25th October 2011
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.