(This paper was delivered at the Association for Private Enterprise Education held in Las Vegas, Nevada, April 1-3, 2012)
Three names are widely associated with the cause of human freedom and economic liberty in the 20th century: Friedrich A. Hayek, Ludwig von Mises, and Ayn Rand. Indeed, it can be argued that Hayek’s The Road to Serfdom (1944) and The Constitution of Liberty (1960), Mises, Socialism ((1936) Human Action (1949), and Rand’s The Fountainhead (1943) and Atlas Shrugged (1957) did more to turn the intellectual tide of opinion away from collectivism in the second half of the twentieth century than any other works that reached out to the informed layman and general public.
Now, in the second decade of the 21st century their enduring influence is seen by the continuing high sales of their books, and the frequency with which all three are referred to in the media and the popular press in the face of the current economic crisis and the concerns about the revival of dangerous statist trends in the United States and other parts of the world.
The Influence of Mises, Hayek, and Rand
In Hayek’s case, his influence has reached inside academia, that bastion of the social engineering mentality in which too many professors, especially in the social sciences, still dream wistfully about society being remade in their own images of “social justice” and political correctness – regardless of the expense in terms of people’s personal and economic liberty.
Hayek’s message of intellectual humility – that there is more to the complexities of the world than any government planning or intervening mind can ever master – has forced some in that academic arena to take seriously the possibility that there may be “limits” to what political paternalism can achieve without undermining the essential institutional foundations of a free and prosperous society.
Mises continues to be recognized as the most original and influential member of the Austrian School of Economics during the greater part of the 20th century. Mises stands out as that unique and original thinker who proved why socialist planning cannot work, that government intervention breeds inescapable distortions and imbalances throughout the market, and how central bank manipulation of money and interest rates sets in motion the booms and busts of the business cycle. The current recession has brought new attention to the Austrian theory of money and economic fluctuations, which was first formulated by Mises in the early decades of the 20th century.
While the academe of philosophers is still not willing to give Ayn Rand the respect and serious attention that others believe she rightly deserves, it is nonetheless true that her novels and non-fiction writings, especially The Virtue of Selfishness (1964) and Capitalism: the Unknown Ideal (1966), continue to capture the interest and imagination of a growing number of students in the halls of higher education in the United States. In other words, her ideas continue to reach out to that potential generation of “new intellectuals” that Rand hoped would emerge to offer a principled and morally grounded defense of individualism and capitalism.
The Common Historical Contexts of Their Time
Hayek, Mises and Rand each made their case for freedom and the political order that accompanies it in their own way. While Mises was born in 1881 and, therefore, was 18 years older than Hayek (who was born in 1899) and nearly a quarter of a century older that Rand (who was born in 1905), there were a number of historical experiences they shared in common, and which clearly helped shape their ideas.
First, they came from a Europe that was deeply shaken by the catastrophic destruction and consequences of the First World War. Both Mises and Hayek saw the horrors of combat and the trauma of military defeat while serving in the Austro-Hungarian Army, as well as experiencing the economic hardships and the threat of socialist revolution in postwar Vienna. Rand lived through the Russian Revolution and Civil War, which ended with the triumph of Lenin’s Bolsheviks and the imposition of a brutal and murderous communist regime; she also experienced “socialism-in-practice” as a student at the University of Petrograd (later Leningrad, now St Petersburg) as the new Marxist order was being imposed on Russian society.
Second, they also experienced the harsh realities of hyperinflation. Rand witnessed the Bolshevik’s intentional destruction of the Russian currency during the Russian Civil War and Lenin’s system of War Communism, which was designed as a conscious attempt to bring about the abolition of the market economy and capitalist “wage-slavery.” In postwar Germany and Austria, Mises and Hayek watched the new socialist-leaning governments in Berlin and Vienna turn the handle of the monetary printing press to fund the welfare statist and interventionist expenditures for instituting their collectivist dreams. In the process, the middle classes of Germany and Austria were decimated and the social fabric of German and Austrian society were radically undermined.
