Hayek, Friedrich on Capitalism

Subject: Politics & Government
Pages: 14
Words: 3876
Reading time:
14 min
Study level: PhD

Abstract

This study points out that Hayek’s view of capitalism does not resemble the same points of views advocated by other proponents of capitalism. His support of capitalism is rather unusual because he limits his objectives and targets a specific audience (petty bourgeoisie), as opposed to the general populace, or all those who are interested in his arguments about capitalism. To portray this fact, this study establishes that Hayek’s work is based on weak arguments and to effectively come up with a clear understanding of this opinion, we see that Hayek does not appeal to the class conscious person but rather the people who are sympathetic to socialism (or in a more direct manner, the petty bourgeoisie who side with socialism as a means to end frustrations brought about by capitalism). In a more definite way, Hayek seems to discourage such people (petty bourgeoisie) from further inclining towards socialism by focusing on the wrong elements of socialism so that they support capitalism.

Introduction

Hayek, Friedrich was an Australian born philosopher who contributed a lot to several fields of study including economics, philosophy, politics and sociology (Wiseman 1). Some of the most significant contributions Hayek made were in economics and political philosophy but his most notable contribution was his defense of capitalism. These facts can be evidenced from his immense intellectual contribution to the Australian school of economic reasoning (Wiseman 1). One of the steppingstone Hayek used to support capitalism was his consistent criticism of socialism (which he identified to have the potential of turning into totalitarianism or dictatorship (Wiseman 1). This point of view led him to advocate the fact that even though collectivism was supported by a section of social philosophers, it worked best if there was some form of central authority that coordinated the activities of collectivism (Wiseman 3).

Since Hayek noted that a central authority was needed in socialism, he used this fact to reiterate his previous sentiments that socialism could potentially lead to totalitarianism because the central authority had to be vested with much power and this would in turn negatively affect the social, political and economic life of the people. Though Hayek acknowledged that capitalism had its own faults, he however, noted that market forces were bound to rectify inconsistencies in the capitalistic economy (Wiseman 3). For instance, he acknowledged that in a capitalistic system, the allocation of resources rested on a few individuals or institutions that do not have all the information needed to make resource allocation fair. In light of such irregularities in the capitalistic system, Hayek said that the price mechanism in the capitalistic society would eventually lead to a proper allocation of these resources. This sort of argument set the precedence for most of Hayek’s works and in respect of the above argument, Hayek observed that though the state stood at a focal point of how capitalism works, its influence had to be greatly restricted (Wiseman 4).

This study explores Hayek’s contribution of capitalism in the society but factoring in the general spirit of his works, it establishes that Hayek’s theory on free market capitalism is not compellingly strong. However, his theory is generally supportive of the western concept of capitalism and this is the reason why many regard him as one of the top heroes of capitalism (Wiseman 4). Nonetheless, factoring in the practical implications of capitalism, this study reiterates that Hayek’s’ contribution of free-market capitalism is centered on weak arguments which are critical to socialism and aimed at appealing to the petty bourgeoisie as opposed to all types of audience.

Conceptual Understanding

Hayek’s support of capitalism depends on the aspect of capitalism analyzed. His arguments are specifically designed to analyze capitalism in the Western world where resource allocation rests in the hands of a few individuals, institutions or a central authority. His arguments stand strong in free market economies and they basically refer to the economic system adopted after the breakdown of feudalism where most resources are allocated through market operations (Encyclopædia Britannica 1). In this type of economy, there is the prospect of government intervention through low taxes while the private sector is allowed to intervene where there are increased cases of excessive government of public intervention.

In other words, the market is not completely free from regulations because the government has a right to intervene in the operations of the market, either through fiscal or monetary policies (especially if a market failure occurs). This type of market economy also strongly relies on the price system of control which is also determined by free market structures which focus on exchange behavior and institutional exchanges. Resources play a crucial role in the determination of prices because an array of alternative ways to use resources determines the prices of goods and services. Individuals also play a big role in the determination of how the economy operates, as opposed to the will of the majority. This is one major reason why capitalism is frowned on because often, government officials and politicians are perceived as individuals who are out to maximize their own interests at the expense of the majorities’.

