Hayek’s liberaltarian essay “”Free” Enterprise and Competitive Order”

I’ve been preparing a class on Hayek for MRUniversity.com, and I was struck by my reread of this essay, which was presented at the Mont Pelerin Society meeting of 1947 (it was later published in Individualism and Economic Order, pdf of the book here).

In this piece Hayek argues the following:

1. It is not enough for classical liberals to seek to limit the state, they also must outline what governments could and should do better.

2. Monetary policy should be used to limit unemployment, albeit in a rules-based framework.

3. Eminent domain is an essential function of government, especially in urban cities, and it needs to be thought through more carefully.

4. Many of the biggest dangers of monopoly stem from patent law and intellectual property protection, rather than from monopoly of the traditional “sole seller” sort.  On this issue Hayek sounds like Alex or Larry Lessig.

5. It is not enough to defend “freedom of contract” in the abstract, rather the details of the law really matter.

6. Hayek questions whether limited liability for corporations is always the right way to proceed.

7. Finally, although inheritance taxes have in the past sometimes been abused, “…inheritance taxes could, of course, be made an instrument toward greater social mobility and greater dispersion of property and, consequently, may have to be regarded as important tools of a truly liberal policy…”

You will recall that in other settings Hayek endorsed the idea of a social welfare state and also the taxation of pollution.


Here are some interesting papers about Hayek's correspondence with Otto Neurath:

My understanding is that Hayek became significantly more skeptical of the welfare state later in life.

I'm pretty sure I remember reading this in one of Hayek's later books, or in an introduction he wrote to a newer edition of one of his early books, though I can't remember which one it was at the moment.

Well, if he hadn't (and the UK of the 70s was a fine example of how not to run a welfare state - much like how America today is the object lesson in how not to run a health care system), there is no way the Iron Lady would have ever advised Queen Elizabeth II to appoint him to the Order of the Companions of Honour.

He never was enthusiastic. In his earlier essays he was already arguing for points #1-#7 above as a concession to overwhelming public demand for extensive nationalization:

It is from this long-run point of view that we must look at our task. It is the beliefs which must spread, if a free society is to be preserved, or restored, not what is practicable at the moment, which must be our concern. But, while we must emancipate ourselves from that servitude to current prejudices in which the politician is held, we must take a sane view of what persuasion and instruction are likely to achieve. While we may hope that, as regards the means to be employed and the methods to be adopted, the public may in some measure be accessible to reasonable argument, we must probably assume that many of its basic values, its ethical standards, are at least fixed for a much longer time and to some extent entirely beyond the scope of reasoning. To some extent it may be our task even here to show that the aims which our generation has set itself are incompatible or conflicting and that the pursuit of some of them will endanger even greater values. But we shall probably also find that in some respects during the last hundred years certain moral aims have firmly established themselves for the satisfaction of which in a free society suitable techniques can be found. Even if we should not altogether share the new importance attached to some of these newer values, we shall do well to assume that they will determine action for a long time to come and carefully to consider how far a place can be found for them in a free society.

That is, #1-#7 were conditional on the public demanding even more. So, the moment this overwhelming demand ebbed, he promptly went back to arguing for a "truly free society", that is, without the welfare state.

This is a good argument for libertarians who want to compromise in order to some say at the table. It is not good for liberaltarians, that is, people who see a future in a lib-lib alliance. Hayek's argument is explicitly advocating that the moment your compromise wins - when your beliefs become the status quo - you should betray your liberal allies and promptly rejoin the conservatives bargaining to abolish the welfare state.

...if one was objectively "preparing a class on Hayek", it's doubtful one would especially spotlight these cherry-picked out of context quotes.

Instead, one would emphasize Hayek's well documented core principles... and perhaps even mentionin why he won the Nobel.

What the state might usefully do: I was very struck by this the other day:
"... most people seem to believe that vCJD is caused by misfolded proteins called prions. Yet almost nobody with these prions ever gets vCJD:
from a study of 32 441 archived appendix samples, it seems that there are about 30,000 people in the UK carrying the guilty protein without
suffering any harm."

It reminded me that the government veterinary officer who spotted that the problem came from feeding animal proteins to cows, and successfully
got it banned, did a very fine job: he may well have saved many human lives, and certainly increased the happiness of cowkind.

Naturally, he has not, as far as I know, found fame and fortune. The bloke who propounded the "prion theory" got the Nobel Prize.

Now that this blog is happy to distinguish the real Nobel Prizes from the counterfeit ones, perhaps we should discuss why the Nobel committee routinely
breaks its own rules and gives awards to people whose work has not satisfied "prizes to those who, during the preceding year, shall have conferred the
greatest benefit to mankind." It behaves rather like a government, perhaps: did Hayek say anything about it?

The scientific consensus is still in favour of the prion theory, is it not?

His point, I think, is that the prion hypothesis, while very likely correct, has done very little to benefit humankind thus far. Whereas the guy who figured out how to stop mad cow disease actually has done something that is already benefiting humankind, but he didn't get anything for it. By the stated criteria, those who developed the prion hypothesis shouldn't get the award until their discovery actually bears fruit in the form of useful therapies.

Hasn't it? If we thought the infectious agent was merely something less exotic in the feed, we would've settled for cooking the proteins more thoroughly, and the working hypothesis would have been that the problem came from feeding insufficiently prepared animal proteins to cows.

The prize is given for novel insights which serve as watershed events in a field of study. They may or may not result in an immediate and significant benefit to society. Prion theory is one such insight.

Yes, but that breaks the rules: read 'em again.

A lovely summary of my position. Ta.

