Hayekian Socialism?

In the latest edition of Dissent, Jesse Larner has a leftist take on libertarian icon Friedrich Hayek. He "talks about what Hayek gets right, what he gets wrong, and where he is just a crackpot".

Larner joins a growing list of leftist writers and thinkers who share Hayek’s ideas on markets and the knowledge problem but not his suspicion of democracy and collectivism. Denison University’s Ted Burczak is another example. His recently released Socialism After Hayek won the Smith Center’s Annual Prize in Austrian Economics.

What Hayek gets right

Hayek makes a distinction between two kinds of government activity. The first is maintaining the rule of law. As Larner says:

The responsibility of a government that fosters individual freedom is to set up transparent and impartial rules so that the legal reaction to personal choices can be predicted for all, regardless of social station; to tolerate no privileged access to the law; to provide security; and to protect contracts and private property …

The second kind of activity is law making directed towards a particular outcome. Hayek strongly disapproved of this. According to Larner, "In The Constitution of Liberty, Hayek directs a great many words against laws designed with a specific purpose or remedy in mind — what modern conservatives call ‘outcome-based’ legislation."

Hayek argued that a society governed by abstract rules allowed a market order to emerge spontaneously. And by pursuing their own goals within the rules, individuals are able to coordinate their activities with those of others. Leonard Read once illustrated this using the example of pencil making. One group of people grow trees, another mine graphite, and another make paint — and through a mechanism of price signals people who have different goals and no knowledge of each others’ activities all make their contribution. Hayek’s point was, that the market will coordinate this kind of activity far more effectively than any system of central planning.

But "Today these observations are merely obvious", says Larner. And he’s right. It’s hard to think of anyone on the left who wants to eliminate the market in favour of central planning. Some leftists, like Ted Burczak, are enthusiastic supporters of Hayek’s argument.

What Hayek gets wrong

So much for where Hayek gets it right. What Hayek gets wrong, according to Larner, is the potential for voluntary collective action:

Hayek doesn’t seem to grasp that human beings can exist both as individuals and as members of a society, without necessarily subordinating them to the needs of an imposed social plan…

Not all collective institutions involve centralised government control. "Even a brief survey will show that there are all kinds of imaginative ways in which libertarian collectivism can coexist with capitalism and markets" writes Larner. Fishing cooperatives, ‘fair trade’ coffee collectives and the kibbutz are all examples of privately owned enterprises which function within a free market.

In Socialism After Hayek, Burczak argues for a market system where workers run firms according to democratic principles and governments redistribute wealth to support human development. Burczak calls it ‘post-Hayekian socialism.’ In a review of the book for Reason magazine, Steven Horwitz agrees that labor-managed firms are compatible with a market economy and adds that "it is possible to make a Hayekian argument for labor-managed firms (though not for mandating them) by focusing on the better communication of knowledge that might come from a more decentralized internal structure."

And the crackpottery?

Larner accuses Hayek of being a mystic and a romantic. How else can he justify his faith in established liberal institutions? According to Hayek, the morals and institutions which govern market societies are not the product of human reason but are the result of a long process of trial and error. He is sceptical about our ability to create a better morality or better set of institutions by using social theory as a guide. But, as Larner argues, this conservative approach could be used to support all kinds of oppressive social customs. It also undermines Hayek’s critique of those established institutions and moral practices he disapproves of. His arguments for reform are firmly grounded in his own theories about how societies work.

In reality, Hayek never argued that we should be prisoners of traditional morality and institutions. In his final book he argued for moral experimentation. So perhaps Steven Horwitz is right when he says that "the debate over markets vs. socialism will become more and more empirical." For him, the central question is "Do unconstrained markets produce outcomes for the least well-off that are at least as good as could be produced under other economic systems?"

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Andrew Norton
16 years ago

“But “Today these observations are merely obvious”, says Larner. And hes right. Its hard to think of anyone on the left who wants to eliminate the market in favour of central planning.”

Don – I think you are right that this is dead as a theoretical proposition and as an agenda for future change. But the left will still fight to preserve central planning where it exists, such as in the health and education sectors, even though they seem (to me, at least) to be classic cases of the dysfunction you get when you try to manage large institutions without market signals.

Jason Soon
Jason Soon
16 years ago

I think it is a bit of a trivialisation of Hayek to say that all he said was that markets work better than central planning. His more important insight was about how markets as an institution are better able to bring together the tacit knowledge of its participants and thereby increase the sum of information available to benefit its participants better than any other means of harnessing that tacit knowledge (e.g. through committee, through making them write down what they know and then having some expert AI sift through it).