This conceptual confine in the understanding of capitalism is important because capitalism has been a growing concept which traces its roots back to the 16th century where there existed pockets of capitalism in the European society and in medieval times (Encyclopædia Britannica 1). The concept has therefore been changing over the years but the free market economy and free enterprise systems best conceptualize Hayek’s argument.

Planning

Hayek’s support for capitalism has never been more evident than from his criticism of socialism where he notes that though socialism seems like an attractive concept, it basically resembles slavery (Hansen 2). This statement was made in response to proponents of the concept who were advocating that socialism brought greater freedom to a majority of people. To cement his strong support of capitalism, Hayek is seen to greatly rely on the dangers, terrors and horrors of socialism and to make his opinions seem real; he selectively trashes certain concepts of socialism while failing to acknowledge the comprehensive nature of socialism.

To exhibit his contempt of socialism, Hayek points out the concept of planning. To explain his pro-capitalistic stance, he affirms that planning leads to the opposite of what it is intended to achieve in the first place, and instead of ‘planning’ amounting to social freedom, when applied in the socialist world, it amounts to slavery and chaos (Streissler 86). According to Hayek, this is the means through which socialism betrays its people, and to affirm his view; he makes reference to the Fascists who in his view lost their freedom under socialism. However, he fails to acknowledge that the fascists are only a small fragment of collectivists because there are other proponents of socialism (like the socialists) (Hacohen 395).

This view was made in contempt of contrary views advanced by proponents of socialism like Oska Lange who noted that the concept of planned economies in socialist societies have the potential of improving on the inefficiencies observed in the capitalistic society. However, in reference to this assertion, it is acknowledged by proponents of socialism which economists needs to have access to information regarding consumer preferences, production technologies and such like production factors for the above fact to stand true. Up to this point, Hayek agreed with the socialists that free access to information would ultimately increase the efficiency of the economy but he differed with socialists because socialist planners cannot easily have access to such information. To affirm his point of view, Hayek noted that it was difficult for planners to have access to information which is deeply dispersed among the population. In other words, it would be a very difficult task for planners to organize and coordinate the collection of information from a large population (without a centralized authority) to determine their preferences, tastes, fashion and such like factors. Due to this dilemma (regarding the collection of information), Hayek easily proposed the centralized collection of information to obtain such kind of demographical data about the population. In a sense, he indirectly referred this to capitalism. However, he failed to acknowledge the fact that, people need incentive to share information to authorities or other bodies.

Even as Hayek rubbishes the concept of a planned society, he pays very little attention to the principle of Marxism or the views of Leon Trotsky who writes about how Russia was able to accomplish in a few years what capitalistic societies would, in 100 years or so (Hansen 14). Instead, Hayek tries to show an untrue picture of planning when applied in theoretical or practical terms. To expose his distorted picture of planning, Hayek selectively analyses planning in the context of countries which are at logger-heads with each other, instead of focusing on planning in its entirety; where there are no geographic or national boundaries (Streissler 86). He also introduces the concept of class stratification which also has a significant impact on planning in general. Lastly, in his analysis of planning, he makes reference to the concept of scarcity which would obviously lead to the rise of group struggles to use the few available resources. These are the frameworks Hayek seeks to enforce his concepts of capitalism by appealing to socialists who “sit at the fence” between capitalism and socialism. In a sense, it could easily pass that Hayek is trying to convince an audience which is not familiar with the concept of planned economies.

Law Legislation and Liberty

One big dilemma in defining an economic system is defining the rules that are supposed to govern it in the first place. Also, part of the dilemma is determining the form that such rules are supposed to posses and the design they should consciously be crafted from. With regards to this dilemma, Hayek notes that the rules that govern the market should be applicable to all and be in an abstract form. This means that the rules formulated should be applicable to everybody, regardless of any social differentiating factor. To make these rules effective, Hayek also proposes that these rules should be designed in a manner that they encompass several circumstances prevailing in the economy.

