Reclaiming Hayek
Jesse Lerner has a fantastic piece in Dissent appraising the work of Friedrich Hayek from an explicitly left wing prospective. In Lerner’s opinion, Hayek got one thing absolutely right: that planned economies are horrible, horrible ideas. He thus spends a lot of time on Hayek’s most famous work – The Road to Serfdom – but not so much on his ideas about pricing in markets and the importance of dispersing knowledge.
What’s interesting about these two ideas, which are by far Hayek’s most influential intellectual contributions, is how obvious and almost redundant they seem today. The Road to Serfdom is either horribly overblown or very narrowly descriptive. His description of what inevitably happens when a state controls and plans the entirety of the economy is early prescient and perceptive, but is only applicable to situations in which the state control the entirety of the economy. Road became horribly bastardized when conservatives and libertarians would point to every instance of European social democracy or the existence of some state-owned industries and then wave around Road and say that tyranny was just around the corner(arguably, Hayek is partially to blame for this unfortunate tendency). But when we see that European social democracies are some of the most substantively and formally free nations on the face of the earth, we must grapple with the fact that either Road was wrong, or it was right about a system that has little relevance today. That’s not to say that Road wasn’t an important contribution in 1944, when many British socialists were promoting an incredibly technocratic, “enlightened totalitarian” model, but it’s hard to discern its relevance today when the most “socialist” states (Scandinavian social democracies) have the freest economies.
Hayek’s second great idea, his price theory, has a similar historical pedigree. His theory, that prices can only be determined efficiently by decentralized, dispersed markets, as opposed to central planners, came out of the Socialist Calculation Debate. Basically, in the 30s and 40s, lots of socialist economists argued that a planner and technocrats who were operating a centrally planned economy could set prices for goods that would efficient for their pseudo-market to function. Hayek pointed out that the equations and calculations necessary to determine prices from a centrally-planed perspective were just too complex for any planners, and thus the knowledge inputs that determine prices should be distributed widely and communicated through a relatively free market. Hayek, of course, was totally correct. But like his claims about an entirely planned state leading to totalitarianism, his arguments about pricing have largely been assimilated into mainstream thought and economics, and no one really disagrees with him anymore.
Hayek was a very influential and prescient thinker, and on the big questions of his day, he was indisputably correct. But when it comes to the messy part of actualizing Hayek’s thought into politics, too many have used his work to justify a doctrinaire libertarianism that is neither wholly supported by his thought or particularly commendable.
Quite true. As Judge Richard Posner (no socialist himself) pointed out in a reflection on Milton Friedman, the predicitve powers of Hayek were also lacking:
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paxamericana
May 23, 2008 at 1:00 pm
Although the two great ideas you write about in your post were both extensively worked on by Hayek, I believe the first great idea you attribute to Hayek was really first articulated by Ludwig von Mises in an essay called “Economic Calculation in the Socialist Commonwealth”. The essay was excerpted from Mises’ 1922 book Socialism.
Also, though these two contributions you list are extremely important ideas, especially market prices as communication devices, I think you are neglecting one of Hayek’s other huge contributions. Before he decided to write about constitutions of liberty and law treatises, Hayek was one of the preeminent capital theorists in the world. His book, Prices and Production, outlines the heterogeneity of capital and the time structure of production, and this early work is what many believe won Hayek the Nobel Prize in 1974–though the Sveriges Riksbank never explictly stated why Hayek won the prize.
To be sure, Hayek was a very astute scholar, and by all possible definitions a genuis of the first order, but much of his work was done in the wake of that done by Mises. Hayek picked up arguments where Mises left only a superficial treatment, furthering the ideas already touched on initially by Mises elsewhere. Hayek’s capital theory and ideas on the feasability of economic calculation under socialism are prime examples, though this is not to imply that the views of both Mises and Hayek were uniform throughout. Hayek would go on to adopt certain positions that Mises would never support, and, incidentally, many of those positions are the ones cited in Jesse Lerner’s essay. I think, though Hayek is great in many places, that Mises was his superior in presenting effective and convincing arguments in favor of the Classical Liberal position, and as a derivative of that, the truly free and prosperous social order. People would do well to investigate more of Mises’ works.
Ryan S.
June 2, 2008 at 7:48 pm
[...] rapprochement; liberals have come to accept Hayek’s insights about decentralization (as Matt Zeitlin pointed out) and libertarians like Wilkinson recognize that not every welfare state will descend into [...]
Liberals and the Free Market « Pax Americana: Culture, Politics, and Ineffectual Debate
June 3, 2008 at 2:35 pm
[...] the place. Apart from our own Henley (and the Will Wilkinson post he quoted) and Mona, here’s Matt Zeitlin: Hayek was a very influential and prescient thinker, and on the big questions of his day, he was [...]
The Art of the Possible » Blog Archive » More on Hayek
June 5, 2008 at 3:57 am