Third, Rand was fortunate enough to escape the living hell of socialism-in-practice in Soviet Russia by being able to come to America in the mid-1920s. But from her new vantage point, she was able to observe the rise and impact of “American-style” collectivism, during the Great Depression and the coming of Franklin Roosevelt’s New Deal in the 1930s. In Europe, Mises and Hayek watched the rise of fascism in Italy in the 1920s and then the triumph of Hitler and National Socialism in Germany in 1933, the same year that FDR’s New Deal was implemented in the United States. For both Mises and Hayek, the Nazi variation on the collectivist theme not only showed it to be one of the most deadly forms that socialism could take on. It represented, as well, a dark and dangerous “revolt against reason” with the Nazi’s call to the superiority of blood and force over the human mind and rational argumentation.
Their Common Premises on Collectivism and the Free Society
What were among the common premises that Mises, Hayek and Rand shared in the context of the statist reality in which they had lived? Firstly, I would suggest that it clarified conceptual errors and political threats resulting from philosophical and political collectivism. The “nations,” “races,” “peoples” to which the totalitarian collectivists appealed resulted in Mises, Hayek and Rand reminding their readers that these do not exist separate or independent from the individual human beings who make up the membership of these short-hand terms for claimed human associations. Anything to be understood about such “collectives” of peoples can only realistically and logically begin with an analysis of and an understanding into the nature of the individual human being, and the ideas he may hold about his relationships to others in society.
Furthermore, political collectivism was a dangerous tool in the hands of the ideological demagogues who used the notions of the “people’s will,” or the “nation’s purposes,” or the “society’s needs,” or the “race’s interests,” to assert their claim to a higher insight that justified the right for those with this “special intuitive gift” to guide and rule over others.
Secondly, all three rejected positivism’s denial of the human mind as something real, and as source for knowledge about man and his actions. Mises and Rand, especially, emphasized the importance of man’s use of his reasoning ability to understand and master the world in which he lived, and the importance of reasoned reflection for conceiving rational rules and institutions for a peaceful and prosperous society of free men. Mises and Rand considered the entire political trend of the 20thcentury to be in the direction of a “revolt against reason.”
Even Hayek, who is sometimes classified as an “anti-rationalist” due to his emphasis on the limits of human reason for designing or intentionally constructing the institutions of society, should also be classified as an advocate of man’s proper use of his reasoning powers when reflecting on man and society. While the phrasing of his arguments sometimes created this confusion, in various places Hayek went out of his way to insist that he was never challenging the centrality of man’s reasoning and rational faculty. Rather, he was reminding central planners and social engineers that one of the important uses of man’s reasoning ability is to understand the limits of what man can and cannot know or hope to do in terms of trying to remake society according to some preconceived design.
Thirdly, all three firmly believed that there was no societal arrangement conceivable for free men and human betterment other than free market capitalism. Only a private property order that respects and protects the right of the individual to his life, liberty, and honestly acquired possessions give people control over their own lives. Only the voluntary associative arrangements of the marketplace minimize the use of force in human relationships. Only the market economy allows each individual the institutional means of being free from the power of the government and its historical patterns of plunder and abuse. And only the market economy gives each individual the latitude to live for himself and use his knowledge and abilities to further his own ends as he best sees fit.
And, finally, Mises, Hayek, and Rand all emphasized the importance of the intellectuals in society in influencing the tone and direction of political, economic, and social ideas and trends. These “second-hand” thinkers of ideas were the driving force behind the emerging and then triumphing collectivist ideas of the 19th and 20th centuries. They were the molders of public opinion who have served as the propagandizers and rationalizers for the concentration of political power and the enslavement and deaths of hundreds of millions of people – people who were indoctrinated about the need for their selfless obedience and sacrifice to those in political power for a “greater good” in the name of some faraway utopia.
The Consequentialist Rationale for Freedom
But where they differed was on the philosophical justification for the free society and the rights of individuals within the social order. Both Mises and Hayek were what today might go under the term “rule utilitarians.” Any action, policy or institution must be evaluated and judged on the basis of its “positive” or “negative” consequences for the achievement of human ends.
However, the benchmark for such evaluation and judgment is not the immediate “positive” or “negative” effects from any action or policy. It must, instead, be placed into a longer-run context of theoretical insight and historical experience to determine whether or not the policy or action and its effects are consistent with the sustainability of the overall institutional order that is judged to be most effective in furthering the long-run possible goals and purposes of the members of society, as a whole.
