By My colleague Paul Mueller recently published an AIER Paper on Fusionism. He was kind enough to share it with me for review. I agreed with most, and disagreed with some, of Paul’s arguments. This is healthy. You see, Paul was my student at Hillsdale College 15 years ago, when we first discussed the tension between libertarianism and conservatism.
Then, as now, I have major concerns about conservatism. On the one hand, much of what conservatism (at least some brands of conservatism) stands for is essential as a foundation for a free society. On the other hand, much of what conservatism is trying to do runs counter to the free society, as it would make undue impositions on individual liberty.
My purpose here is not to address Dr. Mueller’s paper or to revisit the libertarian-conservative debate. Rather, I will discuss a tension within the classical liberal movement, a tension that is captured in the works of Austrian economist F.A. Hayek.
As I like to remind readers, Hayek is one of three thinkers, along with Adam Smith and Frédéric Bastiat, who look down on fellows and students in the AIER library.
The tension has to do with the size and scope of a state necessary for the preservation of liberty. In this 250th anniversary year, I would be remiss not to mention that this same tension nourished the debates around the US Constitution. The Federalists thought the young country needed a vigorous — but limited — central government to unify it, protect against enemies foreign and domestic, and preserve liberty. The Anti-Federalists disagreed, foreseeing that any such central government would inevitably impose on the liberties of Americans.
At least then — unlike the current political fracture in the USA — both sides agreed on the goal: the preservation of liberty. They disagreed on the institutional structure to advance the goal.
F.A. Hayek
I suspect F.A. Hayek is well known to most readers of The Daily Economy, so I won’t belabor a biography (if you’re interested, I recommend Hayek’s Challenge, by Bruce Caldwell, among others). Hayek was born in 1899 in Vienna, and while serving at the London School of Economics as the Tooke Chair of Economic Science and Statistics, he made a name for himself with his 1944 book, The Road to Serfdom. The book is a warning that the Western democracies were turning to socialism, just as they were defeating national socialism (and about to enter a cold war with international socialism). But it also contains the kernel of a political economy Hayek would develop over his lifetime of thinking, most notably in The Constitution of Liberty (1960), Law, Legislation, and Liberty (1973/1976/1979), and his last book, the Fatal Conceit (1988). Hayek received the Nobel Prize in Economics in 1974, and died in 1992.
Hayek was no slouch in the defense of liberty. The Road to Serfdom is still a clarion call against socialism’s inevitable slide into tyranny. In 1947, he founded the Mont Pelerin Society, an international forum dedicated to advancing the free society. And his entire career was dedicated to preserving rule of law and a “constitution of liberty.”
And yet, for all that, Hayek was not a small-government libertarian. He saw a place for the state to provide what later scholars dubbed public goods — parks, fire insurance, and limited macroeconomic stimulus. All cautiously, of course, and all with an eye to preserving individual rights and constraining the state.
An Economic Theory of the State
Just as the American Framers agreed on liberty and disagreed on the institutional mechanism to deliver it, so do “sincere friends of freedom” (to use Lord Acton’s phrase) disagree on the size and scope of the state best suited to protect freedom and individual rights.
Anarcho-capitalists believe that the state is immoral — because it is, by its very nature, coercive — but also that it is unnecessary (see Murray Rothbard’s For a New Liberty: the Libertarian Manifesto). Markets will handle allocation of scarce resources among competing wants, incentives for innovation, and security (through private security forces and arbitrators). What markets can’t handle will be left to civil society. Instead of coercing our neighbors through taxation to take care of the poor or protect the environment, we will convince them to participate, through families, clubs, churches, or other voluntary associations.
The minarchists (a large subsection of libertarians) reject anarcho-capitalism as a chimera. Ayn Rand notably argued that anarcho-capitalism would lapse into civil war between competing security agencies (see her essay, “The Nature of Government“). Along with Ludwig von Mises and other minarchists, she argued that a “night watchman” state was necessary for the protection of individual rights — a neutral police force, independent courts, and a military. The rest, however, was to be left to markets and civil society.
Further down the spectrum of liberty, we have the theorists of the minimal but active state (sometimes, if confusingly, known as classical liberals; I prefer to call them “HFB theorists”, after Hayek, Milton Friedman, and James Buchanan, all champions of liberty who saw a more expansive role for the state). According to this camp, minarchy’s protection of individual rights is a necessary, but not sufficient, condition for a thriving and free society.
The HFB camp believes the state can and should do more to protect liberty, but (1) must limit itself to the necessary, and not lapse into socialism; and (2) must be strictly bound by constitutional constraints. Friedman argued that, because education had network effects (we all benefit from a more educated population), the state should guarantee it for all — but it should not provide it, hence his famous vouchers. Buchanan and Gordon Tullock, in The Calculus of Consent (Logical Foundations for Constitutional Democracy) examined situations in which the state might be necessary. If collective action is cheaper than market action, or feasible where markets might fail due to high organization costs, they argued, the state can provide public goods, like education or environmental protection. But it should do so within strict constitutional conditions (see also Buchanan’s The Limits of Liberty: Between Anarchy and Leviathan) and not by launching federal departments to administer them.
