Hayek as classical liberal public intellectual: Neoliberalism, the privatization of public discourse and the future of democracy

F.A. Hayek (1889–1962) was an intellectual who, driven by state phobia and the fear of totalitarianism established the Mont Pèlerin Society (MPS) in 1947, with Karl Popper, Frank Knight, Ludwig von Mises, George Stigler and Milton Friedman as part of the defense of the values of classical liberalism including the status of the individual and freedom of thought and expression. Apart from Popper the founders were a combination of the Austrian and Chicago School and their self-style task was to defend the liberal order against totalitarianism, uphold individual rights, protect the rule of law and to inquire into the economic origins of the, then, current crisis. Thirty-nine scholars were invited by Hayek to join the organization and he indicated that he was worried about the fate of liberalism in the face of Marxist and Keynesian expansion of the state. Hayek was perhaps the most influential public intellectual of the twentieth century. The MPS became part of the movement of international think tanks established after WWII and one of the leading institutions that helped to create a network of think tanks including the Institute of Economic Affairs (IEA), the Manhattan Institute for Policy Research, and the Atlas Economic Research Foundation. The MPS was responsible for advancing policy positions to members who were influential political figures in the US, Italy, West Germany, the Czech Republic, UK, Chile, and NZ. The MPS website reveals no less than nine Nobel prizewinners (all in economics, except Mario Vargas Llosa).¹ His MPS biography reads:

Friedrich August von Hayek was born in Vienna in Austria in 1899, from a distinguished family of scholars: The philosopher Ludwig Wittgenstein was his cousin. He received his doctorates in law and in economics from the University of Vienna in the 1920s where he was the student of Ludwig von Mises, one of the best-known exponents of the Austrian School in economics. In 1931 Hayek became Professor of Economics at the London School of Economics. In the next few years he published a series of books on capital theory, monetary theory and comparative economic systems. His powerful polemic against socialism, The Road to Serfdom, published in 1944, made him both famous and notorious. In 1947 he invited a group of distinguished economists, philosophers and historians to a meeting at the Mont Pelerin in Switzerland where they agreed to form the Mont Pelerin Society of which Hayek was the President to 1961. The founding members included his teacher von Mises, his close friend and colleague at the LSE, the philosopher Karl Popper, and some famous economists of what came to be known as the Chicago School, including Frank H. Knight, and the Nobel Laureates Milton Friedman and George Stigler.

Hayek moved to the University of Chicago in 1950, where he was Professor of the History of Thought. Hayek returned to Europe in 1961, and was Professor of Economics at the Universities of Freiburg and Salzburg, until he retired in 1973. He died in Freiburg in 1992. Hayek was awarded the Nobel Prize in Economics in 1974 for his work explaining how individuals acquire and utilise knowledge in and by the market process. He is widely recognised as one of the most important thinkers in the classical liberal tradition.

https://www.montpelerin.org/f-a-hayek/

There have been almost annual meetings since 1947 together with regional and special meetings, the latest on ‘Competition, Discovery, and the Pursuit of Happiness’ in Gran Canaria, Spain (2018).²

Hayek was a pivotal figure in reestablishing liberalism after WWII and in encouraging and supporting what became known as neoliberalism after the ascendancy of Margaret Thatcher in Britain and Ronald Reagan in the US. MPS was a mix of Austrian and Chicago economists, political and philosophers. While he was the cousin of Wittgenstein they met only once on a train. His relations with Popper, by contrast, were immensely important, editing his work and eventually helping to secure a position at the LSE. Intellectually he migrated from economics – on trade theory, economics and knowledge, and the critique of socialism – to philosophy, law and the methodology of the social sciences. Hayek was perhaps the most important intellectual of his day – he waged a ‘battle of ideas’ to restore faith in markets – to pare back the welfare state and the ‘big State’. MPS under his guidance and strategy cast a long shadow over the late twentieth century. He was partly responsible for unseating Keynesianism, for the critique of contemporary socialism and collectivism, and for mentoring many scholars including Popper and Friedman. His influence is due to the combination of advocacy for free market economics, the doctrine of spontaneous order, his philosophy including his magnum opus The Constitution of Liberty (1960), his constructivist epistemology and the relevance of his work to policy discussions.