However, Hayek fails to acknowledge that it is virtually impossible to craft laws which can be applicable to all circumstances. His analysis fails to acknowledge that the economic environment keeps on changing by the day and therefore, it is almost impossible to design laws which can be applicable in all economic situations. For instance, the penetration of Information communication technology (ICT) in the economic environment (today) has significantly changed the economy and therefore it is impossible to apply the same rules that applied in the 50s in such a situation. Regardless of this argument, Hayek goes ahead to propose the formulation of laws which are abstract and serve similar functions in social systems. Such kinds of laws include the law of property, law of tort and similar laws.

In the real world, it is almost impossible to come up with such universal laws because of the diversity that exists among human beings and also among major world economies. For instance, there is a great disparity in the manner human beings rank reasonable pluralism and therefore it is almost impossible to achieve a consensus among individuals. Moreover, even if consensus is reached among individuals, it is human nature for people to resist rules or regulations which can be perceived to be against them.

Hayek also registers increased contempt over the ability of human beings to develop economic laws because of the flaws in human capability. On the contrary, he expresses a lot of optimism on the ability of legal evolution to design economic laws to suit the working of the economy. In this regard, he notes that the process of making economic laws should be done in an unconscious manner and in the context of legal evolution of group selection. However, he fails to acknowledge that, although legislation can be effectively developed through legal evolution, it is still subject to human interference because human beings have the final mandate of designing the law. In other words, the legal evolution process is not completely independent of the influence of human beings.

In close relation to Hayek’s strong support of capitalism, he fails to acknowledge that, the designing of capitalistic rules has greatly failed in most capitalistic economies, with regards to upholding distributive justice. This fact is true because liberty provides a challenge to patterns and only through the establishment of lines of authority that the reverse can be achieved. For instance, if one wants to achieve certain individual or group goals, he or she needs to use his or her ability to streamline the population in terms of tribe or army affiliation to achieve such a goal. This trend has a negative effect on the upheaval of pluralism, freedom and prosperity which has fragmented and possibly led to the death of many capitalistic societies across the globe.

Historical Falsehoods

In the book, The Road to Serfdom, Hayek seeks empathy or seems to command authority from his readers by referring to his authority as a doctoral holder and as a person who initially used to support the concept of socialism (Hayek 1). This is in contrast to the fact that he should strictly rely on his arguments for approval. In this regard, Hayek seems to flatter the intelligence of his readers by trying to seek a common ground with his readers (on the basis of socialism). He makes reference to socialism as a popular concept in the society but this assertion is marred by falsehoods because socialism is not a belief in today’s generation (at least not in the western world). For instance, in the Western world, people or institutions whose input defines developmental paths are not all proponents of socialism, but this fact does not seem to affect Hayek’s emotional rapport with his audience. On the contrary, Hayek seems to take advantage of the fact that proponents of the socialist concept are fed up with Stalinism and many more are discouraged from it because its bears close similarity to the Nazism movement in Germany (Lessnoff 146). In this regard, Hayek seems to cement the concept of capitalism by taking advantage of the emotional weaknesses weak proponents of socialism have. This can be evidenced from his assertion that:

“if the people whose convictions now give it an irresistible momentum began to see what only a few yet apprehend, they would recoil in horror and abandon the quest which for half a century has engaged so many people of good will?” (Hansen 4).