Naturally, the three schools disagree with each other, and some are more persuasive than others. But I agree with Paul Mueller that all three belong in the tent of sincere friends of freedom. I will now use Hayek as an example of the tensions.
Hayek’s Constitutional Theory of the Liberal State
Hayek was a fierce advocate of rule of law, and deeply worried about central planning. Nevertheless, he advocated an active, if constrained, role for the state. In The Constitution of Liberty, he explicitly explained that the rule of law does not imply a complete absence of government intervention in the economy — but, rather, intervention constrained by careful rules.
Hayek argues that the state can assure a basic minimum income for all; provide catastrophic insurance and disaster relief; offer basic macro stabilization policy (if not outright Keynesianism!); use subsidies (so long as they advance the general welfare, and not individual interests); fight pollution; and provide public goods where markets sputter… if carefully.
He summarized his philosophy in The Constitution of Liberty in 1960:
We have already seen… that there is undeniably a wide field for non-coercive activities of government and that there is a clear need for financing them by taxation… All modern governments have made provision for the indigent, unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge… common needs that can be satisfied only by collective action and which can be thus provided for without restricting individual liberty.
…that some of the aims of the welfare state can be realized without detriment to individual liberty, though not necessarily by the methods which seem the most obvious and are therefore most popular; that others can be similarly achieved to a certain extent, though only at a cost much greater than people imagine or would be willing to bear, or only slowly and gradually as wealth increases; and that, finally, there are others—and they are those particularly dear to the hearts of the socialists—that cannot be realized in a society that wants to preserve personal freedom.
While seeking to provide public goods to support liberty and human flourishing, Hayek was always worried about respecting rule of law. His solution was a three-part test for state action. In a 1973 lecture to the Institute for Economic Affairs in London, Hayek offers a simple and straightforward articulation of the three conditions under which “government services are entirely compatible with [classical] liberal principles”:
1. government does not claim a monopoly and new methods of rendering services through the market are not prevented;
2. the means are raised by taxation on uniform principles and taxation is not used as an instrument for the redistribution of income; and,
3. the wants satisfied are collective wants of the community as a whole and not merely collective wants of particular groups.
Misjudging The Welfare State?
While he was an enriching thinker — and he remains an intellectual hero to my coauthor Chris Martin and me — Hayek does seem to allow a bit too much latitude for the state. While some functions may indeed be necessary for human flourishing, it’s hard to see how they will not violate rule of law or nudge us dangerously forward on the road to serfdom. Still, we are hesitant to push too hard against such a hero of liberty.
Murray Rothbard shared no such compunction. In a memo, he commented that “F.A. Hayek’s Constitution of Liberty is, surprisingly and distressingly, an extremely bad, and, I would even say, evil book. Since Hayek is universally regarded, by Right and Left alike, as the leading right-wing intellectual, this will also be an extremely dangerous book.”
In a 1960 review of The Constitution of Liberty, Ludwig von Mises bluntly wrote that “Professor Hayek has misjudged the character of the Welfare State.” Hayek’s concessions would inevitably lead to a “system of all-round planning” — even if they were initially modest and circumscribed. Mises softens his critique, though, when he argues that Hayek’s fundamental misjudgment of the welfare state “does not seriously distract from the character of his great book.” He concluded:
“[Hayek’s] searching analysis of the policies and concerns of the Welfare State show to every thoughtful reader why and how these much praised welfare policies inevitably always fail. These policies never attain those, allegedly beneficial, ends which the government and the self-styled Progressives who advocated them wanted to attain, but, on the contrary, bring about a state of affairs which — from the very point of view of the government and its supporters — is even more unsatisfactory than the previous state of affairs they wanted to ‘improve’.”
Ayn Rand, characteristically blunt, referred to Hayek’s work as “real poison,” because he was willing to balance freedom with various “collectivist” interventions. For Rand, Hayek’s compromises made him a “pernicious enemy” of the freedom movement.
Does Fusionism Have Room For All?
Hayek is as rich as he is puzzling, as delicious as he is infuriating. For my money, he remains the single most important thinker on these questions. This may be because, in the words of my mentor Roger Koppl, Hayek is not a system builder, but an honest muddler.
Hayek explicitly explained, in the postscript to The Constitution of Liberty, “Why I am not a Conservative.” Conservatism, for him, was too static, and too ready to impose its views on society through the state. But he is also clearly not a small-government libertarian.
Unfortunately, Hayek left many puzzles and challenges. Fortunately, his careful thinking helps prepare us to be better advocates of liberty in his absence.