An Overarching Authority is No Arbiter of the Economy: Why Hayek Was Right and Why We Must Go Further

Within Hayek’s Individualism and Economic Order, we see an excellent explanation of the problems of allowing a central planner or any overarching authority to direct the economic actions of individuals and business. It’s succinct in demonstrating why economic actions cannot be centrally directed, explaining that economic decision making is a microcosm of individual actions that cannot be predicted by a central authority, and as a result giving justification for the market economy as the most efficient economy. However, we must take Hayek’s premise further and refute his neoliberalism which still justifies government action in the economy and ignores the social relations which further justify the market and its functions. To do this, we need to look at the works of Rothbard and Granovetter, who show us the framework of government-less, anarchist society where the market and individuals can function without the authority of neoliberal structures and social relations still exist within an individualist, market framework.

Hayek’s vision of economic functions being directed, not by an overarching authority but rather by the market and its pricing system seems to me to be the best function of the economic within society at large. The market is a collection of individual tastes and needs and is thus shaped by individuals and the entrepreneurs that respond to such needs. This then gives a certain equality to the market system whereby humans are not necessarily equal in terms of accrued wealth or resources, but rather as Flew puts its “our equality as creatures possessing the essential and peculiar characteristics of human beings”[1], meaning our equality is actually an equality of chance to achieve some form of material and social gain. It is also because of the microcosm of different knowledge’s and prices within the market system that gives us this equality as none are possessed with perfect information and thus cannot truly manipulate the system, as elements such as competition and the ability to votes with one’s feet make it difficult to work around it. As Hayek states, “the “data” from which ‘the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications and can never be so given.”[2] demonstrating the inability for economic data to be given to any particular authority or set of authorities that can govern the economy with it.

If we take the opposing view to Hayek’s position of economic freedom within a market-based context, we normally see planned, centrally directed economies where resources are allocated by a central authority. This central authority must, as a result of its control over the economy, have some form of overarching knowledge of different economic actions so as to best solve the “problem of how to allocate “given” resources”[3]. This concept however is replete with issues, in particular because of its reliance on perfect knowledge, which within the economy is practically impossible. The microcosm of different economic knowledge’s that Hayek identified cannot be pinned down by a planner or even mathematical models. As Hayek states, “Any approach, such as that of much of mathematical economics … systematically leaves out what is our main task to explain”[4], the main task being to show that central planning based on mathematical theorems isn’t possible in determining the wants and needs of individuals and providing supply for demand. Rather we need a price system that can give distribute resources in a competitive environment. However despite this, Hayek still supported the role of government in society, and thus allowed for a pervasive institution to effect individual choice and exchange.

As Hoppe notes, “According to Hayek, government is ‘necessary’ … in an advanced society government ought to use its power of raising funds by taxation to provide … cannot be provided by the market”[5]. Here we then see the neoliberalism of Hayek’s argument, where there is a belief that government can provide services outside of the market, or in other cases inject competition into markets. However this view allows for what is fundamentally an involuntary, monopolist system that, as Rothbard makes clear, has “attempted—usually successfully—to gain a compulsory monopoly of the commanding heights of the economy and the society”[6]. Further, the conception of a non-voluntary market has been forced onto society as a result of the rise of neoliberalism, proving predictions similar to those of Polanyi. However Polanyi’s conception of the market as an aberration I believe to be wrong, as a truly free market is a choice of society. Thus we must take Hayek’s economic model of price systems and combine with the concept of choice as Rothbard theorised, such as by completely allowing for voluntary exchange and removing society’s main monopolist, the state. We must also accept the role of the social in the economy and accept social and irrational actions within an economy, such as Polanyi’s conceptions of reciprocity and redistribution and Granovetter’s idea of networks being fundamental to the functioning of business actions in an economy. These conceptions of choice and society have been ignored in neoliberal society, and need to be brought back to the fore so as to allow for a society based on voluntarism and choice.

The neoliberal paradigm which currently exists has in some way adopted the Hayekian price system and placed it within the corporatist, government-controlled system we see. Conceptions of choice and society are seen as unimportant, as Thatcher’s famous epithet of there being no such thing as society sums up nicely. And while Hayek’s conception of price system working in a free market is in my opinion correct, his belief in the state as a viable institution means that a free market cannot exist as the state as it is itself a monopolist of power. Thus we must take Rothbardian concepts of choice in the market as well as anarchist ideas of choosing to function within the market at all, thus preserving individual choice and allowing for different forms of free societies.

[1] Flew, A. (2001). Locke Versus Rawls on Equality. Available: Last accessed 16th Nov 2014.

[2] Hayek, F (1958). Individualism and Economic Order. London: The University of Chicago Press. P. 77

[3] Hayek, F (1958). Individualism and Economic Order. London: The University of Chicago Press. P. 77

[4] Hayek, F (1958). Individualism and Economic Order. London: The University of Chicago Press. P. 91

[5] Hoppe, H. (1994). F. A. Hayek on Government and Social Evolution: A Critique . The Review of Austrian Economics. 7 (1), 67-93.

[6] Rothbard, M (1998). The Ethics of Liberty. New York: New York University Press. P. 161-162

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