Political Economy Students' Journal

Introduction

​

Friedrich August Hayek was a prominent economist and political philosopher of the 20th century, known for his critiques of central planning and interventionism in economic and political systems. In his two most seminal works, "The Constitution of Liberty"(1960) and "The Road to Serfdom" (1944), forth-on referred to as CoL and RtS respectively, Hayek is known for having argued for a society based on individual liberty and limited government. In this essay, Hayek's moral philosophy as presented in the first nine chapters of CoL and chapters five and six of RtS, forth-on referred to as CoL and RtS will be examined. These works have been selected for their role in highlighting his views which are considered to have had the most impact on the development of the contemporary neoliberal hegemony (Demirovic, 2008; Gramsci, 2017).

​

For this purpose, some of the possible inconsistencies in the moral philosophy of Hayek shall be examined and subjectively evaluated. Additionally, some corresponding opinions from his colleagues and contemporaries will be presented, to give an understanding of their position within the contrasting history of eco- nomic paradigms. As he is one of the most controversial and commented-on economists of the 20th century, the motivation lies not just in understanding his views, but also on how his theories have impacted the overall discussion around economic theory, as well as the broader political discourse (Ward, 1979).

​

Hayek is often categorized as libertarian. However ethically his approach is that of consequentialist in theoretical ethics. In terms of philosophy, Hayek's approach is rooted in the tradition of classical liberalism. He argues for the im- portance of individual freedom and the protection of individual rights, such as private property rights. He also emphasizes the importance of the rule of law, which protects individual liberty by limiting the arbitrary will of the government or any other single group (CoL, Ch. 7; Fleetwood, 2013).

​

The essay will thus have one section devoted to evaluating some text passages from Hayek’s writing, and the argument will be made that his moral philosophy could just as well be interpreted in favour if a much more classically leftist position. While this is not in line with most Hayek-interpretations as well as his own political views, the author will try to separate the philosophy from the man and show how his contributions to political thought, can have many applications. The second part will then cover Hayek’s role as an advisor on economic policy, and his writings as indirect inspiration for economic policy. This will focus on a biographically based argument, already alluded to in the first section.   At last, the connections made, as well as avenues for the further research will be summarized in a short conclusion and a perspective on his position in history given.

 

Coercion & Knowledge

 

Overall, Hayek's moral philosophy is centered on the idea of individual liberty, but he limits this to the liberty of entrepreneurs and merchants to sell and pro- duce at their own leisure. A concept, that continues to shape the way many to- day think about the role of government in society (Ward, 1979).

In RtS Hayek first explains his criticisms of central planning and interventionism, arguing that attempts to centrally plan and control the economy inevitably led to totalitarianism. He contends that the belief in the ability of a small group of experts to plan and control the economy and society is misguided and ultimately leads to the suppression of individual freedom and the erosion of democracy. This, obviously derived from his observation of Austrian and German society sliding into fascism in the 1930’s, has been often seen as his most important point and used in arguments against any form of socialist and Keynesian eco- nomic policy (Ward, 1979; Slobodian, 2018).

 

The introductory chapters of CoL are used to give readers clarity on the specific ontological understanding of freedom and liberty, Hayek upholds. His approach is defined by strict clarification of intent and terminology. Explicit concern is placed on a maximal reduction of coercion in society. The idea being that only interpersonal and concrete infringement of action constitutes coercion. Hayek therefore employs exceedingly puristic conceptualizations of things like freedom and liberty. This understanding of freedom, which “refers solely to a relation of men to other men” seems itself purposely restrictive. One could even go so far, as to suggest a pattern in which he continuously anticipates possible re- strictions to his specific framing of the debate, just to step over the exact logical boundaries, if it suits the point he is trying to make. Examples of this perceived inconsistency are present not just in his admittance of other possible sources of coercion, concluding in the restriction to interpersonal coercion, but also in the assumption that even though many might not prioritize freedom over every- thing, he still argues for a society built on that premise. He goes on to argue that it is enough if only a minority is free to pursue its own interests. A view, seemingly not entirely compatible with his understanding society (CoL, Ch. 3) Hayek lays out his vision for a free and functioning society, one in which individual liberty is protected by a limited government that allows for what he perceives as a spontaneous emergence of social and economic order. He argues that a truly free society must be based on the rule of law rather than the arbitrary will of the government or any other single group. In accordance with the philosophic tradition of Classical Liberalism, which Hayek sees himself in, he also emphasizes the importance of private property rights, which are essential for individuals to make their own decisions and to be able to plan for their future (CoL, Chapter 3). Throughout both works, Hayek stresses the importance of this "spontaneous order" that emerges from the interactions of individuals in a free society. He argues that the complex and ever-changing nature of society cannot be fully understood or controlled by any single group or individual.

