Friedrich Hayek: Libertarian Hero or Ideologue?

The good, the bad, and the ugly.

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By Ulrich Witt

The social philosophy of Friedrich A. Hayek finds a renewed attention these days in the political arena of the U.S. – not least also in Evonomics (see the recent column by David Sloan Wilson). Foes and friends of Hayek’s ideas appear in new formations, hailing him as an intellectual hero or rejecting him as an ideologue. For a European spectator this new engagement in old battles is somewhat surprising.

Is the message of Hayek’s social philosophy still relevant? And, what precisely, was his message?

I came to know Hayek in the last years of his life when I joined the Faculty of Economics at the University of Freiburg in Germany in 1988. He was still around then as an emeritus professor and, although his health status was quickly deteriorating, he was always open to an exchange with a new faculty member. Social philosophy was not my field of research, but I got interested in Hayek’s version when I noticed how eager he was to give it an evolutionary foundation. Evolutionary theory is, of course, far away from any political messages which social philosophy usually imply. For me the evolutionary underpinnings therefore offered a framework against which Hayek’s project could be assessed, independently of the political motivation that had inspired its beginnings and kept it going thenceforth.

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The beginnings were the political concerns which Hayek expressed in his political pamphlet The Road to Serfdom of 1944. What were the conditions that motivated Hayek to write that booklet?

In the 1920s, Lenin’s Soviet state had been created as an instantiation of real socialism. Many intellectuals in Western Europe, not least in Britain, had developed much sympathy for, and great illusions about, Soviet type Socialism and its allegedly progressive society. Left-wing socialist parties (partly financed under cover by the Soviets) agitated in favor of a transition to Socialism: abolish private property and responsibility in businesses and replace it by government central plans for economic production and investment! This was believed to put an end to the allegedly wasteful regime of capitalist markets. The intellectual climate was pro-socialist even in Germany right after the end of WWII and the experience of Nazi totalitarianism. Had the U.S. forces, unlike other allies, not vetoed entering socialist claims into the new West German constitution, Germany would probably never have seen a market economy emerging that unleashed the economic energies that have made Germany what it is now, 70 years later.

In its historical context, The Road to Serfdom is thus a plea against massive illusions existing in the leading intellectual circles and beyond about the true tendencies and consequences of a political movement praising real Socialism. Had that movement been successful this would indeed have resulted in a political revolution undercutting all civil liberties.

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For a European it is a grotesque misapprehension of the context when The Road to Serfdom is used by free-market ideologues for political reforms in the U.S. To place Obamacare, for example, at the same level with the tyranny of real Socialism in the past century is possible only for someone who, unlike us Europeans, has not the slightest glimpse of what Socialism as a real system is and what harm it has done.

During the years of the Cold War, Hayek continued crusading against socialist ideas, particularly in Britain and the U.S. He got considerable public and financial support from political partisanship organizations and he enjoyed it (see C.E. Cubitt, A Life of Friedrich August von Hayek, Authors OnLine, 2006). However, his focus gradually shifted. Instead of the ever more obvious deficiencies of real Socialism, the Western welfare state and its redistributive policies became the object of his attacks, i.e. the democratic forms of what he considered still to be a child of socialist ideology.

Hayek’s book The Constitution of Liberty of 1960 – probably the most concise statement of his liberal social philosophy – for example, devotes eight of its 24 chapters to “freedom in the welfare state”. However, the adherents of the late Hayek (he died in 1992) who are now newly standing up in the U.S. may be surprised by the differentiated picture that Hayek draws in these chapters.

For example, he does not in principle oppose social security programs. He writes, for instance:

All modern governments have made provision for the indigent, unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge. … There are common needs that can be satisfied only by collective action and which can be thus provided for without restricting individual liberty. It can hardly be denied that, as we grow richer, that minimum of sustenance which the community has always provided for those not able to look after themselves, and which can be provided outside the market, will gradually rise, or that government may, usefully and without doing any harm, assist or even lead in such endeavors. There is little reason why the government should not also play some role, or even take the intiative, in such areas as social insurance and education, or temporarily subsidize certain experimental developments (pp. 257-258).

Hayek is not even opposed in principle to compulsory health insurance, though he rejects certain institutional forms of it.

