My Hayek exposure was mostly The Use of Knowledge in Society style stuff. I am just now reading The Road to Serfdom for the first time.
While his analysis of why markets work has always been wonderful, from what I can tell his political economy seems to echo that of a distinctly left-of-center economist by modern standards.
Probably nothing has done so much harm to the [libertarian] cause as the wooden insistence of some [libertarians] on certain rough rules of thumb, above all the principle of laissez-faire.
We must save capitalism from the unconstrained free-market. Is this Hayek or Robert Reich? Hayek makes repeated reference to the fact that it is only competition as a rough principle that is to be supported. Indeed, he goes on to say
The [proper] attitude of the [libertarian] towards society is like that of the gardener who tends a plant and in order to create the conditions most favourable to its growth must know as much as possible about its structure and the way it functions. No sensible person should have doubted that the crude rules in which the principles of economic policy of the nineteenth century were expressed were only a beginning, that we had yet much to learn, and that there were still immense possibilities of advancement on the lines on which we had moved.
Tell that to Peter Thiel. Additionally
Nor can certain harmful effects of deforestation, or of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation by the price mechanism. But the fact that we have to resort to the substitution of direct regulation by authority where the conditions for the proper working of competition cannot be created, does not prove that we should suppress competition where it can be made to function.
Now of course this is pre Coase Theorem, but Hayek isn’t even pushing Pigou’s The Economics of Welfare. When markets fail he suggests, command-and-control is appropriate.
Note, that I replaced liberal with libertarian to accord with modern American usage.
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Tuesday ~ October 26th, 2010 at 10:42 am
TequilaKid
Your first reading of The Road to Serfdom? That’s my cue! I am a caustic critic of Hayek, although of late I am beginning to see many virtues in him. That is, I like Hayek for the same reason Ayn Rand hated him – he was an old softie, free-market-wise, in stark contrast to Ludwig von Mises, who should have been a bullfighter. Hayek was not an overwhelmingly ideologically-minded thinker.
I believe his most egregious errors are in The Road to Serfdom and Capitalism and the Historians. I have trashed them both on amazon.com. I expose the clearest case of ideological mystification by Hayek in Hayek Flunks History (Again),
http://www.amazon.com/Capitalism-Historians-Routledge-Library-Editions-Economics/product-reviews/0415313287/ref=cm_cr_dp_synop?ie= UTF8&showViewpoints=0&sortBy=bySubmissionDateDescending#RRXQWUILW2X0V
I simply put his thesis — i.e. that the English Industrial Revolution promptly raised the standard of living of the masses — to a hard-science empirical test, and concluded on the basis of research done since Hayek’s time that he was utterly mistaken. I can’t resist quoting the punch line:
“Unfortunately for Hayek, it has been conclusively proven that ALL THIS IS JUST A LOAD OF CODSWALLOP. At the time I write (2007) there can be no doubt that the English Industrial Revolution did indeed bring about misery on a colossal scale. I need cite but a single fact to bring all of Hayek’s clever phrases tumbling down like house of cards: between the period 1825-1849 and the period 1850-1875 — in the space of one generation — THE AVERAGE HEIGHT OF GROWN ENGLISHMEN FELL BY ONE WHOLE INCH. This phenomenon, discovered by measuring skeletons in English graveyards, has no parallel on the European continent for that period. (R.W. Fogel: The Escape from Hunger and Premature Death, 1700-2100, Cambridge University Press 2004, Table 1.4 (p. 13), citing data from R. Floud, K.W. Wachter & A. Gregory: Height, health and history: Nutritional status in the United Kingdom, 1750-1908, Cambridge University Press 1990.)”
And my objections to The Road to Serfdom are legion. Hayek just didn’t have the right stuff for historical analysis, unlike his mentor von Mises. You see, von Mises had started out as a follower of the German Historical School, and it shows. He really understands socio-economic mechanisms. However his crackpot radical free-market theory stands in to contradiction to his historical sophistication, for a very simple reason: von Mises was against the state because he wished to defend the wealth of the ruling classes from encroachment by the welfare state. Von Mises’s arguments against state intervention are fairly modest in scope. He makes a mountain out of a molehill. But in truth he nowhere proves that state intervention necessarily runs counter to free competition. That is merely his methodological assumption.
