Are tax cuts the same thing as freedom?

As Jason Kuznicki writes at Cato@Liberty, there’s "a game lately played in the bookish corners of the left side of American politics" that you might call the "We Know Hayek Better Than You" game. It sounded fun, so I thought I’d have a go.

Many self-styled classical liberals pay lip service to freedom, but what they’re really interested in is cutting taxes and deregulating business. At the same time, many claim to be inspired by the Austrian economist Friedrich Hayek.

So what did Hayek have to say about the size of government? Surprisingly he argued that size isn’t the issue. The important thing is not that governments cut spending, but that they don’t engage in activities that are incompatible with free markets and competition.

In The Constitution of Liberty he explained that for classical liberals, freedom of economic activity means freedom under the law rather than the absence of government activity. He wrote:

… it is the character rather than the volume of government activity that is important. A functioning market economy presupposes certain activities on the part of the state; there are some other such activities by which its functioning will be assisted; and it can tolerate many more, provided that they are of the kind which are compatible with a functioning market. But there are those which run counter to the very principle on which a free system rests and which must therefore be altogether excluded if such a system is to work. In consequence, a government that is comparatively inactive but does the wrong things may do much more to cripple the forces of a market economy than one that is more concerned with economic affairs but confines itself to actions which assist the spontaneous forces of the economy.

Hayek went on to argue that "There are common needs that can be satisfied only by collective action and which can thus be provided for without restricting individual liberty." These common needs can include support for people with disabilities, "questions of health" and the sharing of knowledge.

Hayek’s point about the character of government activity is a bit too subtle for small government propagandists. And even though Hayek’s books seem to be selling well, there’s little danger that his new fans will actually read them.

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Nicholas Gruen
13 years ago

That’s 1960 odd when he published the Constitution of Liberty. He was OK with ordoliberalism in Germany which involved relatively high taxes, but even so taxes were a fair bit lower then. I think Hayek would have been quite a strong proponent of lower taxes by the time the late 70s rolled around. I think we’ve had this debate here on Troppo before.

Do you have any fix on his commentary from that time?

Sinclair Davidson
Sinclair Davidson
13 years ago

Like Nick I think we’ve been here before. Around the time of Rudd’s infamous CIS anti-Hayek essay. I pointed out in my AFR Review response that Hayek supported a lot of government involvement in the economy.

Sinclair Davidson
Sinclair Davidson
13 years ago

I suspect, however, that a Hayekian style government would be a lot smaller than current government size. But I take your point; classical liberals should argue for good government, something that is correlated with small government, but not for smallness per se. It is possible to have small but bad government.


[…] exactly the kind of question classical liberal thinker Friedrich Hayek would have asked. And since Ryan lists Hayek as an influence, it’s worth looking at how Hayek might have […]