There is little doubt that the growth of health insurance is a desirable development. And perhaps there is also a case for making it compulsory since many who could thus provide for themselves might otherwise become a public charge. But there are strong arguments against a single scheme of state insurance; and there seems to be an overwhelming case against a free health service for all (p. 298).

Hayek’s main critique of social security schemes is that they are vulnerable to mutating into a bureaucratic welfare state. That would not only discourage people from looking after themselves and invite moral hazard. It would also easily fall victim to the pursuit of separate interests of political clienteles and an intransparent redistribution of tax payers’ money. These concerns need to be taken seriously. There is enough empirical evidence of instances and episodes in which the resources of the welfare state have been diverted in these ways. Yet, part of the problem is that it is difficult to find objective criteria for determining where sound social security programs find their limits and where their abuse begins. Moreover, as Hayek recognizes, rent seeking and diverting tax money to separate interests is a built-in weakness of the political procedures in democracies in general.

To draw the conclusion that, for this reason, government needs to be cut back to a minimal state would mean trying to cure the disease by killing the patient. A cure must instead be sought by improving the democratic institutions. This can, for example, be tried by making the interests which law makers represent and their voting behavior as transparent as possible. Further, checks and balances between the law-making bodies need to be continuously overhauled and strengthened. In fact, this was the strategy that Hayek himself suggested when he worked out his own reform proposal. (In his Social Justice, Socialism and Democracy, Sydney 1979, he recommended a two-chamber law-making body. For one of the chambers he proposed a life-time appointment on a merit-basis for its quasi-aristocratic members to make them more independent of separate interests.)

However, the major reason for why Hayek’s ideas are revived these days by political circles particularly in the U.S. is, it seems to me, his wholesale rejection of income redistribution. In his social philosophy, liberty is incompatible, at least in the long run, with attempts at creating or raising material equality between humans, i.e. in terms of income, wealth, and living conditions. To defend liberty, income redistribution and measures such as progressive taxation must therefore be rejected, he claims. Thus, while by endorsing some form of income redistribution many prominent intellectuals tend to side with the beneficiaries of redistributive measures, Hayek is one of the few siding with the well-to-do who enjoy the better part of life and would have to pay for the redistribution.

In many modern states citizens enjoy personal liberties that, by historical standards, are unique. This is a cultural achievement certainly worth being defended. The question is whether it is indeed threatened by income redistribution irrespective of the extent of redistribution (income redistribution to be understood here as effecting an income distribution after taxes that is less unequal than the pre-tax distribution resulting from the market activities). While this question is not easily answered, it is obvious that, by pleading pro or con, it is inevitable to take sides in one way or other in the distributional conflict implied. This fact does not make it easier to form an unbiased opinion.

If taken literally, an incompatibility of liberty and income redistribution irrespective of the extent is hard to prove. In present times there is hardly any highly developed economy – i.e. economy with reasonably free markets and individual liberties – that does not practice income redistribution to some extent. I therefore read Hayek as warning against what he sees as a slippery slope: once implemented, income redistribution tends to breed demands for ever more redistribution.

At the end of the day, those who carry the burden would lose all control over the fruits of their economic effort, and those allegedly on the winning side would be compromised by benefits administered to them by a bureaucracy that runs a welfare state. Such a development would not be desirable, indeed, particularly if it were irreversible. However, there is no historical evidence for the inevitability of such a development.

Not surprisingly, Hayek and his adherents find nothing that could be said in favor of redistributing income so that the distribution originally brought about by the operation of the markets is “corrected” in the direction of a more equal outcome. Hence the exclusively negative balance they make up for redistributive measures. Yet, if the balance were indeed so clear, how can it be explained that so many people endorse income redistribution? Recognizing that not only the beneficiaries, but even many net payers endorse the quest for income redistribution, Hayek suggests an answer that involves an evolutionary argument.

He argues that the public endorsement of income redistribution is a result of egalitarian preferences. They evolved at, and are an inheritance of, ancestral times in which humans lived in small bands. With their intense face-to-face interactions, these bands allowed a fairly egalitarian participation in decision making and sharing of the band’s product, he explains. Traditional morals nurtured that way have been conducive to the emergence of the extended order of free markets. Yet they are no longer adequate, Hayek claims, once the conditions of the anonymous interactions of the extended order have emerged. “Once most of the productive activities of members of a cooperating group transcend the range of the individual’s perception, the old impulse to follow inborn altruistic instincts actually hinders the formation of more extensive orders” (The Fatal Conceit, 1988, p. 81).

