When Hayek Abandoned Mises

Reality Check

In June 1960, I received in the mail two books: Frederick Hayek's The Constitution of Liberty and Ludwig von Mises's Human Action. I had ordered them from the Foundation for Economic Education. I paid $7.50 for Hayek's book; I paid $10 for Mises's book. In 1960, that was the equivalent in today's money of about $140. That was a lot of money for someone who had just come home from his first year in college.

I marked the inside cover of both books: June 1960. Over the next two years, I got each author to autograph his book.

I began reading The Constitution of Liberty (1960) almost immediately. I did not read Human Action (1949) until the summer of 1963. I read it after I had read Murray Rothbard's book, Man, Economy, and State (1962), which I also read in the summer of 1963.

In 1960, I regarded Hayek's book as one of the most profound books I had ever read. In retrospect, it was the first profound book that I had ever read. I have reread it two times since then, and I still regard it as a profound book. It is also a deeply flawed book. Part I of the book, The Value of Freedom, is a defense the ideal of freedom. Part II, Freedom of the Law, is his attempt to outline the kind of political order that is necessary to sustain freedom. Part III, Freedom in the Welfare State, is probably the most profound defense of conceptual errors in the history of the libertarian movement.

When I reached Section 5 of Chapter 16, I came to these words:

There are all kinds of public amenities which it may be in the interest of all members of the community to provide by common effort, such as parks and museums, theaters and facilities for sports -- though there are strong reasons why they should be provided by local rather than national authorities.

At that point, a yellow flag went up in my mind. Warning: danger ahead. The danger was not long in coming: the next few sentences in the paragraph.

There is then the important issue of security, a protection against risks common to all, where the government can often either reduce these risks or assist people to provide against them. Here, however, an important distinction has to be drawn between two conceptions of security: a limited security which can be achieved for all and which is, therefore, no privilege, and absolute security, which in a free society cannot be achieved for all. The first of these is security against severe physical privatization, the assistance of a given minimum of substance for all; and the second is the assurance of a given standard of life, which is determined by comparing the standard enjoyed by a person or a group with that of others. The distinction, then, is that between the security of an equal minimum income for all and the security of a particular income that a person is thought to deserve.

I knew that something was seriously amiss. I knew that what I had read in The Freeman over the previous three years was here being jettisoned as a matter of what appeared to be political and moral principle.

I continued reading. Section 6 began as follows:

Though some of the aims of the welfare state can be achieved only by methods inimical to liberty, all of its aims may be pursued by such methods. The chief danger today is that, once an aim of government is accepted as legitimate, it is then assumed that even means contrary to the principles of freedom may be legitimately employed.

I knew at that point that I was dealing with a defender of the free market social order who had sold out intellectually to the fundamental error of the modern world, namely, the welfare state's programs for the aged. I knew of his reputation from The Road to Serfdom, yet here I recognized clearly that this was the first step on the road to serfdom. I was 18 years old, and at that point I was inoculated against his writings. From that point on, I knew that I would have to pick and choose carefully from his writings.

This is not a minor issue. The Social Security system, which includes state subsidized medical care for the aged, is by far the most widely accepted institution associated with welfare state economics. More than any other pair of institutions, in every western nation, Social Security and government medicine are guaranteed to bankrupt all national governments. There is no escaping this. There will be a great default. They will abandon the programs which have been promised to the masses as the absolute guarantee provided by the state. Hayek defended these programs in the name of liberty. People who have not read Hayek are unaware of this. The first thing I ever read of a Hayek's was this, and I never trusted him again. I would trust him on certain issues. On certain issues, he is reliable: socialist economic calculation, the decentralization of knowledge, and the market system as a discovery process, and the market as a means of coordination. These ideas he extracted from Mises's writings prior to 1925. Hayek's were published in the in the early part of Hayek's academic career: before 1946. They were not original. In stark contrast, in terms of an overall philosophy of liberty, Hayek abandoned Mises in his discussion of the legal framework of the free market order. He did this mainly in the work that is generally regarded as his most original defense of liberty: The Constitution of Liberty.