The Road to Serfdom (1944) a classic polemical text that warned of the dangers of central economic planning sold two million copies and became a perceived bulwark against the loss of individual freedom under fascism and socialism. Hayek argued that central planning was not only undemocratic and ultimately could not respond to market signals but that governmental intervention in the economy would lead to the loss of freedom. It became the rallying cry of Margaret Thatcher and also the doctrinal basis for neoliberal market fundamentalism that emphasized freedom of choice (rational choice) for consumers. It was unsurpassed even winning praise from Keynes and Orwell. Friedman described it as ‘one of the greatest books of our time’. Yet it was an economic fiction created from little empirical data based on Hayek’s philosophy of spontaneous order that revived the Adam Smith’s notion of the ‘invisible hand’. It was a clear example of how politics and ideology intrude into economics and economic policy. Unfettered markets tend to create and exacerbate social inequalities (Piketty, 2017) undermining the social order and hardening the social class structure, ultimately robbing class agents of their ability to make choices. When the rate of return on capital is greater than economic growth it leads to the concentration of wealth and growing inequalities create social disorder. Hayek’s text was the product of a man frightened by the historical experience of the growth of totalitarianism, but it was not a book that outlined a case that could hold in the ‘age of digital reason’ when algorithmic capitalism can employ ‘buy’ and ‘sell’ algorithms to automate economic transactions and can search, accumulate and analyze massive amounts of financial data mathematically for excessive profit.

In terms of the emerging dominance of economics as a social science and policy discourse Hayek’;s achievement was to wield together in loose form Austrian and Chicago school economics. This was a considerable achievement that was reinforced by the various moves he made between London, Chicago and Freiburg.

Hayek’s theoretical direction and greatest intellectual debt was to the so-called Austrian School established by Carl Menger, Eugen Boehm-Bawerk and Ludwig von Mises during first decade of the early twentieth century (Salerno, 2004). Mises was instrumental in shaping twentieth century liberalism with his attack on socialism under a book of the same title published in 1922. Mises’ work based on a paper published two years earlier argued economic calculation required a market, convinced a socialist-inclined young Hayek of the impossibility of state planning and converted him to laissez faire. Mises’ treatise influenced as well many economists of the day, including Lionel Robbins, who later as Director of the London School of Economics made Hayek one of his first appointments, and thus helped to shift Anglo-Saxon economics off its Marshallian rails towards Continental influences of Jevons, Wicksteed, and Weiser. Mises’ magnum opus Liberalism in the Classical Tradition was published in 1927 (http://www.mises.org/liberal.asp). Mises anchored his full- scale revival of classical liberalism on property: ‘The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production… All the other demands of liberalism result from his fundamental demand’. The second pillar of liberal society for Mises was freedom, which was regarded as a possession of people who are deemed free to pursue their own interests so long as they do not violate property rights of others. It was in this environment that shaped Hayek’s economic and political thinking.

What distinguished the Austrian School from the classical school of political economy pioneered by Adam Smith and David Ricardo was their ‘subjective’, as opposed to the ‘objective’, theory of value. Leon Walras (1834–1910) of the French Lausanne school presented economics as ‘the calculus of pleasure and pain of the rational individual’ and Carl Menger, developing the ‘subjective’ theory of value, launched what some have called a ‘neoclassical revolution’ in economics. Menger questioned the notion of perfect information that was seen to underlie homo economicus by both classical and neoclassical economists. It was Mises' strong antisocialism that informed the corpus and theoretical direction of Hayek’s work, particularly his work on business cycles. Hayek became Director of the Institute for Business Cycle Research in 1927. Shortly thereafter in 1930 Hayek was invited to the London School of Economics (LSE) to lecture on trade cycles, where he was soon after appointed to a chair in economics and statistics. While at the LSE Hayek was involved in two famous debates, first, with Keynes over interventionism (and, in particular, Keynes’ alleged failure to understand the role that interest rates and capital play in a market economy), and, second, during the early 1920s, with Oskar Lange and others over the nature of socialist planned economy. However, Keynes star was on the rise during the 1930s and the international economics community downplayed Hayek’s criticisms.

