Reason: If big government is really the culprit, why do Sweden and many Scandinavian welfare states seem to be prospering?

Hayek:Well, we mustn’t generalize. Sweden and Switzerland are the two countries which have escaped the damages of two wars and have become repositories of a large part of the capital of Europe. In Switzerland, there is still some traditional instinct against government interference. Switzerland is a marvelous example where, when the politicians become too progressive, the people hold a referendum and promptly say, "No!"

Reason: Yet Sweden is reasonably successful…

Hayek: Yes. But there is perhaps more social discontent in Sweden than in almost any other country I have been. The standard feeling that life is really not worth living is very strong in Sweden. Although they can hardly conceive of things being different than what they’re used to, I think the doubt about their past doctrines is quite strong.

Reason: From 1948 until about a decade ago. West Germany pursued pointedly free-market policies and experienced an economic recovery so vital as to be judged a "German Miracle." Yet, the Social Democrats are firmly in power today, and some American analysts have suggested that this indicates a basic flaw in the philosophy or strategy of the so-called Freiburg School, the group of free-market economists that led the "German Miracle." What mistakes did they make and what can we learn from their example?

Hayek: First, the idea that the Germans are now governed by a socialist government is just wrong. The present German chancellor admits–perhaps not publicly, but in conversation–that he is not a socialist. Secondly, until recently, the German trade unions were led by people who really knew what a major inflation is. And, until recently, all you needed to tell German trade unionists when they made excessive wage claims is that "this will lead to inflation," and they would collapse.
The German prosperity is due, to a very high degree, to the reasonableness of the German trade-union leaders which, in turn, was due to their experience with inflation.

As I understand it Hayek accepted some safety net throughout his life, but I’m wondering if there is anything as accommodating as the last sentence of the quote I cited above in later writings viz. “There is no reason why the volume of these pure service activities should not increase with the general growth of wealth.”

Hayek defended Sweden against the UK early in his career, on the grounds that tax levels weren’t such a big deal, but rather the kind of intervention. I think he did that less and less as time passed (and admittedly tax rates went up).

This problem arises in particular in connection with the various types of "fugitive resources," such as game, fish, water, oil, or natural gas (and perhaps rain, too, in the near future) which we can appropriate only by using them up and which no individual exploiter will have an interest in conserving, since what he does not take will be taken by others… It is undeniable that where for such technological reasons we cannot have exclusive control of particular resources by individual owners, we must resort to alternative forms of regulation (p 369).

It’s hard to know what he would have said about climate change. But asking what a real life Hayek would have said is less interesting than asking what he should have said given his theories and assumptions.

On the other hand, piecemeal legislation may effectively amend minor defects in the law, and so should not
automatically be dismissed. Indeed, Hayek notes in the Constitution of Liberty that even the British Factory
Acts may be justifiable. Nevertheless, even in making such piecemeal changes to the law, the potential for
adverse consequences should always be borne in mind.

Morris is putting a particular spin on Hayek. He wants to undermine the case for large scale regulations like Kyoto. He would prefer piecemeal legislation to tackle environmental problems on a case by case basis. This confirms my interpretation that even Morris himself is not against environmental regulation. His paper is primarily philosophical rather than policy oriented.

Frequently libertarian oriented economists quibble over how this should be done and express a preference that such regulations take the form of allocating property rights or proxies for property rights over Pigouvian taxes. Hayek was basically in the mainstream of economics and it is ridiculous to argue that one can derive a case for subsidising education from his system but not environmental regulation.

Why this endless need on the part of the left and the squishy centre to libel Hayek?

There are, too, certain fields where the system of competition
is impracticable. For example, the harmful effects of deforestation
or of thesmokeof factories cannot beconfined to the owner
of the property in question.

The interesting point about Hayek’s system is that it is possible to actually take a market anarchist interpretation of his system OR a classical liberal interpretation which accepts that if the State provides defence it must also provide social insurance but it is not really possible to derive a minarchist interpretation from it.

There is also much to be said in favour of the government providing on an equal basis the means for the schooling of minors who are not yet fully responsible citizens, even though there are grave doubts whether we ought to allow government to administer them (p 84).

 
On income support he wrote:

There is no reason why in a free society government should not assure to all protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organized community, those who cannot help themselves. So long as such a uniform minimum income is provided outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance, this need not lead to a restriction of freedom, or conflict with the Rule of Law (p 87).

 
Hayek certainly wasn’t supporting the kind of welfare state social democrats had in mind. If possible, he didn’t want governments delivering schooling or running social insurance schemes. And I imagine his idea of "severe deprivation" would have been much more severe than most social democrats would tolerate.

Modern capitalism depends to a large extent on the principle that land is ‘owned’ by private individuals. Once a society adopts this principle, people are forced into the market economy. They can only get access to land with wealth and the only way most can acquire wealth is to sell their labour. A society in which people are compelled either to sell their labour or to live as outcasts, criminals or mendicants is not one in which people are ‘free’, in any meaningful sense of the word.

Markets are therefore an efficient way to exchange information about personal preferences but the purpose of the market is an ideological one, namely, to facilitate the private ownership of land as the bedrock of society. People whose personal preferences are to live in a society where land and other goods like mineral rights and water rights are held in common ownership for the collective good are denied the opportunity to exercise their preferences in a market-based society.

It’s a legitimate response to market fundamentalism to argue that the ideology of markets is flawed, and therefore some interference with markets is justified to achieve ends associated with the collective good.

I wonder if you can find anything as supportive of welfare in latter books by Hayek. Particularly the line below seems more like the late 50s and early 60s Hayek than later, when he began to get a bit more uncompromising about his liberalism – but others will know better I expect.

All modern governments have made provision for the indigent, the unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge. There is no reason why the volume of these pure service activities should not increase with the general growth of wealth.