Thus, the rule utilitarian is concerned with the “moral hazard” arising from an action or policy implemented. That is, will it create “perverse incentives” that results in members of society acting in ways inconsistent with the long-run betterment of their circumstances?
Welfare payments may not only involve a transfer of wealth from the productive “Peters” in society to the unproductive “Pauls.” It may also reduce the motives of the productive members of society to work, save and invest as much as they had or might, due to the disincentive created by the higher taxes to pay for the redistribution. At the same time, such wealth transfers may generate an “entitlement” mentality of having a right to income and wealth without working honestly to earn it. Thus, the “work ethic” is weakened, and a growing number in society may become welfare dependents living off the honest labor of others through the paternalistic transfer hands of the State.
The net effect possibly is to make the society poorer than it otherwise might have been, and therefore making everyone potentially worse off in terms of the longer-run consequences of such policies.
Ludwig von Mises and the Case for Freedom and the Market Order
In Mises’ system of thought, the guiding idea is human cooperation: how shall human beings best associate to achieve the goals and ends that matter to each of them, individually? The presumption is that individuals should be free, and be protected and secure in their liberty to pursue the ends that matter to them and give meaning to their life.
Mises further believed that a moral society cannot exist independent of individuals who are recognized to have and are respected in the freedom to make choices. It is in the act of choice that the individual person demonstrates what he values, what he considers most or more important and what he is willing to give up to get it. As Mises once expressed it: “If honor cannot be eaten, eating can at least be foregone for honor.”
The political-economic institutional setting that makes this possible, Mises spent his life demonstrating, is laissez-faire capitalism. Men cooperate through a system of mutually beneficial exchange in a social system of division of labor. Indeed, such cooperative specialization and trade was the logical explanation for the permanent network of human interaction that we call “society,” in Mises’ view.
But in a world of scarcity of useful means and people’s competing ends for which they may be applied, how shall the allocation of those means be determined in the most rational and reasonable way? “Rational” in this case means: Given multiple of ends that individuals in society would like to attain, how shall the resources in the society be apportioned among alternative lines of production to assure that the more highly valued ends, and as many of them, are as effectively supplied to people before less urgently desired goals are fulfilled?
Only the market provides the means for solving this problem. Private property in both consumer goods and the means of production not only creates incentives for productive and economizing us of scarce resources on the part of those who own and use those goods and resources, it also provides the basis for a rational system of economic calculation. Through the network of market exchanges, individuals express their valuations for goods and their appraisements of the factors of production in terms of their value and usefulness in being applied to produce competing products.
The resulting emergent system of market prices enables all those participating in the exchange process to contribute their knowledge and information about what they value and consider best uses for the resources available. Market prices “objectify” information about all the subjective judgments of the members of society.
This became the basis of Mises’ critique of both socialism and the interventionist state. By abolishing private property, banishing the market exchange process, and therefore preventing a free, competitive price system from emerging in the arenas of human association, socialist central planning does away with the essential and irreplaceable societal institutional prerequisites for rational coordination of the interdependent actions of all those in society.
In the interventionist state of government price controls, production regulations, and coerced redistributions of wealth, the market is not abolished as under comprehensive socialist planning. However, all the controls, regulations, and wealth transfers slowly undermine and finally prevent the market from “doing its job.” Prices no longer “tell the truth.” Production is no longer guided by the free decisions of entrepreneurs attempting to best satisfy the wants of consumers in their pursuit of profit. And wealth transfers undermine the incentives of people in the market, by retarding or even preventing the accumulation of savings and the resulting capital formation without which human betterment cannot sustainably be gained.
The choice, Mises insisted, was between the free market or government command – between the freedom of choice and action by every individual member of society, or for all to be compelled to obey orders of the one or the few holding the reins (and whips) of political coercive power.
If men value having the freedom to live their own lives as they choose, and if they understand and wish to have an institutional arrangement through which their interdependent actions may be rationally arranged so as many of the goals and purposes they have, respectively, might be satisfied as best as possible – then, there is no alternative to a politically-unhampered free market economy.
