“As a student pointed out during a lecture on this subject, this Hayekian market is probably closer to the Open Source movement in software development than to what is commonly invoked with the words ‘free market.'”
he Austrian School of Economics makes for an interesting case in the history of thought. While pro-free market thinking was certainly dominant for a good portion of the 20th century (and essentially all of the 21st century thus far), the Austrian School has always been more on the fringe of economic thought, than part of the mainstream. During the first decades of the 2oth century, the dominant paradigm was neoclassical economics as espoused by 19th century economists such as Alfred Marshall. As of late, neoclassical economics has been influenced by the Monetary Theory coming out of the Chicago School, represented by the likes of Milton Friedman and Gary Becker. While there may be some superficial similarities between Austrians and Monetarists, such as their commitment to the free market, both sides arrive at their conclusions for very different reasons, and there are substantial philosophical differences between the two. Now, both camps are firmly on the Right of the political spectrum—at least when it comes to economic matters. However, the unorthodox nature of the Austrian School (and Friedrich Hayek) make both the Austrian School and Hayek important subjects for consideration, including for those of us who are left of center.
Hayek’s economic theory (and his political philosophy more broadly) are both derived from a more fundamental source: his theory of knowledge. It is impossible to understand Hayek’s commitment to liberty and the free market (and, importantly, why they are different from the more mainstream neoliberal and neoclassical approaches) without understanding his theory of knowledge. But it is also this theory of knowledge that opens up the possibility for what I see as left-leaning interpretations of his work. Before continuing, I should acknowledge that I am fully aware that my interpretation would surely be rejected by Hayek himself. My goal is, therefore, not to argue that my interpretation is what he actually meant in his work. In that sense, what I write here could even be read as a negation of some of his conclusions, though one that stems from his own premises and lines of reasoning. Finally, I am fully aware of Hayek’s later views on, for example, Augusto Pinochet’s dictatorship in Chile. These are completely unacceptable from a left-wing point of view and, frankly, from any pro-democratic and pro-individual-rights point of view. However, my claims here are only meant to apply to the specific aspects of Hayek’s thought that I will discuss here, namely, his theory of knowledge. This was originally laid out in his 1945 paper “The Use of Knowledge in Society,” and later given a more political and ethical bent in the second chapter of his 1960 book The Constitution of Liberty, “The Creative Powers of a Free Civilization.” These were published several years before the advent of neoliberalism and the Chilean military coup that removed Salvador Allende. I think that—when one analyzes these works closely—there is no reason to assume that support for the Chilean dictatorship was the inevitable conclusion, and, in fact, I think there are good reasons to conclude the opposite.
Hayek is often classified as one of the ideological fathers of neoliberalism, though I believe this is incorrect. As I said before, there are understandable reasons for this, even though what we now consider to be ‘neoliberalism’ differs from Hayek’s own philosophy. It is important to say a few words on why, which, of course, necessitates discussing what exactly is meant by “neoliberalism.” The word itself is much older than the set of policies it has come to describe. It originally came from the Mont Pelerin Society, of which Hayek was a founder. It was, then, used with a positive connotation because it was meant to describe a revival of the ideals of classical liberalism. However, since the 1980’s, it has come to refer to a very specific set of policies and reforms. In The Handbook of Neoliberalism, Springer, Birch, and MacLeavy state that, “[m]ost scholars tend to agree that neoliberalism is broadly defined as the extension of competitive markets into all areas of life, including the economy, politics and society.” More particularly, in Latin America where the term came to acquire its negative connotations, it refers to the set of policies also known as the Washington Consensus. In a 2002 policy paper titled “What Washington Means by Policy Reform,” economist John Williamson explains in some detail what these policies are. Even a quick look at the paper reveals that—rather than some broad philosophical ideal—the Washington Consensus is about technical aspects of policy-making. Williamson even uses the term “technocrat” positively. These include things like following certain monetary policies, the reduction (or elimination) of deficit spending, and putting forward moderate interest rates.