In this statement, he tries to make up a situation where past proponents of socialism would be disappointed of its current makeup. The rationalization of Hayek’s concept in this example seems very interesting because he deviates from the factual underlying of his argument to an abstract support of his idea. His abstract arguments are further affirmed by his assertion that: “Is there a greater tragedy imaginable than that, in our endeavor consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?” (Hansen 6)

From this point of view, it is easy to conclude that proponents of socialism would easily side with Hayek because they are bound to believe that there is no bigger tragedy than holding on to socialism. This argument would especially hold water for proponents of socialism who probably have started to develop regret for holding on to socialism in their youth. Moreover, since a number of people still hold Marxism in contempt, they would easily side with Hayek, based on the fact that they would be seeking convincing arguments to affirm that the tragedy of socialism is too great to contend with. Instead of providing facts for his arguments, Hayek seeks to give such people the evidence of their doubts. In affirming his pro-capitalistic stance, Hayek makes reference to several calamities of socialism such as the Nazi Germany, the fascists in Italy and the Stalinists in Russia (Hansen 12). However, reference to these calamities is not substantial because for starters, fascism and socialism are not the same and therefore the fascist calamity does not mean that socialism is a failure (Hacohen 395). In further comprehending Hayek’s propaganda, it should be understood that socialism is only a fragment of collectivism and all attributes of socialism are therefore related to collectivism. To further expose the inconsistencies with Hayek’s arguments, Hayek makes reference to the fascists and Nazis as craving for socialists’ blood and in the same manner, capitalist are waiting to drown socialists in blood (Hacohen 395). These arguments are contradictory to each other but Hayek is blind to this fact and instead uses both scenarios in the same context. This fallacy leads Hansen to state that:

“Hayek, of course, is not original in his logic. He simply states more baldly the assumption at the bottom of the whole school which maintains Nazism and Marxism are twins; that Nazi Germany and Soviet Russia are species of one genus; that Stalinists and Nazis are both representatives of a new class hitherto unknown and unforeseen in history. Hayek’s method is characteristic of the petty bourgeois approach to this subject. Its appeal to petty bourgeois renegades from socialism has been demonstrated again and again, one of the most prominent recent instances being that of James Burnham, whom Hayek mentions favorably in a foot note” (Hansen 12).

The Proletarian Party

Hayek tries to show that the formation of a proletarian party (a party which seeks to encompass the interests of the people right from the cradle to the grave) in achieving socialism is not real but objectionable because the proletarian party holds the tool to do away with a capitalistic anarchy (Stöcker 9). Furthermore, through his reference of the proletarian party, Hayek comes out clearly to express emotions of revulsion among his audience because the proletarian party is a big headache for the socialists. However, he does not acknowledge that the proletarian party is equally a problem for the capitalists. This is the reason why the capitalists have endeavored to crash any small sign of an uprising of the proletarian party (Hansen 21).

Hayek further makes unjust examples of the Nazis in Germany and the Fascists in Italy by saying that both countries had already been introduced to socialism and the concept of the proletarian party was introduced by the socialists (Hacohen 395). However, Hayek does not let his readers know that the fascism movement was older than the socialist movement; meaning that the fascists “usages” were not introduced by the socialists (Hansen 23). To affirm this point of view, it is crucial to study the practices adopted by ancient oppressive regimes which were threatened by an uprising of the very people they oppressed. Moreover, in the customs of the Inquisitions, we see that the practices of the fascists date back to the ancient times (before socialism was introduced) (Hacohen 395). Also, referring the concept of Nazism to the concept of socialism is similar to referring the victims of the Inquisitions to their oppressors, but regardless of this comparison, Hayek goes ahead to declare that: “The relative ease with which a young communist could be converted into a Nazi or vice versa was generally known in Germany…” (Hansen 22). In fact, the only distinction Hayek makes of the people who are for and against Nazism in Germany is by referring to the pro-Nazis as the “old socialists” and the anti-Nazis as the “new socialists” (Lessnoff 146).