For instance I’d say the concept of betting/prediction markets flows from Hayek’s thought.

16 years ago

Convenient post. I’ve been thinking about your Rawlsekianism (Neofusionism as I prefer) and was wondering whether it is the same as ordoliberalism?

16 years ago

Not all collective institutions involve centralised government control. “Even a brief survey will show that there are all kinds of imaginative ways in which libertarian collectivism can coexist with capitalism and markets” writes Larner. Fishing cooperatives, fair trade coffee collectives and the kibbutz are all examples of privately owned enterprises which function within a free market.

Which is when we need trusty old Mises to kill that rotten little monster and clarify some of Hayek’s ambiguities he left behind.

Mises says:

Private ownership of the means of production and public ownership of the means of production can be neatly distinguished. Each of these two systems of society’s economic organization is open to a precise an unambiguous description and definition. They never be confounded with one another, they cannot be mixed or combined; they are mutually incompatible.

1.The last Kibutz closed a little while ago.

2. Fair trade is a blot on the developed world’s morality. There is enough criticism written about this to explain why.

3.Fishing co-ops are hardly an endorsement of socialist practice. If anything they represent the co-operative nature of humans to work to together in one part of their work function to maximize benefit. In other words they are actually minimizing costs of production. Spontaneous cooperation is an endorsement of the capitalist system as the guiding principle is voluntary association rather than its opposite under socialism. In other words no one is compelled to freely associate. I find it amusing that anyone would even try to co-opt this as some sot of socialist function..

16 years ago

Socialism after Hayek reinvigorates the socialist quest for class justice by rendering it compatible with the social and economic theories of F. A. Hayek. Theodore A. Burczak advances a new vision of socialism that avoids Hayek’s criticisms of centrally planned socialism while adhering to a socialist conception of distributive justice and Marx’s notion of freely associated labor. In contrast to the socialist models of John Roemer, Michael Albert, and Robin Hahnel, Burczak envisions a “free market socialism” in which privately owned firms are run democratically by workers, and governments engage in ongoing redistributions of wealth to support human development, yet markets are otherwise unregulated.


1.Capitalism- at least the way Hayek imagined it is all about compsenation differentials. As long as it lifts all boats why should you or I care if Bill Gates is worth 40 billion or two billion as long as he is sellling his stuff in a legal manner.

In fact modern capitalism cannot susrvive without differentials.

Moreover running firms “democratically” is a crock of socialist nonsense as the Kibituz etc. has plainly proved. The german model ought to be a case study of what not to do with this democracy at the workplace thing. How about hiring and firing?

I see this as a neat way for the socialist menace to try and adopt Hayek as one of their own. Not even in a 100 million light years.

Sinclair Davidson
Sinclair Davidson
16 years ago

Don – here is some other reading for you


Nicholas Gruen
16 years ago

I’ve not read the essay yet, but Hayek is always open to this kind of attack. The conservative arguments for established rules are so foundational to his whole way of constructing his argument that he seems to a lot of people to leave himself high and dry as to which established practices he’ll back and which (like progressive taxation and various other things) he’ll critique.

I’m not sure that Hayek’s position is impossible on this score, but the way he constructs it he doesn’t seem interested in what matters most here – which is criteria by which we would draw the line – between those practices one accepts and those one critiques. Further, though he toys with Popper’s idea of piecemeal reform, there are some things he’s anything but piecemeal on – indeed he’s very ‘rationalist’ in his proposals for competing currencies – rather a big step to take on the basis of theory for someone who is against the wholesale demolition of accepted practices.

Further the same seems to me to apply to the other important line he has to draw. He indicates that it’s legitimate for the state to involve itself in lots of things – as Hoppe says “Hayeks view of the market and state cannot be systematically distinguished from a modern social democrat.” But he’s not clear on how to draw the line between acceptable and unacceptable state action. What’s a safety net that’s acceptable and what’s not – Hayek doesn’t say much to help us out.

Further he continually builds his critique of social democracy – on absolutes – between free markets and central planning. Now Hayek won the debate between markets and central planning, but that leaves a wide range of social democratic positions – from the US to the Scandinavian countries. It doesn’t look like the elements of collectivism in these mixed economies are leading them down a road to Stalinism.