Shortly after Margaret Thatcher became Leader of the Conservative Party, she “reached into her briefcase and took out a book. It was Friedrich von Hayek’s The Constitution of Liberty. Interrupting [the speaker], she held the book up for all to see. ‘This’, she said sternly, ‘is what we believe’, and banged Hayek down on the table.” Friedrich August von Hayek, (May 8, 1899 – March 23, 1992) was an Austrian-born British economist and political philosopher. He won the Noble Prize for Economics in 1974.
The efficient exchange and use of resources, Hayek claimed, can be maintained only through the price mechanism in free markets. He argued that the price mechanism serves to share and synchronize local and personal knowledge, allowing society’s members to achieve diverse, complicated ends through a principle of spontaneous self-organization. He coined the term catallaxy to describe a “self-organizing system of voluntary co-operation.”
Hayek has again been in the blogosphere this last week when Labor’s Foreign Affairs Spokesperson, Kevin Rudd mentioned him in passing in his latest essay, “Howard’s Brutopia” in The Monthly. Rudd précised the essay in The Australian (and I selectively quote – don’t we all?).
“JOHN Howard’s culture wars are essentially a mask for the real battle of ideas in Australian politics today: the battle between free-market fundamentalism and the social-democratic belief that individual reward can be balanced with social responsibility.
As concise a contention as I’ve seen – and my personal prejudices oblige me to agree.
“The contradiction within the political Right is as old as liberalism and conservatism: the ruthless logic of the market rubbing up against a tradition that holds that those with economic power have a moral obligation to protect those without it.
“For these reasons, it is critical that social democrats recognise that the culture war is not just a diversion. It is a fraud. There are no more corrosive agents at work today, on the so-called conservative institutions of family, community, church and country than the unforgiving forces of neo-liberalism, materialism and consumerism, which lay waste to anything in their way.
Seems an appropriate critique of 10 years of Howardism.
“By contrast, modern Liberals, influenced by Hayek, argue that human beings are almost exclusively self-regarding. They distort Smith, adopting The Wealth of Nations while ignoring the philosophical framework outlined in The Theory of Moral Sentiments.
Rudd has attracted much disparaging comment from various libertarian commentators, but interestingly it has focussed on asserting that Rudd is an intellectual lightweight who has misunderstood Hayek, for characterising his followers as being ‘almost exclusively self-regarding’.
I consider this to be a relative minor point in Rudd’s thesis that Howard’s culture wars are “the battle between free-market fundamentalism and the social-democratic belief that individual reward can be balanced with social responsibility” – a political conundrum as old as Adam I would have thought.
Much of the libertarian criticism seems to be along the lines of my ‘economic philosopher is better than yours, and I can prove it, so therefore your concerns are bullshit and you don’t know what you are talking about’.
After reading up on Hayek’s ideas, and viewing the cartoon version of Hayek’s The Road to Serfdom I appreciate the sentiment and would even like to believe it. His ideas are analytically attractive.
My misgivings lie with how the issues of global equity, solidarity and sustainability are provided for by a libertarian Hayekian free market system, other than by the reassurance that the free market will automatically produce these things through catallaxy and altruism – which I concede are an excellent model for localised community economics. However we live a society in which a single individual may have has much personal capital as an entire nation, and corporations have more economic power than many nations. We see exploitation, social, cultural and environmental degradation in their wake. On our road to serfdom we see a corporate free-market global economy that is essentially fascist, not liberal democratic. I think we need some kind of plan or we might see the world going to hell in a handbasket. I for one don’t want to see that happen – I wouldn’t want the apocalyptic cults to think their wildest fantasy had come true!
“Neo-liberals speak of the self-regarding values of security, liberty and property. To these, social democrats would add the other-regarding values of equity, solidarity and sustainability. For social democrats, these additional values are seen as mutually reinforcing because the allocation of resources in pursuit of equity (particularly through education), solidarity and sustainability assist in creating the human, social and environmental capital necessary to make a market economy function effectively.”
A reasonable, centrist view I would think.
What prevents the accumulation of power by individuals and corporations being exercised in ways which are oppressive, unjust, inequitable and environmentally destructive? What is history other than evidence that this is how human beings conduct their political and economic affairs?
The Libertarian would suggest that these things can be facilitated by rule of law, or even international law. But we know that powerful individuals and corporations will sooner or later act to circumvent the rule of law if they deem it against their interest. Indeed this is the libertarian creed underscoring The American War of Independence.
We’ve had more than 30 years of Hayekian inspired economics and it hasn’t exactly improved the lot of the third world, the working poor or the environment. Yeah, yeah, I know – it hasn’t been done properly. But isn’t that always going to be the situation? There will always be powerful vested interests who will support/exploit/subvert any ideology for their own ends.
I suspect libertarianism is as much a utopian philosophy as social justice is to the Left. Given all the necessary conditions inherent in the theory can be met to the requisite degree, then it should work – trust us, we have evidence from some studies!
Hayek’s ideas are clearly worthy of serious consideration, but so are the ideas of many others, so I am skeptical about holding them to be some kind of self-evident immutable universal truth originating from the Big Bang or your chosen theology.
With his appointment to the University of Chicago in 1950, Hayek’s emphasis shifted towards political philosophy and psychology. As a philosopher, after years of thinking about economics, did he consider these fields more, or at least equally important in his quest to understand the human condition?
I’ll let the man himself finish from his speech at the 1974 Nobel Prize banquet, where he makes salutary observations about being awarded a Nobel Prize for economics.
“Now that the Nobel Memorial Prize for economic science has been created, one can only be profoundly grateful for having been selected as one of its joint recipients, and the economists certainly have every reason for being grateful to the Swedish Riksbank for regarding their subject as worthy of this high honour.
Yet I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion.
This apprehension the selection committee has brilliantly refuted by awarding the prize to one whose views are as unfashionable as mine are. I do not yet feel equally reassured concerning my second cause of apprehension.
It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess. This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.
But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally. There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society – as the press tends to treat him till in the end he may himself be persuaded to believe.
One is even made to feel it a public duty to pronounce on problems to which one may not have devoted special attention. I am not sure that it is desirable to strengthen the influence of a few individual economists by such a ceremonial and eye-catching recognition of achievements, perhaps of the distant past.
I am therefore almost inclined to suggest that you require from your laureates an oath of humility, a sort of Hippocratic oath, never to exceed in public pronouncements the limits of their competence. Or you ought at least, on conferring the prize, remind the recipient of the sage counsel of one of the great men in our subject, Alfred Marshall, who wrote: “Students of social science, must fear popular approval: Evil is with them when all men speak well of them”.
From Les Prix Nobel en 1974, Editor Wilhelm Odelberg, Nobel Foundation, Stockholm, 1975.
Wise words indeed…
Filed under: Economics, Politics