Thoughts on economics and liberty

Hans-Hermann Hoppe’s attack on Hayek doesn’t stick

Herman Hoppe whom I have discussed here and here, believes that Hayek is misrepresented as a classical liberal when he is, in reality, a social democrat. Also worth reading is Hoppe's interview here.

I've read much of Hayek's political philosophy (but virtually none of his economics). Despite Hoppe's claims, I'm unable to see why Hayek should be seen as a social liberal. Rawls, yes (although Hayek did seem to approve of Rawls). But Hayek, no. 

Hayek (along with many others such as Friedman) comes from the tradition of Locke and Smith. Locke allowed for a modicum of poor laws. Even Mises is not averse to a form of social insurance. This tradition is an investigative, open ended tradition that examines all aspects of liberty. It is not a closed system with its propositions "proven" and agreed by everyone. My take on classical liberalism emphasises, for instance, the importance of accountability. There are many aspects of liberty. 

In my view Hoppe greatly exaggerates Hayek's willingness to allow a government to take over any function for the "common good". The entire goal of his books, The Road to Serfdom and The Fatal Conceit (among others) would be lost if Hayek recommended giving the government a blank cheque. Indeed, at each step, and in great depth, Hayek warns us against government. A few unqualified statements are certain to remain in any work of the magnitude that Hayek wrote. The whole work must be seen as of one piece. A few minor statements here or there do not detract from his main thesis.  

Hoppe also makes false analogy between a firm and government to argue that the information problem that Hayek pointed out is less important than the private property problem that Mises pointed out. Indeed, both these necessarily go hand in hand. It is only private property that provides incentives to seek out the relevant local information (through prices). If you didn't own private property why would you even care to know? All you'd care for is whom you know and how many people you can terrorise. Why would specific information of an investment nature benefit you? Hayek is merely referring to prices as the key relevant information, and prices don't exist without private property. His theory is therefore entirely consistent with Mises's (and with mine, where private property is a function of accountability).

No firm has yet arisen to provide all services that a government generally provides. Some argue that such firms should naturally arise (Nozick wrote about protection associations). But they don't.

What prevents businesses (firms) from becoming governments if firms are so good at managing information? Well, to answer this we need to keep in mind Coase's insights and those of Demsetz, Milgrom and Roberts, and of many others. There are necessary limits on the size and nature of firms. But there are no limits to the size of countries (and hence of governments).

Small countries and large countries both operate with the same informational problems that Hayek pointed out. The SAME informational problems found in a large country government are found in a small country government. Providing border protection, police, and justice services is a different ball game to that of profit maximisation. If Hoppe were correct, then a small village government could successfully manage all its economic, border protection and justice activities as a registered corporation. It can't. That's precisely the point Hayek makes. Unless you make it a commune (even in which case the information problem doesn't disappear). But I trust Hoppes is not suggesting a communist solution. 

Hayek's information approach is therefore persuasive to practical policy makers like me who have seen how easy it is to make poor decisions within governments. That is why Hayek has been more influential with (classical) liberal politicians. 

I probably need to read Hoppe in more detail to understand his points. But from what he has raised, and from my preliminary analysis, I'm afraid the case against Hayek does not stack up.

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8 thoughts on “Hans-Hermann Hoppe’s attack on Hayek doesn’t stick
  1. Nick K

    "If you didn't own any private property, why would you even care to know?"