Hayek himself, as I described earlier, did show support for many of these policies. I do not think too much should be made of this support. My intention is not to imply that his support was insincere, but there can be many reasons to support specific policies, and as I have argued before, policies are not always the best indicator of ideology. To illustrate, socialists in the United States likely support Bernie Sanders in the presidential race, despite the fact that his ideology most closely resemble Scandinavian-style social democratic politics. There could be many reasons for this. Some likely see this as the least bad option; some others might see these kinds of politics as a legitimate and desirable stepping stone towards socialism, and there may yet be others who have different reasons. The point is supporting a specific set of policies does not require broad agreement about all values and goals. These kinds of subtleties are why I do not think too much should be made of Hayek’s support for the neoliberal policies of the 1980’s and 1990’s. In particular, I believe it is a mistake to let his support for those policies color the reading of his early work. Now, as I stated in the beginning, I make no claims about my particular reading being the correct one, and even Hayek’s early works are clearly meant to be an argument against government intervention, particularly in the form of central planning. But, once again, that also does not mean that they do not contain anything that hints at different conclusions—or points that could be valuable for the Left.
The two specific writings by Hayek that I cited earlier are concerned with the way knowledge is created, distributed, and used in society. In “The Creative Powers of a Free Civilization,” Hayek explains his view that—while scientific knowledge is the most easily understandable example—every bit of information, including things as simple as what one wants to eat, are knowledge and should be treated the same in some important respects. The creative powers that the title of the chapter alludes to are closely related to the use of knowledge. Scientific knowledge is rarely the work of one single individual. Instead, the ability of scientists to freely exchange information allows them to make use of the knowledge created by others. Philosopher of Science Michael Friedman—for unrelated reasons—makes a very similar case in Dynamics of Reason. He explains that even something as exceptional as Einstein’s formulation of the Special Theory of Relativity would not have been possible without the work of other physicists and mathematicians such as Hermann Minkowski, Henri Poincaré, and Hendrik Lorenz. I point this out mainly to note that there are those who share some of Hayek’s views without the ideological commitment. Of course, it is easier to put ideology aside when exclusively discussing science, and Hayek does extend this view to other areas where ideology is not so easily discarded, like economics. But the point is that there is nothing inherently ideological about this view of knowledge.
Economic calculation, says Hayek in “The Use of Knowledge in Society,” necessarily happens. The question is not if it is done—but rather who does it. Of course, in order for economic calculation to occur, specific knowledge is needed. However, the kind of knowledge is quite different from the scientific type. This includes the knowledge of necessities, wants, capabilities, etc., together with the time and place in which they exist. Something like what one wants to eat at any given time might not seem like particularly important information, but, in Hayek’s view, it is essential for economic calculation to happen. This is where his rejection of central planning stems from. This form of knowledge is created so rapidly—and with such a dispersed distribution—that it would be impossible for any one agent to obtain it, aggregate it, and make the necessary calculations to produce and distribute economic goods. Therefore, it is better to have calculations made as close to the information as possible. This way they are done in the market, where information is freely exchanged closer to where it originates and to where other agents can respond to such information.
The value of a free market, in this view, does not rest in the efficiency brought about by firms competing against each other, but by the cooperation that is made possible through the free sharing of information.
It is interesting to note that the notion of economic competition is virtually absent. In “The Creative Powers of a Free Civilization,” in fact, the word is used to refer to the competition between different modes of social organization, rather than the classical notion of firms competing with each other, leading to lower prices, and so on. The market here is described, in many ways, much closer to a cooperative organization rather than a free-for-all competition. The value of a free market, in this view, does not rest in the efficiency brought about by firms competing against each other, but by the cooperation that is made possible through the free sharing of information. As a student pointed out during a lecture on this subject, this Hayekian market is probably closer to the Open Source movement in software development than to what is commonly invoked with the words “free market.”