Chapter 16, "Social Security," is so profoundly compromised both morally and conceptually that it still amazes me that the libertarian camp would regard Hayek as anything except a man who had no conception of an overall system of political liberty. If he had had any principle of interpretation of the free society which provided something like a coherent set of standards by which a defender of liberty could evaluate a particular political program, he would not have written the following.

What we now know as public assistance or relief, which in various forms is provided in all countries, is merely the old poor law adapted to modern conditions. The necessity of some such arrangement in an industrial society is unquestioned -- be it only in the interest of those who require protection against acts of desperation on the part of the needy. It is probably inevitable that this relief should not be long confined to those who themselves have not been able to provide against such needs (the "deserving poor," as they used to be called) in the amount of relief now given in a comparatively will the society should be more than is absolutely necessary to keep alive and in health. We must also expect of the availability of this assistance will induce some to neglect such provision against emergencies as they would have been able to make on their own. . . . Once it becomes the recognized duty of the public to provide for the extreme needs of old age, unemployment, sickness, etc., irrespective of whether the individuals could and ought to have made provision themselves, and particularly once health is assured to such an extent that it is apt to reduce individuals efforts, it seems an obvious corollary to compel them to ensure or otherwise provide against those common hazards of life. . . . Finally, once the state requires everybody to make provisions of the kind which only some had made before, it seems reasonable enough that the state should also assist in the development of appropriate institutions. . . . Up to this point the justification for the whole apparatus of "social security" can probably be accepted by the most consistent defenders of liberty.

Include me out.

Less than a year later, I read a critique of this book written by Ronald Hamowy. It was published in the first issue of a new publication that was edited by graduate students at the University of Chicago, New Individualist Review. I did not know then that he had been a member of a group of teenagers who called themselves Circle Bastiat: Murray Rothbard, Ralph Raico, Robert Hessen, and Leonard Liggio. They met from 1953 to 1959. Some of them attended Mises' graduate seminar at New York University as auditors. There was no tuition-paying student who matched any of them.

Hamowy nailed him.

Now, in a book dedicated to an investigation of the theoretical and historical groundwork of freedom, particularly within the context of a state structure, it is of the utmost importance that the boundary between coercion and non-coercion, as applied to the actions of the state, be clearly drawn. For how else are we to know when the state is exercising its legitimate functions or coercing its citizens? Hayek differentiates these two categories of actions by applying the concept of the Rule of Law. "Law," Professor Hayek asserts on p. 149, "in its ideal form might be described as a 'once-and-for-all' command that is directed to unknown people and that is abstracted from all particular circumstances of time and place and refers only to such conditions as may occur anywhere and at any time." We see, then, that the Rule of Law is the governance of society under a set of abstract rules which in no way discriminate among the citizenry and, hence, are equally applicable to all. . . . It is one of Hayek's purposes to build up a theoretical framework from which the necessity of private property can be deduced, a conclusion arrived at from an investigation of the nature of power and freedom in society. It would clearly seem to be subverting the very groundwork of such a principle if the theoretical system upon which it rests allows for the concentration and legitimate use of such powers in the hands of the state which can result in a system the nature of which aims at the overthrow of personal liberty. Hayek says: "the recognition of private property is . . . an essential condition for the prevention of coercion." Yet he succeeds in placing within the power of the state the very means of interfering with that right under the guise of acting consistently within the borders of its legitimate domain and consonant with the Rule of Law. Here, then, lies the main critique of Hayek's proposed framework: that it offers a rationale for what clearly are coercive acts of the state, e.g., conscription, interference in the economy (under the principle that it is attempting to minimize personal coercion) and alteration by flat of the social structure of personal relationships which have developed spontaneously and undirected over the course of centuries. Given that such situations as the voluntary contractualization of parties to a mutually beneficial agreement (e.g., the example cited above concerning the spring in the desert) can be classed under the heading of "coercion" within Hayek's system, and that what appear to be clear cases of coercive governmental action, such as conscription, are deemed legitimate and in accordance with the Rule of Law, it would seem that Hayek's position on the nature of coercion and freedom must, as it stands, be rejected.

Hayek replied to Hamowy in the next issue. It was a very weak reply, conceptually speaking. I would call it muddled.