  In the eyes of the author, this thought in-itself, represents an interesting and even noble insight. However, the conclusions drawn on economic policy, by him as well as his self-proclaimed successors from the Austrian school, often seem short-sighted and at times even primitive in comparison to his original epistemological point. In the following, the theoretical side of his argument, will there- fore be put under close analysis, some possible reasons, for this perceived discrepancy explained.

 

Based on his views on the limits of human knowledge, Hayek advocates a society organized around a market order in which the state’s role is almost exclusively enforcing the legal order. Again, it can be said that his argument against any consciously directional management of society, due to the inherent limits on public knowledge does hold some merit. Not only can this be considered a fair point, but it also represents the argument, which has impacted the economic mainstream the most, and has shaped Hayek’s image in modern political economy. It seems less understood however, that he, nevertheless, shows a certain understanding of the necessity for public systems of basic welfare. Inherently this central argument, can be understood to entail a proposition to give all members of society the best possible foundation to contribute to this spontaneous process of knowledge generation. Based on his views on the limits of human knowledge, he advocates for a society organized around a market order in which the state’s role is only to enforce the legal order (CoL, Ch 9; RtS, Ch. 6). Hayek also critiques collectivism, the belief in the collective ownership of property and the need for government intervention in the economy and society. He argues that collectivism ultimately leads to the suppression of individual freedom and the erosion of democracy. That society's problems can be solved through collective action is misguided and ultimately leads to the suppression of individual freedom and the erosion of democracy. Furthermore, any infringement of the economy, indirectly constitutes infringing upon the entire freedom of the markets (RtS, Ch.5).

 

However, this logic contains an appeal to the maximization of individual competence and education, which could be extrapolated to a support for institutions of public healthcare and education. Though, he himself does not seem to make this conclusion in the selected passages, an extrapolation to this extent seems entirely possible. After all, people who are neither healthy nor literate can hardly be expected to contribute best to the common human endeavour. He even makes the metaphor of building a highway, to empower everyone to go where they want to go, being permitted within his moral framework, if the destination is not set, as well (RtS, Ch.3).

 

Similarly, the coercion of employees by employers, with the thread of firing and the possible consequences of losing one’s income, does seem as much applicable. Especially, in the society he envisions, which lacks any support for the poor and unemployed through the state (RtS, Ch. 5).

 

These points seem especially evident in the following three passages, which have been quoted directly from CoL, so readers can make their own conclusions.

 

Yet, though much of the non-rational that affects our action may be irrational in this sense, many of the “mere habits” and “meaningless institutions” that we use and presuppose in our actions are essential conditions for what we achieve; they are successful adaptations of society that are constantly improved, and on which depends the range of what we can achieve. While it is important to discover their defects, we could not for a moment go on without constantly relying on them. (CoL, Chapter 2)

​

"The question of how many courses of action are open to a person is, of course, very important. But it is a different question from that of how far in acting he can follow his own plans and intentions, to what extent the pattern of his conduct is of his own design, directed toward ends for which he has been persistently striving rather than toward necessities created by others in order to make him do what they want. Whether he is free or not does not depend on the range of choice but on whether he can expect to shape his course of action in accordance with his present intentions, or whether somebody else has power so to manipulate the conditions as to make him act according to that person’s will rather than his own." (CoL, Ch. 1)

​

"By “coercion” we mean such control of the environment or circumstances of a person by another that, in order to avoid greater evil, he is forced to act not according to a coherent plan of his own but to serve the ends of another. Except in the sense of choosing the lesser evil in a situation forced on him by another, he is unable either to use his own intelligence or knowledge or to follow his own aims and beliefs.