There were important differences between Hayek’s Austrian school and the Freiburg school or the Ordoliberal school that was founded in the 1930s at the University of Freiburg in Germany by economist Walter Eucken and two jurists, Franz Böhm and Hans Großmann-Doerth. The founders of the school were united in their common concern for the question of the constitutional foundations of a free economy and society and were anti-naturalist in their conception of the market, believing it was a legal-juridical construction. The Ordo-liberalism of the Freiburg school constituted a major part of the theoretical foundations on which the creation of the social market economy in post WWII Germany was based. The school is often subsumed under the rubric of German neoliberalism, which also includes such authors as Alfred Müller-Armack, Wilhelm Röpke and Alexander Rüstow. Vanberg (2000) points out that while these authors shared important common ground they also differed strongly over the market order, which for the Freiburg school ‘is in and by itself an ethical order’:

Müller-Armack, by contrast, regards the market order as an economically most efficient order, but not as one that has inherent ethical qualities. It is a ‘technical instrument’ that can be used by society to produce wealth, but it does not make itself for a ‘good’ society. It has to be made ‘ethical’ by supplementary policies, in particular ‘social’ policies.

The neoliberalism of the Chicago school first emerged around George Stigler’s leadership and Friedman’s monetarism in the 1960s. It was fiercely anti-Keynesian and against the concept of market failure. This school, often referred to as the ‘second’ Chicago school, included work on search theory (Stigler), human capital theory (Becker) and transaction cost analysis (Coarse). This then served as the basis for a series of innovations and new directions sometimes characterized as the ‘third’ Chicago school, including monetarism (Friedman), public choice theory (Buchanan), new classical macroeconomics (Lucas), new institutional economics (Coarse), new economic history (Fogel), new social economics (Becker), and law and economics (Posner) (Roberts & Peters, 2008, p. 10).

These three schools of economic liberalism – The Austrian school under Mises and Hayek, the Freiburg law and economics school and the three generations of the Chicago school – comprised the dominant neoclassical emphasis in economics and policy discourses that motivated neoliberalism, even if there are major differences concerning the conception of the market as a natural spontaneous phenomenon (Hayek) and as a legal-juridical construction (Frieburg) created by the state.

Hayek and Popper regarded themselves as Cold War warriors fighting against totalitarianism. Karl Popper was resident at the University of Canterbury in New Zealand from 1937–1945 where he wrote his now classic two-volume work, The Open Society and Its Enemies (1945) that was an attack on historicism – Plato, Hegel and Marx – and a defense of liberal democracy as the open society. Hayek had helped to arrange for Popper to take up a position in philosophy at the LSE. His association with Hayek went back many years. Hayek edited the Open Society for Popper and refers to Popper’s The Logic of Scientific Discovery to adopt his falsificationist epistemology in his early 1937 Economica paper ‘Economics and Knowledge’. Both were in Vienna at the turn of the century, both were committed to forms of primitive forms of individualism and both fiercely defended notion of the free society. Hayek argued that political freedom depended on economic freedom. Together, Hayek and Popper were formidable ‘Cold War warriors’ who held that Hegel’s and Marx’s historicism were linked intellectually to fascism in economic terms and were the basis of twentieth century totalitarianism. Together, Popper’s (1945) The Open Society and Hayek’s The Road to Serfdom (1949) served as polemical tracts that at one and the same time warned against going down the socialist road while extolling the virtues of the open society and its relationship with the open market (Roberts & Peters, 2008, p. 13).