While we want to allow coercion by government only in situations where it is necessary to prevent coercion (or violence, etc.) by others, we do not want to allow it in all instances where it could be pretended that it was necessary for that purpose. We need therefore another test to make the use of coercion independent of individual will. It is the distinguishing mark of the Western political tradition that for this purpose coercion has been confined to instances where it is required by general abstract rules, known beforehand and equally applicable to all.

This was the heart, mind, and soul of Hayek's thinking after 1960. It culminated in the three-volume set, Law, Legislation, and Liberty (1973-1979). But he never attempted to prove how his view of state-funded social security could be conformed to his general thesis, that there is no such thing as social justice. Volume 2 is titled, The Mirage of Social Justice (1976). But how is social security not part of this mirage?

Mises would never have made such a conceptual error. Why did Hayek make it? Because he was a muddler, as he admitted.

He explained this in 1975, a year after he had won the Nobel Prize. He wrote "Types of Mind" for Encounter. It was reprinted in volume 3 of his Collected Works as "Two Types of Mind." In that article, he wrote the following. There are two types of minds in scientific thinking. One of them he called, "master of his subject." The other he called, "puzzler." He said explicitly: "I myself represent a rather extreme instance of the more unconventional type." Then he described this unconventional type:

I am inclined to call minds of this type of the "puzzlers." But I shall not mind if they are called the muddlers, since they certainly will often give the impression if they talk about a subject before they had painfully worked through to some degree of clarity.

He contrasted his approach to matters intellectual with the person who is a master of his subject.

Their lucid accounts spring from a complete conspectus of the whole of their subject which comprehends not only their own conceptions but equally the theories of others, past and present.

I have known a few of these people. One of them was Mises. One of them was Rothbard. They could take another person's argument, classify it instantly, assess it in terms of a general framework, cite several footnotes related topic, and either demolish it or elucidate it off the top of their heads. Give them a typewriter and a stack of books, and within a brief period of time, they could produce a scholarly article. Rothbard could do this within about five hours. It might have taken Mises a day.

It was not just that Hayek was a puzzler in terms of not instantly correlating a new piece of information within an overall perspective. It was that Hayek, at a fundamental level, did not have a general principle of economic or political interpretation which enabled him to classify something as comprehensive and as crucial to the modern welfare state ideology as old age retirement and medical programs funded by the state. If a man cannot not identify these programs as inherently in conflict with the system of ordered liberty, then he lacks a fundamental understanding of how to link his general principles and specific cases.

I recognized this in Hayek's case when I was 18 years old. I was therefore always careful in examining any of Hayek's shorter writings and monographs on specific topics. I later concluded that, at bottom, his evolutionary concept of social development undermined any principle of either social or legal philosophy that could serve as a permanent means of interpreting the legitimacy or illegitimacy of a particular government project. I discussed this at some length in 1982 in my appendix on Hayek's epistemology. I have not changed my mind. I had to read Law, Legislation, and Liberty in the mid-1970's to begin to understand that his muddled thought on the principles of liberty was not simply the result of his puzzling approach to problems, but in fact was the inevitable result of his epistemology. I spotted the results of his problem when I was 18. I was in my mid-30's when I finally figured out what his problem really was.

In 1952, Hayek's book on the history of the ideology of centralized planning appeared: The Counter-Revolution of Science. He traces it back to the French Revolution's academic polytechnics. Mises thought this was a very good book. He wrote a favorable letter to Hayek in 1941 praising its early chapters. In it, Hayek contrasted two kinds of rationalism: market rationalism (bottom-up) and "constructivist rationalism" (top-down). He stated his preference for the former. But in Law, Legislation, and Liberty, he called for the creation of a kind of senior legistative body which would draw up legal rules for the entire society. Mises died in the year that volume 1 appeared: 1973. In volume 3, Chapter 17, "A Model Constitution," Hayek outlined his ideal legislative body. How is it wise enough, disinterested enough? It is a committee. How can this body be trusted?

Anyone attempting to build a philosophy of liberty in terms of the writings of Hayek has, in the words of the prophet Isaiah, rested on a bruised reed (Isa 42:3).