Appealing to his audience, Hayek further declares that a communist party can only be formed by the worst elements of the human society as opposed to the best elements (Hansen 20). Though Hayek tries to justify this opinion by noting that socialist parties would be led by dictators, he seems to cast a dark shadow on his earlier sentiments, implying that socialists were driven by goodwill and all have a high sense of idealism and that they influence the development of events (Ebenstein 108). This contradiction is reinforced by the fact that the dictatorial leaders in communism regimes are likely to be surrounded by gullible leaders who will be blinded by the selfish interests of scaling up the ladders of a totalitarian regime (Ebenstein 108). It is however interesting to note that capitalistic societies also experience the same problem (After Capitalism 4). Nonetheless, petty bourgeois are likely to be swayed by this argument and this is precisely what Hayek intends to do. Lastly, Hayek’s tact in swaying his audience to the capitalistic end is carefully tucked in human nature where human beings tend to agree more on the negative aspects of an event or concept rather than the positive aspects (Hansen 12). Since Hayek endeavors to paint socialism in a destructive way, his worldwide acclamation seems to follow the pattern of human nature where people accept his arguments because of the negative attributes of socialism but in the same respect, he makes an unjustifiable comparison to the kulaks or the Jews (capitalists) who are better off than most of the distraught examples he gives of the socialists. This view led Hansen to declare that:

“Hayek utters these poisonous slanders with the most “impressive authority” possible to a bourgeois professor. That he expects his readers to accept such garbage is an interesting indication of the low opinion bourgeois propagandists hold for the petty bourgeoisie and their knowledge of the program of socialism” (Hansen 25).

Conclusion

This study identifies that Hayek’s arguments are centered on attacking socialism as opposed to identifying the positive aspects of capitalism (viz a viz socialism). Moreover, this study makes an interesting observation that Hayek’s ideas were meant to sway petty bourgeois through unpalatable truths so that they agree with his pro-capitalistic principles. His arguments can therefore be best comprehended by a few elite who can question the authenticity of his examples and opinions. His popularity is therefore based on the hostility of his viewers towards socialism as opposed to facts and truthful arguments about socialism and capitalism. Hayek’s arguments are therefore no different from ancient arguments about big businesses and the age-old belief that capitalism is superior to socialism. This study is not however aimed at shifting this economic paradigm but rather to expose Hayek’s’ unusual arguments in the face of conflicting opinions.

Hayek’s arguments are further oblivious to the fat that some of the problems he identifies with socialism are also envisaged in the capitalistic system and what he fails to let his readers know is that both capitalistic and socialistic economies need a lot of work for them to act for the good of the majority. For example, Hayek bluntly attributes socialism to the development of totalitarian regimes and equally, he fails to acknowledge that some capitalistic systems today still fit the profile of totalitarian regimes. Hayek should have therefore acknowledged the fact that though capitalistic systems maybe the most practical to date, it has its faults. Considering the facts in this study, it is therefore correct to note that Hayek’s’ contribution of free-market capitalism is centered on weak arguments which are critical to socialism and aimed at appealing to the petty bourgeoisie as opposed to all types of audience

Works Cited

After Capitalism. Disadvantages of Capitalism. 2009.

Ebenstein, Alan. Friedrich Hayek: A Biography. Chicago: University of Chicago Press, 2003. Print.

Encyclopædia Britannica. Capitalism. 2011.

Hacohen, Malachi. Karl Popper: The Formative Years, 1902-1945: Politics And Philosophy in Interwar Vienna. Cambridge: Cambridge University Press, 2002. Print.

Hansen, Joseph. Hayek Pleads for Capitalism. 1945.

Hayek, Friedrich. The Road to Serfdom. London: Routledge, 2001. Print.

Lessnoff, Michael. Political Philosophers of the Twentieth Century. London: Wiley- Blackwell, 1999. Print.

Stöcker, Marco. The Battle of Ideas- Thatcherism: Battle for the World Economy. New York: GRIN Verlag, 2010. Print.

Streissler, Erich. Roads to Freedom: Essays in Honour of Friedrich A. Von Hayek. London: Routledge, 2003. Print.

Wiseman, Travis. Heroes of Capitalism. 2009. Web.