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Not the End of Hayek

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Here’s a letter to the New York Times Book Review:

Reviewing on the 112th anniversary of the birth of F.A. Hayek that economist’s The Constitution of Liberty: The Definitive Edition [2], Francis Fukuyama gets much right but also much wrong (“Friedrich A. Hayek, Big-Government Skeptic [3],” May 8).  Two errors warrant correction.

First, Hayek never argued that (in Mr. Fukuyama’s words) “the smallest move toward the expansion of government would lead to a cascade of bad consequences that would result in full-blown authoritarian socialism.”  (Mr. Fukuyama should have detected the absurdity of this interpretation of Hayek when Mr. Fukuyama himself noted four paragraphs earlier that Hayek didn’t object to government provision of health insurance.)  Rather, Hayek’s famous “road to serfdom [4]” is paved by government efforts to protect everyone against any and all disappointments that might arise as a result of economic change and growth.

Second, it was no “deep contradiction” for Hayek to argue that we cannot predict the future and for him to predict that government efforts to centrally plan the economy will fail.  Precisely because the planning and “muddling through” done by individuals pursuing their own ends in competitive markets are subject to ceaseless, detailed feed-back from other individuals pursuing their own ends – and because no individual plan in decentralized markets requires its maker to know the goo-gah-gillions of details that a central planner must know in order to succeed – it was perfectly consistent of Hayek to predict the failure of central plans made by officials who are oblivious to the impossibility of gathering and processing all the knowledge that must be gathered and processed centrally for central plans to work.

Donald J. Boudreaux

Other flaws mar Fukuyama’s interpretation of Hayek.  For example, Fuyuyama gets the title of Hayek’s famous 1945 article wrong (forgivable), and (less forgivably) singles out Joseph Schumpeter as the chief proponent of the mid-20th-century belief among many economists that centrally planned socialism can work.  (Oskar Lange and Abba Lerner, among others, were far more insistent proponents of this view than was Schumpeter.  Indeed, Thomas McGraw argues [5] – not entirely convincingly, I concede – that Schumpeter intended his claim that “of course” socialism can work to be a joke.)