    That hypothetical is an impossibility. Humans by their very existence recognize private property and immediately act on it. The most basic property right is one's life. As soon as that individual acquires (by exchange, gift or force) a good (say to eat), they recognize their private ownership of the food in question. The "terrorizer" would not want anyone to eat or take HIS hard-earned source of sustenance.
    "Why would specific information of an investment nature benefit you?"
    If said "terrorizer" puts time into building a spear with which to threaten individuals, that is an investment. He invested his time. Stockpiling of the food stolen so that he can rest and sleep, that is an investment. He is saving the food for later consumption (it is capital). A human by their very nature, is always economizing. We are always making tradeoffs – exchanges between one end and another: whether autistic exchanges (with one's self. ie. using ones time to extract natural resources) or inter-personal (with another – that can include force). When the terrorizer decides to take from some, he is exchanging his time and energy to get the food desired. He is trading off other alternatives, like leisure or even peaceful exchange, according to his subjective perspective and unique information of time and place.
    So, be mindful that prices are measured in some other good/service. It is the opportunity cost of an action – the next best alternative with one's limited time and resources. That is the ultimate price. Money is just one good. When money was in the hands of the market, it was easier to understand this because it was tangible: ie. gold and silver. Your terrorizer would be making those calculated trade offs – the price of his action – in his head in choosing the means to achieve his ends.
    "Some argue that such firms should naturally arise (Nozick wrote about protection associations). But they don't."
    They would arise naturally if government was out of the way. If people knew there was no body that would come in with coercion to solve their problem, they would have no other alternative. Granted, creating a state is an alternative. But that doesn't mean private firms are incapable of doing so. Certainly as technology advances, the situation of what's possible changes.
    But returning to your point, just think about it! Why would investors and/or bright entrepreneurs waste their valuable time and resources trying to compete with a group that has a monopoly, moral legitimacy and vast resources that can be expropriated at will to provide for their defense? The bright minds of the world don't try to solve those problems – and surely the problems will be solved in ways currently unimaginable and certainly not under the current stagnate, inefficient models. Why would they when they have so many other free sectors of the economy where there are great opportunities – with sizable rewards – in which to compete. Moreover, everyone in society is raised with the expectation of government providing those services. It is inconceivable and so many don't endorse or even ponder the change. And that doesn't even factor in the government's coercive laws that stop those services from being provided, even if they wanted to be. Those are pretty insurmountable government barriers to competition.
    "There are necessary limits on the size and nature of firms. But there are no limits to the size of countries (and hence of governments)."
    Firstly, those limits aren't static. They are dynamic. The size of many of today's firms would be impossible even 80 years ago because of the lack of the necessary technology.
    Most of the problems you think are too large for the private sector, are "too large" under the current model. if patents didn't exist, would individuals stop trying to cure illness? Of course not. They would find better, more efficient methods and ideas. Necessity is the mother of invention. So maybe instead of numerous privatized police forces, the solution would be technology that protects the individual. Think space suits from sci-fi films. Who knows? It's impossible to predict, just like it was impossible to predict the internet and the changes to the world it has spurred, back in the 20s.
    Governments have limits! Government's have nothing and create nothing. They can only survive so long as they can TAKE from others. Governments are limited by the amount of wealth they can expropriate without destroying the private economy – without destroying civilization itself (which complete slavery would do).
    Moreover, government's are not immune from limits to their operations. If anything, they are even more handicapped in large operations and largesse because of their very nature. Whereas large firms have price signals, competition and resulting profit-loss from the two, governments are blind. It's the impossibility of rational socialistic calculation that both Mises and Hayek spoke of. Government bureaucracies never know if what they are doing is good, because of they can't compare it to anyone else and they never have losses. The money is just taken and handed to the bureaucrats. That doesn't even factor in the issues of corruption that result from the incentives of government. But even the most altruistic, intelligent public servants would still be completely handicapped to do their job anywhere near as well as an ever competitive, constantly innovating free market.
    If Hoppe were correct, then a small village government could successfully manage all its economic, border protection and justice activities as a registered corporation. It can't.
    There is no such thing as an acting village or government or corporation. The only true agents of action are individuals. When a government policy is announced, it is being pushed by one or some individuals – but ultimately one has made the final decision. The point being is that the smallest unit of action in society is the individuals that make it up.
    Absent a state, individuals are free to voluntary organize as they see fit to meet their subjective ends within a world of risk and scarcity. Read about Hayek's writings on spontaneous order. Order emerges, not by human design but by human action. No one person or group designs it, it emerges and constantly changes and evolves.

  2. Sanjeev Sabhlok

    Thanks, Nick, but I don’t get your point.

    Please note my comments were intended to (in a summary, not perfect manner) refute Hoppe’s comments about Hayek. I’m unable to identify the point you are making. Are you defending Hoppe’s portrayal of Hayek as a socialist (social democrat)? If so that didn’t come out clearly at all.


  3. Sergio T

    Great comment Nick!
    if Hayek is a social democrat(clearly a long strech, that create the debate), he is the most healthy social democrat around,(but checking the sources of the Hoppe article supports the idea that Hayek is not exactly a radical liberal, even if he is still a giant of thougth)
    Sanjeev, did you check this? please read it and see if that is a minor statement??
    page 54 of “Law, Legislation and Liberty, Volume 3” (you can read it in google books).

    I recomend to you Jesus Huerta de Soto books (they are free, search in google) he has a view that includes both mises and hayek, (similar to Hoppe)

  4. Sanjeev Sabhlok

    Sergio, I’ve read p.54. I agree entirely with Hayek (including social minimum). That’s a typical classical liberal position. I’ve elaborated on this issue extensively (far more than Hayek) in Ch.4 of Discovery of Freedom (still a draft – see proposition 5.

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