This, at the same time, largely defines the role of government in society. The task of the monopoly agency of force in any community should be limited to defining, enforcing and respecting each individual’s right to his life, liberty, and honestly acquired property. Government’s limited but essential role is the securing of the institutional order for the market to effectively function.
However, the “ifs” of two paragraphs, above, are outside of the realm of the political economist’s purview, Mises believed. That is, an “ought” cannot conclusively derived from an “is.” No matter how effective the free market order may be in securing individual liberty and generating prosperity through the method of rational economic calculation that is provided by a competitive price system, the political economist cannot say that these are “good” in themselves.
His realm of expertise begins and ends with an analysis of the efficacy of the means selected to serve ends chosen. This is a most powerful tool to assist men in rationally evaluating how best to arrange their collaborative social affairs. But if men do not value liberty, or if they allow their emotions to cloud their policy judgments, the political economist can say no more. He is able to supply a policy “map” to assist people who wish society to move in a particular direction to attain certain desired outcomes. The political economist, however, cannot tell them where they should want to go, nor challenge them if they choose other paths to travel, if their eyes are wide open concerning all the consequences (the “costs” and “benefits”) of their decisions.
If men choose slavery or prefer political paternalism, or if they are unwilling to forego seeming short-run gains at the expense of longer-run costs to themselves and society, then the political economist must resign himself to standing as a silent bystander as society goes down the path people have chosen.
Friedrich A. Hayek and Case for Freedom Due to Man’s Ignorance
Hayek’s defense of freedom and the market economy is also “consequentialist.” Its starting points are Mises’ critique of socialism, and the insights of the 18thcentury Scottish philosophers (Adam Ferguson, David Hume, Adam Smith) and that of Carl Menger, (the founder of the Austrian School of Economics) that much of what we call the “social order” is the cumulative result of multitudes of individual human actions and interactions, but not of any intentional human design.
As it finally took its finished form in such works as The Constitution of Liberty (1960), Law, Legislation and Liberty (1976-1979) and The Fatal Conceit (1988), Hayek’s justification for the free society is the inherent and inescapable limits to man’s knowledge to know how to design or consciously direct the development of society as a whole. Men pursue goals and implement plans to bring them about. However, the more complex the network of human relationships become through the development of the system of division of labor, the less any one man or group of men (no matter how wise and knowledgeable they may be) can know enough or fully understand all of the detailed workings of the social and market order as a whole. Our individual human knowledge is always confined within narrow limits of the particular time and place in which we live and act.
Hayek argued that many forms of social interaction are coordinated through institutions that at one level are unplanned and are part of a wider “spontaneous order.” To a large extent, he explained, language, customs, traditions, rules of conduct, and exchange relationships have all evolved and developed without any conscious design guiding them. Yet without such unplanned rules and institutions, society would have found it impossible to progress beyond a rather primitive level.
Another way of expressing this is that in Hayek’s view the unique characteristic of an advanced civilization is that no one mind (or group of minds) controls or directs it. In a small tribal society all the members often share basically one scale of values and preferences; the chief or leader can know the potentialities of each member and can assign roles and duties so that the tribe’s physical and mental means can be applied more or less successfully to the common hierarchy of ends.
However, once the group passes beyond a simple level of development, any further social progress will require radical revision of the social rules and order. The complexity of social and economic activity will make it impossible for any individual to master the information necessary to coordinate all the activities of all the members of the group. Nor will the all the members continue to agree on the same values or have the same relative preferences; their actions and interests will become more diverse and “pluralistic.”
An advanced society, therefore, must always be a “planless” society. That is, a society in which no one overall “plan” is superimposed over the actions and plans of the individuals making up that society. Instead, civilization is by necessity a “spontaneous order,” in which the participants use their own special knowledge and pursue their own individually chosen plans without a higher will or mind guiding them in one direction or into a predesigned pattern.
Hayek emphasized that the division of labor has a counterpart: the division of knowledge. Each individual comes to possess specialized and local knowledge in his corner of the division of labor that he alone may fully understand and appreciate how to use. Yet if all of these bits of specialized knowledge are to serve everyone in society, some method must exist to coordinate the activities of all these interdependent participants in the market.
