Friedrich von Hayek: Neoliberalism's prophet

As the economic boom of the post-war period ended in the early 1970s, neoliberal ideology emerged as a rebellion against the statist strategies of the previous era. While neoliberalism was critical of Keynes it was also a further development of themes present in classical and neoclassical economic thought. Its most famous proponent was the economist-philosopher Friedrich von Hayek (1899-1992). His theory till the 2012 U.S. elections constituted the central intellectual adversary for the global justice movements, the leftist states in Latin America and other critics of corporate capitalism.

Hayek won the Nobel Prize for Economics in 1974. The argument that he had propounded since the 1930s was that civilization was built on the liberty of individual members of society to pursue their own ends in the context of a free market and private property rights. Hayek's argument for the market as the central economic mechanism rested on his epistemological belief, interestingly analogous to Michel Foucault's views from the left, that the scientific pursuit of knowledge was inherently incapable of understanding the particular. For Hayek, the economic challenge was that knowledge is inherently decentralized; knowledge of the local is best understood by people living and working within the specific context, and therefore it is impossible for any individual, state or set of experts to have access to all information.

The reason that the decentralization of knowledge is an economic problem is because the economy always demands rapid adaptation to changes in the specific circumstances of time and place. The challenge therefore is how to transmit knowledge across dispersed agents to facilitate rapid adjustment. He argued that the market enables knowledge to be communicated in a more efficient way than any centralized authority because the market acts as a kind of communications system that guides people towards areas where they are most needed. For Hayek then, the market was the most efficient mechanism for satisfying economic needs.

Hayek's critique of statist policy however was as much ethical as it was economic. His definition of freedom was that individuals act on the basis of their own knowledge and in the service of their own ends. Therefore agents pursue freedom in unique and often incommensurable ways. Hayek asked: how do we construct a social order, with a minimum of collective force, which permits the peaceful co-existence of different sets of values? His reply was an anti-conservative echo of the doux-commerce thesis. The latter is the notion that arose mid-18th century that capitalism is a civilizing force: "it is almost a general rule that wherever manners are gentle there is commerce; and wherever there is commerce, manners are gentle" (Montesquieu 1749). Hayek argued that a market-dominated society, as opposed to a bureaucratized, statist system, allows for the civilized co–existence of difference.

For Hayek, the market, unlike any other institution, allowed individuals to pursue diverse goals in a complementary, peaceful manner. He argued that market allocation cannot be evaluated on ethical terms because it is the result of a spontaneous process that is, by definition, not knowable in its totality, and therefore its outcomes are ultimately unpredictable and thus unintentional. If an outcome is unintentional then it cannot be ethically faulted. Surprisingly, Hayek absolves market actors of the impacts of their actions because of his reliance on the notion that the state cannot achieve the total knowledge required to make ethical judgments. He believed that ethics in the market system cannot be evaluated substantively but only formally; that is, only in terms of whether the actor adhered to the rules of the game.

What then is the purpose of government? He believed that the role of the state was to maintain law and order and provide certain collective needs that the market could not satisfy. For Hayek, the proper role of government was limited to rules that protected individual liberty. His arguments concerning the decentralized nature of knowledge, his perception of the efficacy of the market as a communication system, his concern for the co-existence of moral diversity, his critique of distributive justice and his belief in rational autonomy, all add up to a call for decreasing state intervention and increasing the role of the market.

We cannot understand Hayek's social project without understanding his definition of progress in reference to other political positions. Hayek's key political innovation was that he took the notion of progress away from its traditional niche on the Left and re-scripted it into the ideology of the Right, without lapsing into traditional conservatism. The new neoliberal hegemony that Hayek articulated began with the reconstruction of the meaning of progress.

In his essay "Why I am not a Conservative" Hayek placed the three dominant ideologies: liberalism, conservatism and socialism, in triangular relationship rather than a continuum. Hayek's reactivation of the 19th-century English definition of the word "liberal" is, in the U.S., denoted by the word "libertarian," or today more broadly as "neoliberal." Hayek's viewpoint welcomed the spontaneously created unknown future, because he believed that in contrast to liberalism, his vision embraced the limits of human reason.

Along with differentiating his position from the constructivist rationalism of American liberalism, Hayek also distinguished his perspective from conservatism by arguing that the latter is fearful of the future and embraces the past to the point of being willing to use the State to slow change. He argued that conservatives resort to government because they believe in authority whereas he presented himself as being against authoritarianism and its intrinsic moralism. His specific critique of conservatism clarifies his anti-conservative elaboration of the doux commerce thesis. He believed that the civilizing force of the market lay in its capacity to allow a range of ethically diverse positions to flourish.

As noted, Hayek's critique of conservatism and advocacy of liberalism, is rooted in his fear of authoritarianism. He believed that the market was the best mechanism to move us from a society where decisions are based on arbitrary force, to one that is based on individual freedom. Curiously, despite his critiques, Hayek's reactivation of 19th-century liberalism eventually allied with social conservatism under the umbrella of the New Right. This alliance was not deterred by Hayek's espousal of ethical diversity precisely because both he and conservatives agreed on economic uniformity: in every context the market should be society's defining allocative mechanism. Hayek's contradictory commitment to moral variety simultaneous to a belief in commercial homogeneity blinded him to the dangers of capitalist authoritarianism. Despite Hayek's warning that knowledge was fragmented, incapable of being possessed in its totality by any governing institution, his theories reached their greatest influence through the policies of the most powerfully centralized governance institutions in all of human history: the International Monetary Fund, the World Bank and the World Trade Organization.

Thomas Ponniah was a Lecturer on Social Studies and Assistant Director of Studies at Harvard University from 2003-2011. He remains an affiliate of Harvard's David Rockefeller Center for Latin American Studies and an Associate of the Department of African and African-American Studies.

Photo: UniversidadFranciscoMarroquin/Flickr

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