 

Coercion is evil precisely because it thus eliminates an individual as a thinking and valuing person and makes him a bare tool in the achievement of the ends of another. Free action, in which a person pursues his own aims by the means indicated by his own knowledge, must be based on data which cannot be shaped at will by another. It presupposes the existence of a known sphere in which the circumstances cannot be so shaped by another person as to leave one only that choice prescribed by the other. Coercion, however, can- not be altogether avoided because the only way to prevent it is by the threat of coercion. Free society has met this problem by conferring the monopoly of coercion on the state and by attempting to limit this power of the state to instances where it is required to pre- vent coercion by private persons." (CoL, Ch. 3)

 

Hayek’s inherent doubts of the competence of the individual mind to make in- formed individual decisions, accounts for his fluid perspective on the relation- ship between desires for collective, versus individual freedom. As a result, the reader’s experience becomes itself a rollercoaster of conflicting arguments, from contemplating the geniality of his critique of the presumption of human omniscience, to his ignorance of simple socioeconomic factors potentially influencing individual decision-making. It is precisely in this contention, where the basic conflict becomes visible, which one can put exemplary focus on. The reason for this perhaps might be, that he had personally only experienced the coercive power of an authoritarian state, but not that exerted by the pressures of existential dread and abject poverty. While he had personally come to know the kind of stateside infringements of personal liberty, which he put as the central source of coercion in CoL, his privilege (Slobodian, 2018).

​

Advice & Alliance

​

It can only be presumed why Hayek writes much about creating ideal conditions for his idealized chaotic process of knowledge-accumulation but seems unwill- ing to realize the coercive power of economic existence in capitalism. If this is, because he never experienced such pressures himself, has, of course to remain the cause of speculation. The Author recognizes that this point, is one of severe reduction on biographical circumstance, but still professes this be a possible factor, in view of recent debate on this, in the scope of modern identity politics and contemporary critical theory (Bernstein, 2005).

 

Though his concepts may seem philosophically sound and are derived from justifiable epistemological concerns about the inherent limits of human knowledge, Hayek expands upon it in a more suspect way, adding for instance, that even government intervention that did not initially challenge the market economy in principle would lead to the abolition of freedom in the long run.

 

In his text “The principles of a liberal social order” he argues instead that coercion is a necessary result, if such freedom is challenged and that

​

"An effective defense of freedom must therefore necessarily be unbending, dogmatic, and doctrinaire, and must make no concessions to considerations of expediency."

(Hayek, 1966).

​

This unveils a certain, though ironic tendency to reactionary authoritarianism. This is also pointed out by Hayek’s critics, in reference to his relation to Augusto Pinochet’s regime and his comments on preferring a free-market dictatorship to a socialist democracy (Piketty, 2020). In this respect, Hayek was allegedly already criticised by Joseph Schumpeter, as

​

“to be recommended exclusively to well-heeled self-made gentlemen and slaveholders.”

(Butterwegge et. Al. 2008).

​

Another negative indication for the reliability of policy inspired by Hayek’s writ- ings, exists in the current decline of economic power and social cohesion, both the United Kingdom and the United States, where after 1980, the governments of Margeret Thatcher and Ronald Reagan had reshaped their economies follow- ing principles of Hayekian thought, under the name of “Thatcherism” and “Rea- gonomics” respectively (Manne, 2010).

 

It seems therefore that Hayek’s legacy as a figurehead of modern neoliberalism and libertarianism, is in part the fault of his own dissonant and inconclusive po- sitioning, as well as incomplete and possibly wilful misinterpretation in service of arguments for the economic policy preferred by business-interests (Ward, 1979). An assumption that fits well with the Idea put forward by post-war Keynesian Michael Kalecki in his “Political Aspects of Unemployment” (1943) of an alliance of employers and landlords, which recruited economists to develop justifications for low taxation and against government spending, so as not to increase costs.