Egalitarian values are thus assessed dysfunctional within the extended order of the markets that create the prosperity we now enjoy. The quest for redistributing income appears atavistic and erroneous, however skewed a market generated income distribution may be.

With the assumption that early human hunter-gatherer societies have been fairly egalitarian, Hayek seems in agreement with many anthropologists. Indeed, this feature has recently been explained by Christopher Boehm in his book Hierarchy in the Forest (1999) by the ability of the small bands to spontaneously form coalitions among their members. Through these coalitions, weaker members were able to block stronger individuals when they attempted to gain dominance and to subdue other members. Given the importance of this ability for upholding within-group cooperation, egalitarian preferences that make it easier to form blocking coalitions may well have implied a reproductive advantage at the group level. Over thousands of generations of human existence in hunter-gatherer bands these preferences may therefore have been selected for and may have entered the genetic endowment still present in modern humans as Hayek argued. But are egalitarian preferences indeed dysfunctional today when they induce people to endorse income redistribution in modern capitalist economies?

I think in a broader view on human history we find reason to assume that this is not true. History did not jump from the early hunter-gatherer societies to the conditions of the Medieval Mediterranean city states in which Hayek identifies the nucleus of the extended order of the markets of today. There are some ten to twelve thousand years in between during which agriculture unfolded and drove out hunter gatherers. The new production method resulted in serendipity and population growth. Group size increased far beyond that of the hunter-gatherer bands, making the spontaneous formation of blocking coalitions more difficult. Further, the necessary accumulation of capital in the form of harvested stock, livestock, dwellings etc. became a source of increasingly unequal personal wealth. Huge wealth differences facilitate attempts of individuals or families to gain dominance within their groups. Anti-blocking coalitions can be formed by buying allies.

As a matter of historical fact, in place of the rather egalitarian and participatory organization of human society, agriculture brought hierarchically stratified social formations. With them dominance and subordination, the characteristics of the social interactions of our primate ancestors, returned albeit in despotic and more cruel forms, including slavery and feudal villeinage. Thus, during the agricultural phase, human society took a road to serfdom in a literal, not the fictitious, sense which Hayek feared Western societies would be moving down in the 20th century, driven by a mislead egalitarianism. For that reason, the lesson to be learned from the road to serfdom actually taken in human history is not about how income redistribution threatens liberties that have been gained after a long struggle against feudal tutelage and suppression. To the contrary, it is a lesson about how the extreme income and wealth inequality of emerging despotism and feudalism have demolished the political organization of participatory societies and the personal liberties of their members.

In this light, the American Declaration of Independence and the French Revolution can be seen as mile stones at which the human kind reclaimed at least in some regions of the world a fairly egalitarian participatory formation. Under the conditions of modern capitalism it is no longer one akin to small bands with their spontaneously forming blocking coalitions. It is a much bigger and more anonymous formation in which individual freedom and egalitarian participation are upheld by institutional rules of the game characterized by checks and balances. But the rules and the checks and balances still need to be stabilized by the formation of coalitions capable of blocking claims to dominance and supremacy of small but powerful other coalitions. Their power grows more as the more extreme inequalities in the wealth distribution become and make it possible, like in the unfortunate past, to bribe and turn around members of blocking coalitions. With our innate egalitarian sentiments we may intuitively feel that income redistribution is not subversive to liberty, but a necessary condition for safeguarding it.

Coming back to the question in the heading: how should Hayek be seen, after all, as an intellectual hero or an ideologue? In my (European) view, the answer would be: Under the historical condition which Hayek developed his liberal social philosophy, his courageous opposition to a fashionable, pro-socialist Zeitgeist made him an outstanding intellectual. However, as I tried to point out, he misunderstood or did not wish to understand the role of income redistribution in a free society. Instead, his continued crusading against allegedly atavistic ideals of material equality puts income redistribution at par with socialist irrationalism. This one-sided interpretation paved the way for his arguments to be over-simplified for political partisanship in the United States. Hayek’s new adherents fail to account for his intellectual stature and make him appear post mortem like an ideologue.

2015 November 15

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