Hayek lacks a theory of the state. He has no theoretical model of how the state interacts with the economy. The Road to Serfdom is utterly abstracted from any historical event, in the retrospective sense, that no events prior to Hayek had occurred in accordance with his playbook, and prospectively, because after he wrote the book nothing happened to confirm his thesis. Hayek blithely ignores the fact that if the state gets too bossy, people are going to vote for the opposition! Hayek apparently didn’t understand this basic principle of parliamentary democracies. His attempt to pin the blame for the decline and fall of the Weimar Republic on state interventionism is simply comical in its ineptitude. And historically contrary to the empirical evidence.
Between about 1927 and 1932 German democracy grew more and more authoritarian. Chancellor Brüning ruled by decree with the passive support of the Social Democrats. So far so good. But Hayek fails to see the motive for the SPD’s obsequiousness to Brüning: the growing electoral power of the radical right. The SPD wanted to avoid new parliamentary elections at any cost, because it knew it would lose them.
Thus it was the shadow of the radical right across the political landscape that imposed rule by decree on the Germans.
Authoritarianism –> Rule by decree,
NOT
Rule by decree –> Authoritarianism.
Tuesday ~ October 26th, 2010 at 10:59 am
TequilaKid
PS I hope I don’t offend anyone by being so irreverent to Hayek. I assure you that I am equally irreverent toward Marx and other monuments of learning. And I like Hayek — despite my critique of him — because he was a pragmatist, not a dogmatist.
Tuesday ~ October 26th, 2010 at 11:30 am
Rebecca Burlingame
Oh my. It’s time to pull The Road to Serfdom out of my latest Barnes and Nobles bag, and start reading.
Tuesday ~ October 26th, 2010 at 11:34 am
Edwin Perello
Imagine how much damage to Hayek’s legacy and the understanding of political economics will be done when all those new readers of Road to Serfdom by amateur protesters read [liberal] instead of [libertarian].
Tuesday ~ October 26th, 2010 at 3:24 pm
Wonks Anonymous
I had never before heard that Mises was ever in the Historical camp. I thought he was a follower of Menger & Bohm-Bawerk from early on. In fact I would have made the opposite assumption in comparing the two: Hayek had a sort of quasi-Burkean concern with context & detail. Mises was a rationalist who claimed to derive all his economics from logical axioms he knew to be certain a priori (“man acts” is the only one I recall).
“Hayek blithely ignores the fact that if the state gets too bossy, people are going to vote for the opposition!”
So in your example the radical right is the opposition to Bruning that people turn toward?
Wednesday ~ October 27th, 2010 at 12:55 am
TequilaKid
Yes, sad but true, von Mises started out as a true believer of the German Historical School. As a matter of fact his doctoral thesis was about the decline of serfdom in what is now southern Poland. Later he switched sides.
What I wrote about elections did not refer to Germany in the 1920s and 1930s. Rather, I was implicitly criticising Hayek’s depiction in The Road to Serfdom of an inexorably growing statist menace. In a democratic society the electorate can remove from power those who advocate excessive state control. Hayek nowhere envisages this possibility. That is a fatal flaw in his argument, and in my opinion results from his lack of any theory of government.
Wednesday ~ October 27th, 2010 at 12:36 am
Greg Ransom
Karl, Hayek’s best “political economy” book is Law, Legislation and Liberty.
I’ve been pointing people to this sort of stuff you quote for decades.
Most academics and intellectuals prefer to attack an invented strawman rather thsn engage Hayek’s actual work and positions.
That’s why I call my blog “Taking Hayek Seriously”.
As hou point out, there has been scientific and intellectual advance since 1944.
Still, as Vernon Smith says, Hayek’s work remains deep — and it takes some time and work to appreciate what is really going on at the deeper levels.
(See Vernon Smith on Hayek at my blog).
Wednesday ~ October 27th, 2010 at 8:33 am
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Wednesday ~ October 27th, 2010 at 1:24 pm
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Tuesday ~ November 2nd, 2010 at 7:26 am
Jerry Nicolas
Actually, Peter Thiel is advocating the removal of politicians as they are an obstructing apparatus who have conflicting standards which in turn impedes novel thinking and/or experimentation of economic concepts. This is not to say that he does not understand that our society still has deep structural developmental potential and believes that all principle concepts have been tried out.
Tuesday ~ November 2nd, 2010 at 8:25 am
TequilaKid
“Removal of politicians” indeed! What nonsense. This seems to be part of a campaign to delegitimise democratic forms of governmen, a logical conclusion of the so-called “social choice” ideology.
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