority status from 1932 to 1968 partly because of the Popular Front alliance of the 1930s, which lead socialists to join up with the Democratic party. Some of FDR’s closest advisors, such as Harry Hopkins, had previously been members of the American Socialist Party. While that alliance has worn away with time, one can still find a handful of socialists who at least occasionally give their loyalty to the Democratic party (though just as Christian fundamentalists complain that the Republican party is overly secular, so too most socialists complain that the Democratic party is overly loyal to corporations).

Again, however, the kind of liberalism that Hayek was promoting now finds more of a home with the Democrats than with the Republicans. With the ascendancy of the social conservatives the Republican party has begun to resemble a European party of traditionalism. Whereas the Republican party used to be America’s best defender of the Adam Smith liberal tradition of entreprenuerialism, it now resembles what Hayek criticized as true Conservatism. This is from his 1956 preface to The Road To Serfdom:

It is true, of course, that in the struggle against the believers in the all-powerful state the true liberal must sometimes make common cause with the conservative, and in some circumstances, as in contemporary Britain, he has hardly any other way of actively workings for his ideals. But true liberalism is still distinct from conservatism, and there is danger in the two being confused. Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place. A conservative movement, by its very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege. The essence of the liberal position, however, is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others.

Although both the Republican and Democratic parties have factions that hope to cement various privileges into law (and surely both parties will continue to have such factions for as long as either party exists, human nature being what it is) still there is little doubt that the Democratic party has in recent decades been more sincere in fighting against certain privileges of race and gender that have been a stain on the liberal spirit of America ever since its founding. Thus in recent decades the Democrats have veered closer to the true liberal spirit than the Republicans. This has become even more true as the social conservatives have replaced the market loyalists as the leaders of the Republican party.

Before ending this essay, I’d like to add that I admire Hayek for his ability to avoid using the word “capitalism” in his book The Road To Serfdom. It is a word that lacks clarity, and therefore a good writer will only use it with caution, and to serve a specific need. Strunk and White, in their classic on writing, stress that a writer should avoid cliches, for they have lost their meaning through overuse. The word “capitalism” is both a cliche and, worse, has no meaning that people can agree upon. For some it suggests a cosmopolitan system of anonymous economic exchange, for others it suggests simply the economic component of a liberal political order of any era. Some think it is the natural outgrowth of a legal regime that respects the ownership of private property, others argue it is a system that immorally overlooks theft, to the extent that it denies the historical circumstances of race, sex and war that lead to the current distribution of private property. Some think the word is the opposite of feudalism, and refers therefore to industrialism. Others think capitalism can also exist in societies that are mostly agricultural. Many believe it unsustainably promotes growth for the sake of growth, others argue it has proven itself the world’s most efficient and fair system for rationing goods and services. Some think it refers to an economic system of carefully managed monopolies, others think it refers to any society that has moved past barter, to a level where workers work for wages. For the French historian Fernand Braudel, small business was competitive and therefore belonged to the world of the market, which had existed for thousand of years, whereas capitalism referred to the growth of monopoly corporations that sprang up in Europe in the 1500s. For some capitalism is synonymous with fairness, for others it is synonymous with exploitation. Some think it is a moral system, others think it is immoral by definition.

My feeling is that most times a writer feels the need to use the word “capitalism” they can improve their writing by being more specific. Do they mean exchange that involves money instead of barter? They should say so. Do they mean the legal and cultural institutions that lead to hyper-consumption? They should say so. Do they mean the economic activity that arises in a society that enjoys the rule of law and respect for private property? They should say so.

Friedrich Hayek and Karl Marx do not have a great deal in common, but they share an aversion to the word “capitalism.” Karl Marx lived and died without ever using the word “capitalism” in any of his published work (the word didn’t come into wide-spread use until after he died, he used the word only once in a private letter at the end of his life, and I’ll give $100 to the first person who can show me an example of the word “capitalism” in a work by Marx that was published during Marx’s lifetime) and I think if he felt no need to use the word, other writers should follow his example and stop using the word. Clearly, given the examples of Hayek and Marx, one can say a great deal about economic activity, and offer insightful criticism of the economic agendas put forward by liberals, conservatives and socialists, without ever having to use that word.