Indeed. How dare Risbank poseurs insinuate they belong in the same lofty league as luminaries who have conferred such great benefit to mankind as Yasser Arafat, Henry Kissinger, the IPCC, etc.


The fact that two of the real prizes are risible is irrelevant: it was economists' physics envy that lead to the counterfeit Nobels, not their belle-lettrist or warmonger envy.

Seriously, I expect this kind of small-minded pedantry from prior_approval, but...

It seems to me you're suggesting that if the whole world woke up tomorrow and agreed to call it the "Risbank Prize" or the "Who Gives a Shite Prize" that lots of people would be like: "Well, I though economics was on a par with physics, but thanks to this clarification, I clearly see now that this is not the case."

The importance of the distinction is that its neglect shows that the generality of economists gives not a hoot for precision or accuracy, but is far more interested in vainglory: rather a useful function, that.

'the counterfeit Nobels'

And not even deleted - talk about slashdot style karma.

But remember - don't mention the non-existent Mercatus Center effort to correct any of its derivative work which attempt to influence American policy makers in terms of the error in debt limits which comes from Carmen Reinhart's and Kenneth Rogoff's work - very few economists have any interest in the rigor required by science.

Hayek works in a three ideology model (that's where I got mine). He uses freedom, equality and community--essentially the same three stemming from the French Revolution.

But Hayek did not have principal-agent theory. Thus, in my model, freedom equates to principal; community to agent. The dividing line between principal and agent is thus not a political one, but exists rather in the brain of most people. It's an inherent tension between self-interest and social obligation. In Hayek, this distinction is often muddled--hence his approval of types like Pinochet. He liked Pinochet because he thought the strongman was a good agent.

Where to put egalitarians is an interesting matter. My current thinking has them as weak social conservatives, essentially similar to children: Take care of me! Give me things! I think there may be other types of egalitarians which are different. For example, communists are not supplicants; it's the dictatorship of the proletariat. Thus, it's hard to describe them as "weak".

In any event, Hayek had not reconciled himself to the enduring legitimacy of the three ideology (egalitarians were bad) and he lacked certain theoretical frameworks which would have aided him in organizing his thoughts and policy prescriptions.

That's not what he meant...grumble grumble grumble....

I realize Hayek had some exceptions but by the 70s or 80s he became even more libertarian. Almost radically different from young hayek. I believe this is noted in the paper on the Nobel prize winners and their ideological views that you blogged about not too long ago. Still this shows that Hayek was definitely not the doctrinaire others will have you believe.

The Austrians propose Keynesian solutions and/or Monetarist solutions (close cousins of one another) and they hate intellectual property, I've noticed.

These are basically the positions I hold and, indeed, I was convinced of them by reading Hayek, as well as a few others, like Milton Friedman. If they changed their positions in later life, I would attribute this to the fact that many people become a bit curmudgeonly in later life. We should not hold this against them.

Obviously if a society were to adopt these prescriptions by Hayek, it would put itself on the slippery slope leading to the Road to Serfdom and, eeeeeee!!!!

Hayek became more libertarian after the Koch Bros brought him to the US.

Was that before or after he died?

This always confused me as when I read Hayek (no matter the vintage) I am struck that at heart Hayek is and always was a classical liberal in the European sense of the word. How is it that so many of the more conservative libertarians and Tea Party types focus so heavily on the anti-socialism and miss the rest? The socialism Hayek rejected is so different in kind and scope from modern day American progressive and liberal thought that the comparisons seem nothing more than ridiculous name-calling.

I consider Hayek one of the classical thought leaders who most informed my own beliefs as a liberal and they seem very different from the core values of the most vocal of those who most often invoke Hayek. I just don't equate the world view of Hayek with the vast majority of the angry young white male libertarianism that makes up much of the internet commerati.

Nothing hurts libertarianism more than its most vocal proponents. And they can't even agree with each other. Take, for instance, your average libertarian party convention in Texas. You'll find some people that are really just nativists, and want to close the border. Others that claim that even having borders goes against liberty. Some really care about strengthening all property, but then the computer people tend to want nothing to do with intellectual property. Put them all in a room, and they have no platform.

Without some level of utilitarianism, Libertarians are lost. And so many people just can't seem to grasp utility and compromise. Which is why someone like Cowen or Sumners seem to be in different planets from your typical member of the Church of Mises.

I look forward to it. I have long felt like I would like to learn lots more about Hayek and the relevance of Hayek, but have yet to read a word of his works.

Thinkers can be cherry picked for any position. Sun Tzu, Clausewitz, and the Bible come to mind.

What's interesting are the arguments Hayek provides, not Hayek as a guru. If his arguments change that may be interesting for biography, but both arguments may have value and ought be employed, perhaps by different people.

Hence, while Bohr's atom and quantum ideas and their beautiful pictures and sort-of vague philosophy are powerful, so are Sommerfeld's demands for equations (which led Schroedinger to look for an equation, Debye asked him for one), and his more phenomenological analysis of spectral data ("number mysticism" it was called by some) led to Heisenberg's matrix mechanics with its focus on only observable quantities and on combinations of allowed/forbidden atomic transitions. Sommerfeld's two viewpoints are not to be quoted out of context to provide cannonfodder.

I would imagine that complex thinkers, with long histories, will have diverse viewpoints. What's interesting is the quality of their arguments. If you want to use them as icons and gurus, you can, but the problem is that their texts are available to all. You can argue what was Hayek's true position, but for my money I want to know about the arguments and justifications and evidence for each position. But then of course neither Hayek, Einstein, nor ... are icons for me.

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