The market’s solution to this problem, Hayek argued, was the competitive price system. Prices not only serve as an incentive to stimulate work and effort, they also informed individuals about opportunities worth pursuing. Hayek clearly and concisely explained this, in perhaps, his most famous essay, “The Use of Knowledge in Society”:
We must look at the price system as such a mechanism for communicating information if we want to understand its real function . . . The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action.
In elaborating his point, Hayek wrote that “The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly.”
Hayek argued most forcefully in his last writings that this demonstrated “scientifically” that socialism was “impossible,” because if it is logically and factually beyond the capability for a central planning agency to successfully integrate and coordinate the immense amount of knowledge that is absolutely essential to solve the “economic problem” of society, then the planned economy can never replace the market order without threatening the standard of living that only comes from a social order possessing the current level of complexity and adaptability to change.
The political order of a free society, therefore, must be grounded in a system of rule of law, in which the basic nature of laws enacted is “end-independent.” That is, they must be general, abstract, and concerned with the processes through which people interact and associate, while leaving the ends or goals pursued to be determined by the individual members of society guided by their unique bits of knowledge which only they can fully appreciate and effectively know how and when to use. In this way all in society may benefit from what others know.
Yet, in numerous writings, including The Road to Serfdom and The Constitution of Liberty, Hayek made the case for a wide array of government interventions in society, from welfare safety nets to land use regulations. It has often seemed to both admirers and critics of Hayek that he failed to offer any clear demarcation on the basis of which the functions and limits of government can be deduced from his own premises. In particular, Hayek’s “refutation” of the central planners and interventionists offers no clear answer to the question: what if the collectivist is willing to forego a degree of efficient use of knowledge in society to advance some “higher” purpose for a presumed “common good”?
Mises and Hayek postulate a series of desired societal goals: rational use of resources through economic calculation and an effective coordination of decentralized and dispersed knowledge in society, so to better enable individuals to achieve the ends they desire to attain – under the postulate that individuals should be free to design their own ends for fulfillment of those things of value to them. They then, in a sense, reason “backwards” to analyze those institutional arrangements, including the political and economic order, that are necessary for this end to be achieved.
But what is not offered, no matter how eloquent, insightful and profound Mises and Hayek’s arguments may be in defense of capitalism, is an independent justification for human beings to be considered to have a fundamental right to their life, liberty, and property. For Mises and Hayek individual rights are useful means to a “social good” – a higher standard and quality of life for humanity as a whole.
Ayn Rand and the Moral Case for Individual Rights Based on the Nature of Man
Ayn Rand starts the analysis, if you will, at the “other end.” She asks, what is the nature of man; what is needed for his survival and betterment; what institutional arrangement can be shown to be most consistent with recognition of man’s nature and for man to develop the potential that is within him? Thus, man is the “end” and the social and political order is the “means” for man’s successful existence.
Man may be an animal, but his essential tool of survival and betterment is the use of his reason. Instinct and emotion are either inadequate or faulty means for the preservation or improvement of his life. Men must use their mind’s cognitive and conceptual capabilities, or their lives may turn out to be “nasty, brutish, and short.”
Each individual, therefore, must have the freedom to apply his intellect in ways that he discovers and learns will most effectively further his life. His reasoning may be faulty and his knowledge of the potentials of the world in which he lives may be incomplete; or he may allow his emotions and shortsightedness to sometimes cloud his judgment when thinking about courses of action to undertake. But if he is to survive and prosper he must be at liberty to make his own decisions. Otherwise, he relies upon fate and chance, or he abdicates his own judgment and places his life in the hands of another’s knowledge and decisions.
Contrary to distorted interpretations, Rand never presumes that each man is an “island” unto himself. Man is the being who had the ability to learn from and take advantage of the knowledge, wisdom and experiences of others, both his contemporaries and those who have passed away but left a written record of their thoughts and deeds.
But either the individual has the autonomy to decide whose knowledge, experience and association to benefit from, given the goals and purposes he has set for himself, or he submits to the blind control of another.