Hayek’s liberalism was also very influential in Britain, especially with the Institute of Economic Affairs, and with Margaret Thatcher, who came to power as the leader of the British Conservative Party in 1979. We might say that neoliberalism, historically, was at its strongest during the era of the trans-Atlantic partnership between Ronald Reagan and Margaret Thatcher, during the decade of the 1980s, and its dominance in that part of the world began to wane in the 1990s. In 1950, Hayek moved to the University of Chicago, where he wrote The Constitution of Liberty (1960), his first systemic treatise on classical liberal political economy. In 1962, Hayek moved to the University of Freiburg where he developed his theory of spontaneous order. The market, he argued, was a spontaneously ordered institution that had culturally evolved in the same way that the institutions of language and morality had evolved. Such institutions were not the product of intelligent design; rather, like their counterparts in the physical world (crystals, snowflakes and galaxies), they had evolved as spontaneously ordered institutions. The market, then, while the result of human actions over many generations, was not the result of human design. Hayek thus emphasized the limited nature of knowledge: the price mechanism of the ‘free’ market conveys information about supply and demand that is dispersed among many consumers and producers and cannot be coordinated. In addition, Hayek’s liberalism emphasized: methodological individualism; homo economicus, based on assumptions of individuality, rationality, self-interest; and the doctrine of spontaneous order.

It was during the decade of the 1980s that Hayek’s political and economic philosophy was used by Thatcher and Reagan to legitimate the neoliberal attack on ‘big government’ and the bureaucratic welfare state. Under Thatcher and Reagan, there was a policy mix based on ‘free’ trade and the establishment of the ‘open’ economy. Changes included: economic liberalization or rationalization characterized by the abolition of subsidies and tariffs; the floating of exchange rates; the freeing up of controls on foreign investment; the restructuring of the state sector, including corporatization and privatization of state trading departments and other assets; ‘downsizing’; the attack on unions and abolition of wage bargaining in favour of employment contracts; and, finally, the dismantling of the welfare state through commercialization, ‘contracting out’, ‘targeting’ of services, and individual ‘responsibilization’ for health, welfare and education. On this view there is nothing distinctive or special about education or health; they are services and products like any other, to be traded in the marketplace. These policies, sometimes referred to as ‘the Washington Consensus’, were designed to ‘restructure’ or adjust national economies to the dramatic changes to the world economy that had occurred in the last twenty years: the growing competition among nations for world markets; the emergence of world trading blocs and new ‘free trade’ agreements; an increasing globalization of economic and cultural activities; the decline of the post-war Keynesian welfare state settlement in Western countries; the collapse of actually existing communism and the ‘opening up’ of the Eastern bloc; and the accelerated world-wide adoption and development of the new information and communications technologies (Roberts & Peters, 2008, pp. 13–14).

One of the consequences of Hayek’s influence in relation to neoliberalism has been the privatization of public discourse and notions related to the public sphere including public goods and the public interest which can be seen, for example, in terms of the privatization, marketization and mediatization of educational discourses (Wubbena, Ford, & Porfilio, 2016). The Mt Pelerin Society is the prototype of the ‘think-tank’ institution of like-minded ideologues – ‘the change-masters’ – who can use their influence to exert undue pressure and adopt a campaign programme.

Frank Jørgensen, Rikke (2018) argues:

The idea of the public sphere is closely tied to fundamental rights and freedoms, and as such the public sphere metaphor reminds us that these guarantees are not what they used to be. A privatised public sphere essentially lacks the democratic guarantees that constituted it. https://zenodo.org/record/1182900#.Xc5N9ZIzbdc

As Rikke explains the public sphere is not just a space for public discourse, it is also a space for deliberation on extant opinions and provides a vehicle for understanding and citizen interest groups to exercise their public discourse functions. The internet as a public sphere increases public participation through the advent of many-to-many networks as opposed to the old industrial one-to-many broadcast media making it potentially more democratic where power is more polycentric and acts as an alternative to formal political channels, yet questions of access still haunt the internet and it is a collection of spaces already well saturated by a commercial logic of commodification by very large data monopolies that pirate personal data for profit infringing fundamental rights and freedoms. Even with this new medium, online public spaces have been privatized, freedoms have been curtailed, rights have been abrogated and new hate speech and the ‘dark net’ spread anti-democratic sentiments. But irrespective of content the online business model treats it all as business as usual. Actually, the spurious, fake news content often generates more profit.

