Notes on Hayek

 

Friedrich Hayek's The Road to Serfdom presents an argument for market liberalism that is worth taking seriously.

• First he argues that socialism requires central planning of the economy.
• Second he argues that central planning is bad. This is for two reasons. 
• First, the economy will be much less efficient than a market system at production and allocation—people will not be as materially well off.
• Second, he says a central planning regime will necessarily be autocratic. And by this he means three things
• First, central planning CP is incompatible with democracy
• Second, CP is incompatible with individual freedoms
• Third, CP is incompatible with rule of law

For these reasons, he thinks market systems are superior and the only way to have a high standard of living and the kind of freedom he cares about.

Here's a breakdown of each part of the argument and some counter-arguments from my class.

1. • First of all, let’s look at some counter-arguments to the preliminary claim that socialism requires central planning.
     • You could simply argue that “socialism does not require central planning.”

• • • • One place to look is communist Yugoslavia. It was an advanced industrial socialist economy that used decentralized planning by worker’s councils, which were at least somewhat democratic. They also used markets. The worker-controlled factories and farms sold their produce to consumers and they competed with each other for customers.
      • Another place to look is the Mondrogon Collective in Spain. There you will see the same kind of worker controlled production model subsisting within the larger, essentially capitalist economic system of the EU.
      • There are speculative versions of the “socialism doesn’t require (central) planning” argument that come from anarchists, anarcho-syndicalists, and anarcho-primitivists, and the “social libertarianism” of theorists like Murray Bookchin.
      • Other short-lived but intriguing models, as mentioned in class, are the Paris Commune and Catalonia during the Spanish civil war.

• Some have argued that “capitalism also requires central planning.”
• If this is a counter-argument to Hayek, then I think by saying this we are implying one of two things: either
• that capitalist “central planning” is also bad, or
• that socialist central planning is not bad.
• If we are saying capitalist “planning” is bad, I think we would be pointing to oil and agricultural subsidies, bailing out banks, how welfare benefits subsidize low-wage-paying firms like Amazon, and so forth.
• These things (even a more comprehensive list taken all together) are, in my thinking, quite different from USSR style central planning that tries to set prices, set production quotas, and ration goods and services to people. That’s not to say one type of “planning” is worse or better. But I think they’re different. So, I think if we are making this “you do it too” argument, we are actually gesturing toward a much more holistic and exhaustive comparison of the good and bad parts of socialism vs. capitalism.
• If we are saying that central planning is not bad, or we should not be so suspicious of it, because capitalism also requires it, then I think we should move on to the other part of his argument, where he argues that central planning is bad. We should critique that argument directly. Because it isn’t obvious that capitalist “planning” is fine and dandy, so equating socialist planning with it doesn’t absolve the latter.
• In any case, the “you do it too” argument does not directly refute the first part Hayek’s argument, which is supposed to be a non-normative claim: that socialism requires central planning.

• But suppose we allow that central planning IS required for socialism. Let’s look at possible counterarguments to the normative claims for why central planning (CP) is bad. Again, there are two main ones: democracy and liberalism

• First, he says CP is not compatible with democracy.
• One counter-argument is that Hayek doesn’t know what democracy really is.
• Voting for representatives in a capitalist system, when most people work in non-democratic, hierarchical corporations, is not true democracy, we might say.
• If we accept this counter-argument to Hayek, it raises the question. Is it a choice between workplace democracy and the kind of representative democracy we are used to today in countries like the USA, Japan, and Denmark?
• Another counter-argument here is to accept that the USA is a democratic government/society (not everyone agrees, but for the sake of argument let’s say it is), and then look at war-time central planning by the USA during WWII, which did not result in a slide into autocracy.

• Second, he says CP is not compatible liberalism, which means, you guessed it, two different things:
• First, incompatible with liberalism means it’s not compatible with personal freedoms. I think the main argument here is that you do not have the freedom to choose where you live and work, because those things are part of The Plan. And you do not have free speech. He also cares that you have fewer freedoms (options) as a consumer and owner of property.
• Here it is interesting to look at the example of the USSR. People did have some personal freedoms in the Soviet system. You could usually move and change jobs if you really wanted to, you just had to apply for a new job and housing situation in order to do so. Young professionals had some choice of career path. But you would be assigned where you were needed after graduation, and refusing an assignment was possible but variously penalized. No free speech under Stalin. Later it got a little better, but true free speech and press were not a thing, just as it isn't in China today.
• The second part of Hayek’s point regarding liberalism is that CP is not compatible with the rule of law. He says that when public policy extends to things like production quotas, allocations of raw materials, assignment of workers to jobs, and so forth, it (public policy) has to become so case specific that it no longer has the character of general, settled, known policy. It is rather a situation where the people in charge of the bureaucracy have to be able to make judgement calls about a gazillion specific things based on local circumstances. If they are constrained by agreed upon general policies, they won’t be able to manage so much complexity effectively.
• I find this argument of Hayek’s pretty convincing. It makes practical sense to me, so I don’t have a counter-argument, but others may have some.

 

My Take

Because I find Hayek pretty convincing on the latter points (his normative argument against central planning) I am more interested in questioning the premise that socialism requires central planning. Does it really? What about achieving socialism or at least something different from capitalism using not-so-central planning, or using other forms of decentralized self-organization besides competitive markets? I think socialists should be interested in looking at examples like Soviet Yugoslavia and the Scandinavian models of social democracy. Is it possible to imagine an economy/society that blends those models?

1. One with more freedom of choice of work than the USSR, perhaps using incentives instead of assignments, etc.
2. One where factories would be required to be worker-owned/controlled, but would compete with other factories in a market, as the Mondrogon collective does quite effectively in Spain.
3. One where markets were used—in circumscribed, structured, and well-regulated ways—as mechanisms for distributing goods like food, clothing, housewares, etc. And perhaps markets could be used to allocate and distribute raw materials and indsustrial goods among the factories as well.
1. wherever markets are used, the state should regulate to correct for known problems:
1. negative and positive externalities
2. information problems/asymmetries
3. asymmetric transaction costs between suppliers and consumers, as with Insurance industry
4. asymmetric bargaining power, as with patients and hospitals
4. Perhaps with a universal basic income incorporated, as Hayek himself suggested.
5. One where many parts of the economy would be “de-commodified,” such as:
1. state funded education—make college and trade school free like high school already is
2. state funded medical care, “Medicaid for all”
3. state funded preschool and elder care as in Sweden.
4. public housing: I think Austria is known for having well-funded public options for housing in most cities, but you still have a significant private housing market as well, particularly in rural areas.
5. transport
1. state owned airlines, as in Denmark today
2. state owned rail service (Amtrak is an example, but it’s like the worst example, very under-funded)
3. busses and subways free, like Mamdani wants
4. urban planning for bike-able, walkable cities
6. And one where democratically agreed upon social goals would be pursued through various public policy mechanisms, such as grant programs, tax (and dividend) incentives, public works projects, conservation easements, etc.
1. Such goals might be environmental goals, having economically stable communities, re-localizing economies, and having healthy, fulfilling, non-alienating work for people to do.

This is just a speculative, back-of-the-napkin sketch of a possible alternative to American-style capitalism for socialists interested in avoiding Hayekian pitfalls. I think a good reading of Hayek can help anti-capitalists (or anyone) think critically about what socialism should or could actually look like. I don’t know if he puts the nail in the coffin of central planning, but in any case he gives good reasons to be wary of it and consider its implications carefully.