On what basis or rationale might an individual give up the direction of his life to another? It is here that Rand emphasizes the power and danger of ideas. Those who fear others or who want to plunder their fellow human beings as the means of their own livelihood try to propagandize and indoctrinate others in society. What do they try to persuade those others to believe? That they must sacrifice their lives for a “higher good” that the propagandizers and potential plunderers claim to understand in a way that the rest in society cannot rightly comprehend, due to their misguided and narrow selfishness in pursuit of their “mere” individual ends and goals.
To use a Marxian phrase, collectivist intellectuals and plunders use indoctrination to impose a “false consciousness” on the productive members of society to convince them that their life and the fruits of their labor must be “given up” for the “common good” and the “general welfare” of all. Whether it is called communism, socialism, fascism, Nazism, “democracy,” or interventionist-welfare statism, or any number of other labels, the man who should be free is made to accept his own partial or total enslavement to the will of another. And to the extent that this succeeds, the slave-masters obtain the “sanction of the victim” of those they have enslaved. They passively accept their servitude. The master obtains obedience and acquiescence without the constant and direct use of force to win compliance to the commands and the restrictions imposed on the productive many by the plundering few.
If a man is to be free, he must understand that he has a right to be free. That is, that he has a right to his own life, guided according to his own reason and judgment; that he should have the liberty to design and direct the ends that will give meaning and fulfillment to his own life. That he has a right to the fruits of his own labor, which are always and ultimately the fruit of his own mind’s creative potentials. And that in pursuing the ends that he has chosen for his own life, he decides how and in what forms he shall peacefully and voluntarily associate and collaborate with other men, who are recognized as having the same rights as himself to do the same.
This led Rand to argue, therefore, that the only moral and appropriate political and economic system consistent with such a view of man is laissez-faire capitalism. Capitalism is the system that enables men to benefit from the dispersed and decentralized knowledge possessed by others; it is the system that enables the emergence of market prices through the free exchanges that men enter into, and therefore provides the essential tool for rational economic calculation; it is the system in which the pursuit of profits guide market participants, “as if by an invisible hand,” to benefit and enhance the well-being of others at the same time that each is following his own self-interest; it is the system in which respect and regard for others is reinforced precisely due to the fact that human relationships in the market are voluntary, and exchanges and associations may not be forced upon another.
But Rand was adamant in emphasizing that while these are “positive” and “useful” results arising out of a social system of free men who associate on the basis of free exchange, this is not why men should have freedom. As if allowing “freedom” is the effective “means” to a prosperous and efficient social outcome for the society as a whole. Rather, individual freedom is an end itself, as a reflection of what man requires for his life – its survival and betterment – through the use of his mind and his abilities as he sees fit. The political and social means to that end are, respectively, individual rights and human association based on voluntary exchange and not physical force – i.e., laissez-faire capitalism.
The political system of a capitalist society, therefore, logically and morally restricts the duties and responsibilities of government to the protection of each individual’s rights. Rand’s frequent insistence that there can be no compromise, that either the individual is free in all these matters or he is not, is derived from that starting premise of man having control over his own mind and own life.
Every concession to political control beyond that authority that government needs to secure each man’s liberty is an acceptance of the legitimacy of man as a “sacrificial animal” whose remaining freedom becomes a matter of expediency. Rand’s argument is a “slippery slope” warning of the dangers that arise from any compromise with the premise of self-sacrifice and collectivism – that there is a presumed “good” greater than and superior to the good of the individual living a peaceful and moral life in voluntary association with others for mutual self-benefit.
The Losing Battle for Freedom Without a Moral Foundation
This is why freedom’s cause continuously seems to be losing in the battlefield of ideas. Why every apparent turn away from collectivism ends up being a temporary delay in what seems like an “inevitable” trend toward bigger and more intrusive government. As long as people can be persuaded that they are morally required to sacrifice themselves in some way for others, or that they have a right – an “entitlement” – to live at the expense of others, there will be no permanent and comprehensive turning away from that “road to serfdom.”
This is why the economist’s argument for individual liberty and economic freedom – as brilliantly formulated by thinkers such as Mises and Hayek – must be grounded in a more fundamental philosophical argument for individual rights derived from an understanding of the nature of man. Otherwise, the cause of human freedom will not prevail in the long run. Appreciating the importance of such a philosophical foundation for the defense of man’s rights explains the continuing relevance and significance of Ayn Rand’s moral case for capitalism.