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Home > Blogs > Anthony Harrington > Casting about for a new economics: rediscovering Hayek, part 3

Casting about for a new economics: rediscovering Hayek, part 3

Austrian School of Economics | Casting about for a new economics: rediscovering Hayek, part 3 Anthony Harrington

For the last of these three blogs on Hayek (last for now, anyway) I want to look at his suggestions for a practical implementation of his ideal form of minimal government. As with the previous blogs, it is worthwhile to set this against our present context of a huge upsurge in state intervention in the markets, via quantitative easing and re-regulation.

As we saw in part 1, Hayek is much more than a "laissez faire" economist. His ideal society, never mind the government for the moment, is composed of individuals who adhere to what most of us would recognise as basic standards of decency and where reasonable values pertain. In other words, government aside, individual freedom comes from individuals recognising certain constraints on themselves, such as not causing harm to others, respecting private property and respecting social values.

This is already quite a big ask, but not an unreasonable one, as many people would think. In the mid-1970s, Hayek felt that the society around him was already falling away from even this minimum standard (again, setting aside all talk of government for the moment). As he said in the conversations with Robert Bork that I referenced in part 1:

“Society is becoming more permissive, but the basic freedom on which it all depends, economic freedom, is under attack. Even permissiveness, the change in morals, is anti-liberal in a sense, because we owe our freedom to certain restraints on freedom. The free society rests on people voluntarily accepting certain retraints and they are very largely being destroyed. I blame the psychologists for a contempt for traditional mores, and it is these that secure our freedom.”

Economic freedom hinges on minimal interference from the state and a respect for private property. For Hayek, minimal interference means that, whatever form of government is in place, it must recognize the importance of limiting the power of coercion. What bothers Hayek and the Austrian School of economists very gravely is when governments take it upon themselves to make discriminatory rules that are aimed not at all citizens but at particular groups, be these “the rich”, “bankers”, “oil companies”, or whatever. As he puts it: “Legislation ought to be the safeguard of freedom, but it can be used to suppress freedom.”

To prevent this, what Hayek supported was a two chamber legislature, where one chamber is a law-making body, and the other chamber directs services which utilise the resources that are put under the power of the government. Overarching both of these, he suggests, should be a constitutional court which would have the ability to judge if any of the laws being passed are “ultra vires”, outside the scope allotted to the legislative body.

“That [system] would force the authorities to limit their activities. In my constitution, there are certain things that could not be done by anyone [no matter their authority]…. All special protected rights [such as are enshrined in the US Bill of Rights] are unnecessary as all are discriminatory actions on the part of the authorities. You only need a single rule that spells out what the grounds for coercion are, that it can only be exercised in specific circumstances.”

Actions that attack individual private property, such as robbery, would be the proper object of state coercion, which would be brought into play to prevent such. It would be up to the constitutional court to ensure that the state did not, itself, turn robber, through undue, discriminatory taxation. Hayek is in favour of taxes being proportionate, but he is not in favour of taxes being redistributive. That is socialism and a discriminatory attack on those who have prospered.

Where Bork takes issue with Hayek, in this ideal scheme, is that he sees Hayek as handing the final deciding authority to the equivalent of a Supreme Court, and in Bork’s view, Supreme Courts are all too prone to generating and perpetuating the very errors that Hayek would like such courts to defend against. As Hayek puts it: “You would still need a constitutional court, because no definition (of freedom, or liberty) is perfect and all definitions are improved over time. This improvement is the court’s main task.”

The problem with this, Bork rejoins, is that if you are trying to be even-handed, you need a definition of what is equal to what.

“Someone has to classify what two things are alike so that you avoid discrimination. So you then hand ultimate power to the court who can then say which things are alike and which things are different. My suspicion is that your proposal transfers powers from popular assemblies to courts. And since no two people agree perfectly on what things are alike and what are not, you run into problems.”

Hayek’s answer is that Bork is thinking of “the equality of effects, not equality of government action (the government acting even-handedly)”. If you focus on ensuring that government interaction is non-discriminatory, the court’s work becomes much simpler.

It’s a nice idea, but how we would get from the present position even in Western democracies to Hayek’s ideal state is not the tiniest bit clear. With the possible exception of the libertarian UKIP, there is no political party running on this ticket, to my knowledge, and should one come along, I wish them the best of luck in explaining all this to the electorate. The odds would be favourable on them losing their deposit.

For further reading on regulation and state power see:

Tags: discrimination , economic thought , fiat money , fractional reserve banking , freedom , Friedrich Hayek , John Maynard Keynes , liberty , Ludwig von Mises , personal freedom , state power
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  1. Bill Sharon says:
    Fri Feb 04 19:03:27 GMT 2011

    I'm appreciative of the overview of the Austrian School and Hayek in particular. His TOE (theory of everything) is seductive; it provides an explanation of how things could work is only we would all shape up and see things in the manner he describes. Price, he insists, is the fundamental driver of human behavior. Price moves people from being dentists to becoming surgeons; a neat explanation if it were remotely true. I would suggest emotion determines human behavior even though our left brain love affair finds this notion abhorrent. Just think of all the art, science, literature and all manner of human discovery that would never have happened if price was the only factor or even the primary factor in what we individually and/or collectively attempt to achieve. Yet, he actually describes the fallacy of his own thinking in the quotation that you have used in your blog series, 'we live by rules that we did not consciously design and which we don'€™t understand'€. I would suggest that those rules are evolving at an ever increasing velocity and what little we know we choose to ignore. While governments debate about balancing budgets there are at least three global issues that don'€™t even get mentioned. 1. Energy. Peak Oil (and gas and coal and uranium) is a fact; whether or not it has been reached is essentially an academic discussion. The period in human existence when the primary sources of energy were dug out of the ground will probably span two hundred years at the most. Regardless of whether one subscribes to the idea of global warming, the source of our current fuels is finite. 2. Population. It has been universally accepted that at the current rate of growth we will add 3.5 billion people to the planet in the first 50 years of this century. The rate of growth is almost more staggering than the 50% increase in the number of humans. The impact on resources is incalculable. 3. Water. There are estimates that tell us that only 3% of the water on the earth is suitable for human consumption. We choose to ignore these issues because they are so immense and because we cannot address them in our current economic systems. That doesn'€™t mean that they aren'€™t creating '€œrules that we don'€™t understand'€. Taleb tells us that the more we resist instability the greater the instability we create. So the seduction of the Austrian school is understandable. It would be nice if we could figure out a way forward by correcting the supposed errors of the past,€“ but when has that ever worked?

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