 

Hayek is not alone in this. After all, even economics’ grandfather Adam Smith, is not safe from this phenomenon of paradigmatic instrumentalization, which is observable with many conventional interpretations of his Wealth of Nations, which all too often seem to leave out Smith’s views on inheritance, landlords and worker’s rights (Rothschild, E. & Sen, 2006). Hayek however cannot be given the same benefit of doubt as Smith, since he spent his early career together with his mentor Ludwig Mises, as a scribes for the Austrian Chamber of Commerce, professionally arguing against strikes for higher wages long before finally embarking on the development of his own theories (Slobodian, 2018).

 

The relationship of economic theory and applied policy in general, tends to develop those elements which favour the desired policy aims and suppress those which are disliked by the relevant politicians, because an adviser in direct con- tradition to the government’s publicly announced policies is likely to be ignored (Coats, 1999). Thus, the economist ceases to be independent in his expertise and the question of ‘truth’ becomes guided by his values and biases which have no scientific foundation (Rothschild, K., 2004). Hayek’s friend and contemporary, as well as intellectual nemesis John Maynard Keynes already drew attention to this elementary problem and its potential consequences, when he writes:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back" (Keynes,1936).

 

A thought, which seems a fitting conclusion, when examining Hayek’s influence and effect, through a critical lens.

 

This can be understood to suggest either, that Hayek’s views influenced his own conclusions, or at least many of their interpretations. Additionally, this calls into question the reliability of his methods and expertise. Something which is not only evident in Hayek’s persistent assertion, that he cannot and does not need to prove his theories empirically, as derived from the principles of praxeology, developed by Ludwig Mises (Caldwell, 1984). This can also be seen in many economists’ opinion on Hayek. Neoliberal Milton Friedman for example writes:

 

“The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.” (Friedman, 1993)

 

Or as, another respected economist Jeffrey Sachs fittingly concludes that:

​

“Hayek's assertion that high taxes and welfare spending stand in the way of economic development, is empirically untenable” (Sachs, 2006).

​
 

Bibliography

 

Bernstein, M. (2005). Identity politics. Annual review of Sociology, 47-74. Butterwegge, 

C., Lösch, B., Ptak, R., & Engartner, T. (2008). Kritik des Neoliberalismus.

Caldwell, B. (1984). Praxeology and its Critics: an Appraisal. History of Political Economy, 16(3), 363-379

Coats, A. W. (1999). Economic policy advice: opportunities and limitations. The transfer of economic knowledge, 74-89.

Demirović, A. (2008). Neoliberalismus und Hegemonie. In Neoliberalismus (pp. 17-33). Verlag für Sozialwissenschaften. 

Fleetwood, S. (2013). Hayek's Political Economy: the socioeconomics of order. Routledge.

Friedman, M. (1993). The “plucking model” of business fluctuations revisited. Economic Inquiry, 31(2), 171-177. Gramsci, A. (1917). the problem of ideology.

Gramsci, A. (1918). the dual character of gramscian time.

Hayek, F. A. (1966). The principles of a liberal social order. Il politico, 601-618. Hayek, Hayek, F. A. (1960). The Constitution of Liberty. University of Chicago Press. 

Hayek, F. A. (1944). The Road to Serfdom. Chicago: University of Chicago Press.

Kalecki, M. (1943). Political aspects of full employment. Selected Essays on the Dynamics of the Capitalist Economy. 

Kurz, H. D. (2019). Zur Bildung von Blasen im Fach und was man dagegen tun kann.

Keynes, J. M. (1936). General Theory of Employment, Interest, and Money.

Piketty, T. (2021). Capital and ideology. In Capital and Ideology. Harvard University Press. Polanyi, K. (1944). The Great Transformation (2nd. Introduction by Fred Block ed.).

Rothschild, E., & Sen, A. (2006). Adam Smith's economics.

Rothschild, K. (2004). Truth, Uncertainty, Morals: The Uneasy Relationship between Economic Advice and Politicians. Role of Truth and Accountability in Policy Advice, 170.

Sachs, J. D. (2006). Welfare states, beyond ideology. Scientific American, 295(5), 42.

Shearmur, J. (1996). Hayek and after: Hayekian liberalism as a research programme. Routledge. Slobodian, Q. (2018). Globalists. In Globalists. Harvard University Press.

Ward, B. N. (1979). The Ideal Worlds of Economics: Liberal, Radical, and Conservative Economic World View