book review

The Constitution of Liberty
F. A. Hayek
Chicago, 2011, 583 pages
Reviewed By

Last updated December 18, 2011

See also
The Road to Serfdom by F. A. Hayek
Books by Murray N. Rothbard
Libertarianism books

A s we today face the imminent death of Keynesianism, economists and politicians are again finding themselves forced to choose between the ideals of individual rights and democracy on one hand, and big government and an increasingly wasteful and inefficient welfare state on the other. These choices are incompatible, and the decisions our leaders make could be with us for centuries.

Even back in 1960, F. A. Hayek saw that freedom would be threatened by misguided attempts to provide "social justice" and by government interference in the free market. In The Constitution of Liberty he considers how different aspects of government can be made consistent with individual freedom. This book also contains Hayek's famous essay "Why I Am Not a Conservative" [1].

Social justice
Many people today believe, or profess to believe, in what is called "social justice" : the idea that a society is only "just" when the advantages and assets obtained by an individual are evenly distributed to everyone. Hayek argues that this is fundamentally based on envy of the rich and that the practice of the government "sharing the wealth" is incompatible with liberal principles. Saying that wealth should be redistributed, says Hayek, is no different than claiming that punishment for a crime committed by one individual should be shared by all. It is not a "progressive" idea at all, but a regression to the primitive forms of the Old Testament or of Genghis Khan, where punishments or rewards were meted out to entire populations.

In order for there to be freedom, says Hayek, there must be equality of opportunity and inequality of results. Government must provide equal opportunity, but attempting to legislate a specific result would abolish freedom: "The principle of distributive justice ...," he writes, "would produce the kind of society in which authority decided what the individual was to do and how he was to do it." (p.164)

Freedom = Information
Centuries before self-organizing systems were recognized and understood by science, Adam Smith and others recognized that the economy was a self-organizing system. It operated under an "Invisible Hand" that created order regardless of whether anyone was aware of it. In a free economy, said Hayek, every transaction is a bit of information that is available to the whole. The information automatically creates an optimal distribution of goods and services. In a centrally controlled economy, and in a socialist welfare state, this information is not available because individuals are not free to make choices.

For example, suppose someone discovers that their copy of The Road to Serfdom has become so well thumbed that they need a new one. If they decide to purchase their copy from Barnes and Noble instead of, they are sending a bit of information into the marketplace. The value of this information is indisputable, as every search engine records it in order to bombard the hapless purchaser with flashing, jiggling, animated advertisements. The reason for the choice may not be known, but it is effective in shaping the marketplace nonetheless. However, when the government controls the market, there is no choice. The book can only be obtained from a single source: from the government, or the government-sanctioned book distributor. Despite the fact that the purchaser might be required to fill out numerous forms, the information thus obtained would be useless for determining how to make the market more efficient. The more the government interferes in the market, the less information is available to make the market work better. It's enough to make the difference between a wealthy country and a poor one.

Although Hayek eschewed numerical modeling and mathematical analysis as much as he disdained using jargon, in these lectures he laid the groundwork that future economists schooled in modern information theory could use to create a new, more viable economic theory to replace Keynesianism. Such a theory is needed now more than ever, as more and more economists slowly come to realize that their old predictions, and their old theories, have once again led us into poverty and financial chaos. Hayek's theories received the ultimate vindication in 1991 with the collapse of the world's largest socialist economy. The Constitution of Liberty is Hayek's most important work, far surpassing the work of lesser economists in its clarity of vision and its commitment to freedom.

[1] It should be noted that European conservatives (whose policy is supposedly to resist change) are the ones that Hayek is distancing himself from. European conservatives are completely different from American conservatives, who are closer to what Europeans call "liberals" or classical liberals. American "liberals" are what Europeans call "socialists." Many political psychologists claiming to have discovered brain differences between liberals and conservatives are also confused by the terminology, to such an extent as to render the conclusions in their papers meaningless.

American liberals are the ones who mangled the definitions, by appropriating the term "liberal." Their purpose was, evidently, to confuse the voters, and in this they have succeeded magnificently. There's a good argument to be made that American conservatives should be called "libertarians," libertarians should actually be called "liberals," and liberals, who are increasingly resistant to change in Washington, should be called "conservatives," just to clear up the trans-Atlantic inconsistency.