It should not be difficult to see why at least these early stages of Hayek’s work are in many ways contrary to what we now call neoliberalism. With a bit of conceptual stretching, we could even say that the set of economic reforms pushed through the 1980’s and 1990’s are a form of central planning. In the end, it is still the state enforcing a particular form of market organization, rather than one that develops more or less organically. A point made by economist William Easterly illustrates this. In his book The Tyranny of Experts, he adopts an explicitly Hayekian frame to critique the international development consensus. Explaining why the core of his argument is not about the endless free market vs. state intervention debate, he writes the following:
“Regardless of which side wins the market-versus-state debate, the state is still able to violate the rights of private individuals with impunity. In the ‘market’ side of the debate, it is still the leader of the state that gets to decide what is a ‘market’ policy. The state leader is able to pick and choose whose rights and which types of rights individuals may temporarily enjoy, such as the economic freedom to trade with whom one wishes.”
I think this captures the essence of why, despite being two ideological frameworks in favor of free markets, the two rest on entirely different worldviews.
All these elements of Hayek’s general outlook and philosophy, I believe, leave open the possibility for very different conclusions from those commonly associated with his thought, and frankly, from those to which he eventually arrived. Hayek himself, as I think should be clear by the brief exposition of his thought, speaks highly of the powers of group organization and cooperation. The problem is that from his own principles, there is really no credible way of establishing some kind of threshold after which a group is too large to be considered a legitimate organizing vehicle for cooperation. There is one brief section in which he writes the following:
“The argument for liberty is not an argument against organization, which is one of the most powerful means that human reason can employ, but an argument against all exclusive, privileged, monopolistic organization, against the use of coercion to prevent others from trying to do better. Every organization is based on given knowledge; organization means commitment to a particular aim and to particular methods, but even organization designed to increase knowledge will be effective only insofar as the knowledge and beliefs on which its design rests are true.”
I find this quotation interesting for two reasons. First, it quite clearly shows that liberty is compatible with collective action; but secondly, it fails to give a solid argument against why certain aspects of society should not be carried out by a single monopolistic organization, to use his words. There are various aspects of society that even a classical liberal (or an Old Whig, to use Hayek’s preferred term) believes should be left to a single organization, such as the administration of justice, which should be in the hands of the state. To analyze this in the light of the previous quote, the following could be said: the aim of the state in its role concerning administration of justice is to give social conflict the possibility of an impartial mediator. This is based on the knowledge that the absence of a mediator could result in violent outcomes—and that private mediators would not necessarily be impartial. I realize that this is a highly idealized view of the state, and that the state is often not impartial. However, the few examples of private actors making inroads into the administration of justice show that this would be even worse in private hands. One clear case is the private prison lobby pushing for more punitive policies. The point is that the administration of justice is, in the end, a service for which there is a demand. Yet, we still believe it is better off in the hands of a single monopolistic organization.
Of course, I am not trying to advocate that the state should manufacture consumer goods such as cars or computers. Here, I think Hayek’s theory of knowledge does point to the market being a smarter solution. But when it comes to goods or services for which we have the knowledge that is universally needed, why would a single monopolistic organization not be a valid solution, from this point of view? After all, there is given knowledge, namely their universal nature, and a particular aim, which is their provision. This, of course could include all manners of things that are universally necessary, such as healthcare, fire protection—but even something like a minimum income. Interestingly, this last one was viewed positively, even by Hayek himself.
Lastly, just as I do not think there is a solid case, from this perspective, for nationalizing every industry, I do believe that some of the more anti-authoritarian arguments that Hayek makes should be carefully considered by the Left. Just because it is possible to start from his own premises and make a case for stronger collective action, it does not mean that this should be seen as a justification for any kind of state action. In this sense, where we advocate for an expanded role for the collective, as opposed to individuals in the market, we should replace it with democratic decision-making where possible. In its purely procedural sense, democracy is, after all, little more than a method for aggregating information about preferences. If I were to summarize, then, what the Left should take from these early works by Hayek, I would say, first, that the push for greater collective action can also come from a framework that puts the individual first—and, second, that collective action should never be synonymous with authoritarianism.
Néstor de Buen holds an M.A. in social sciences from The University of Chicago. He has previously written at Quillette. He can be reached at email@example.com or on Twitter @nestor_d