On Hayek and State Power

The Republican right is a rather tenuous mix of classical liberals, neo-conservatives and libertarians. The tensions between neoconservatism on the one hand, and classical liberalism and libertarianism on the other, has often been noted. Perhaps less attention has been given to the tensions between the classical liberal and the libertarian tendencies of the right. Both, it is argued, are wedded to an ideological commitment to laissez-faire in all segements of social life (whereas the neo-cons shield the military from market forces; or at least, the cut-backs dictated by austerians).

The classical liberal tradition of the right is closely associated with Hayek (along with other Mont Pelerin intellectuals), and the libertarian or ‘anarcho-capitalist’ tradition draws variously on Nozick, Rothbard, and in its more vulgar and populist form, Ayn Rand. Both of these traditions extol the market as the realm of freedom and hold up the eighteenth century as an idyllic era of market freedom and limited state intervention.

But this conflation of the two traditions masks significant differences between them regarding the role of the state vis-a-vis the market. In particular, the liberatarian narrative has perpetuated a false dichotomy of states versus markets. It is largely this narrative that has permeated American political culture. Indeed, it is a simple narrative:  the expansion of state action (or, in American discourse, the growth of ‘government’) comes at the expense of the market, and given that the market is axiomatically understood to the be the sphere of individual freedom, then the expansion of government results in an diminution of liberty.

This narrative has now been taken to extremes; and its anchorage in an idyllic eighteenth century (an eighteenth century that never was) means that it has become a dangerous form of radical idealism that is not interested in understanding the complex relationship between the state and the market. On the one hand, libertarians view the market as a mechanism that exists outside of politics, in which power does not exist, and the ‘voluntary’ contract between worker and employer is taken entirely at face value. On the other hand, the state is understood to be an apparatus of pure coercion, the functions of which can be entirely provided through the market place. Indeed, libertarian examples of a market economy often assume an overly simplistic form of direct producers engaged in market exchange unmediated by institutions and reminiscent of an eighteenth century commercial economy populated by small and mid-sized independent proprietors. Conspicuously absent from much libertarian writing is any recognition of the growth of finance capital (let alone corporations) as a dominant institutional sector of advanced capitalist economies.

From this perspective, the state becomes the primary coercive institution that is parasitic on ‘free’ economic activity. Milton Friedman once posited a choice between three evils: public regulation, public monopoly, or private monopoly. He chose the latter as the lesser of evils. In the libertarian universe, private monopoly is preferable to public regulation because the latter represents coercion, whereas the former will still somehow respond more effectively to market signals.

It is no surprise then, that at the level of political rhetoric, we hear all sorts of anti-state proposals coming from the libertarian right. The belief is that a pure capitalism can exist that negates the political. Since the collapse of actually existing communism, it is the libertarians and the anarcho-capitalists who are now the utopians.

Yet, the libertarians can never really realize their vision because it remains a utopia rooted in a false understanding of the relationship between capitalism and the state. There is no reason why capitalism cannot exist within the confines of a ‘strong’ state; and there is no reason why capitalism may not require a strong state that is at odds with the libertarian project. At the high point of Thatcherism in the 1980s, Andrew Gamble wrote The Free Economy and the Strong State which demonstrated the ways in which a libertarian economics merged with an authoritarian conservative politics under Thatcher.

Thatcher, of course, was heavily influenced by Hayek, and despite his appropriation by libertarians, we can see in his work the reconciliation of the free market with a relatively robust state acting in accordance with the ‘rule of law’. Indeed, for Hayek, the very notion of laissez-faire is problematic and even dangerous, tending towards anarchy. The source of laissez-faire is the French rationalist liberal tradition rather than the empiricist tradition of English Whiggism that erroneously pits freedom against the law, rather than conceptualizing liberty under the rule of law.

This distinction has important implications for the role of the state in a capitalist society. States have an important role to play in maintaining the framework within which economic activity is conducted. This is something that the libertarian right does not accept, and it is something that the populist prosyletizers of Hayek do not understand. Here is Hayek in The Constitution of Liberty:

‘Freedom of economic activity had meant freedom under the law, not the absence of all government action. The “interference” or “intervention” of government which those writers opposed as a matter of principle therefore meant only the infringement of that private sphere which the general rules of law were intended to protect. They did not mean that government should never concern itself with any economic matters. But they did mean that there were certain kinds of governmental measures which should be precluded on principle and which could not be justified on any grounds of expediency.’

In case this is not clear enough, he continues:

In other words, 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 is 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.

For Hayek, this means that, ‘so long as they [interventionist policies] are compatible with the rule of law, they cannot be rejected out of hand’, but rather assessed on a case by case basis ‘from the viewpoint of expediency.’ In other words, it is foolish to oppose state intervention in the economy on the basis of ideological principles alone; one’s position must be based on an assessment of the degree to which state intervention facilitates the reproduction of capitalist socio-economic relations. It is here that libertarian dogmatism can be, according to Hayek, counterproductive:

‘The habitual appeal to the principle of non-interference in the fight against all ill-considered or harmful measures has had the effect of blurring the fundamental distinction between the kinds of measures which are and those which are not compatible with a free system.’

Unlike contemporary libertarians then, Hayek had an awareness of the necessary role of the state in ensuring the framework within which capitalism (his ‘free system’) can function and reproduce itself. The irony here is that Marxists have also consistently maintained that the capitalist state plays a key role in the maintenance of the capitalist system, albeit from a significantly different political perspective. The ultimate point here is that the relationship between states and markets is not one of antagonism as claimed by libertarians, but rather one of symbiosis.


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