The openness of the internet has been compromised and its civic action potential has been limited. The early hopes for the internet have been derailed. Once hailed as the medium that encouraged millions to participate and start their own blog conversations bringing unrepresented voices into the public sphere has now turned toxic with the rise of hate groups, the spread of fake news and the manipulation by algorithms. With the growth of the internet different forms of judgement and public discourse disappeared from view. Increasingly public opinion is automated and tracked for commercial reasons. It seems the market has conquered the digital public sphere and civil action has shrivelled up.

Michael J. Sandel (2018) reflects on these dangerous times for democracy in an age of populism where Trump has been able to tap ‘a wellspring of anxieties, frustrations, and legitimate grievances’. He talks of the failure of technocratic liberalism:

Some denounce the upsurge of populism as little more than a racist, xenophobic reaction against immigrants and multiculturalism. Others see it mainly in economic terms, as a protest against the job losses brought about by global trade and new technologies. But it is a mistake to see only the bigotry in populist protest, or to view it only as an economic complaint. To do so misses the fact that the upheavals we are witnessing are a political response to a political failure of historic proportions: the right-wing populism ascendant today is a symptom of the failure of progressive politics. https://www.americanacademy.de/revitalizing-public-discourse/

Market fundamentalism had penetrated the public psyche so deeply that market instruments were the only forms for addressing public policy in an economy of growing inequality and financialization. Sandel argues that the popular uprising is against mainstream parties and liberal and democratic center left parties have experienced the greatest losses. The privatization frenzy and deregulation of the public sphere opened up those areas once regulated by moral principles as an exception to the market and preserved for democratic and public reasons. Now nothing is off limits and new areas of everyday life can be plundered for profit including health and education. The $1.4 trillion student debt is a good example of the financialization that has canabilized the current generation, weighing them down with life time mortgage commitments.

Sandel rethinks progressive politics as a source of resistance to Trump’s populism in terms of income inequality, countering the meritocratic hubris through ‘opportunity’ especially with a college degree, addressing the dignity of labour and the loss of jobs to technology, and responding to demands of patriotism and national community in order to understand ‘the populist uprising highlights the need to rejuvenate democratic public discourse, to address the big questions people care about, including moral and cultural questions’. He writes:

Mainstream liberal and social democratic politicians miss this dimension of politics. They think the problem with globalization is simply a matter of distributive justice; those who have gained from global trade, new technologies, and the financialization of the economy have not adequately compensated those who have lost out. This misunderstands the populist complaint. It also reflects a defect in the public philosophy of contemporary liberalism. Many liberals distinguish between neoliberalism (or laissez-faire, free market thinking) and the liberalism that finds expression in what philosophers call ‘liberal public reason.’ The first is an economic doctrine, whereas the second is a principle of political morality that insists government should be neutral toward competing conceptions of the good life.

Sandel argues that in order to reinvigorate democratic politics ‘we need to find our way to a morally more robust public discourse, one that honors pluralism by engaging with our moral disagreements, rather than avoiding them.’ While I completely agree with Sandel I would argue in addition that social democrats need to understand the rapidly changing political economy of public media and communication and the intersection of finance culture with internet aggregators and big-data companies that now sell their services in the name of democracy disruption and the erosions of public discourse.

Hayek (1960), one of the most influential intellectuals of the twentieth century, may have regarded himself as a classical liberal. He went on to defend a notion of freedom as lack of coercion and freedom from the dependence on the will of others in his The Constitution of Liberty – a rather crude version of 19^th century British liberalism. He unleased a form of market fundamentalism that confused threads of liberalism and neoliberalism on the basis of an old state phobia. It was an ideology that dominated public discourse by privatizing the public realm, crowding out all other voices including those of working people who suffered most when jobs were outsourced in the East. The tide of populism today is a direct result of the manipulation of those fears against all migrants which have enabled the far right to continue to win votes from a disenchanted population.

Michael A. Peters
Beijing Normal University, Beijing, PR China
[email protected]

Notes

1 The site also includes video clips of Hayek and others on capitalism, socialism, The Road to Serfdom etc. https://www.montpelerin.org/links/

2 https://mps2018.es/#program%20