Social Injustice: What Hayek Taught Communists, He Can Now Teach Us

Until very recently, the thought of Friedrich A. von Hayek found few echoes in Western academic life. Economic theory, like thought in the Western academy in general, was dominated by perspectives which emphasized the economy as an undifferentiated whole managed by the government. Thinkers who saw free markets as substantially self-regulating were decried as “anachronistic” and “doctrinaire,” expressions of ideological conviction rather than of genuine theorizing. The conventional wisdom throughout the Western academy was that government intervention in the economy was indispensable, both to assure stability and to correct market distributions of assets in accordance with criteria of social justice. For denying these claims Hayek was relegated to an Orwellian memory hole, that expulsion from discourse that befalls suspect thinking in Nineteen Eighty-Four:

Events in the communist bloc have significantly altered this situation. Hayek had predicted—since the 1930s—that the replacement of market institutions by central planning would result in calculational chaos and general impoverishment. It would have this effect because the crucial role of the market is that of a discovery procedure—a device for generating and transmitting, via the price mechanism, information about relative scarcities and preferences. This is a role which planning bureaucracies cannot effectively emulate, since the information that markets convey is highly dispersed in society and often stored in skills and habits which are not themselves articulated.

In the absence of market institutions, central planners will be compelled to rely upon the information given by parallel and black markets, historic prices, and world capitalist prices. Such reliance will mitigate, but not overcome, the chaotic inefficiency of the planning institutions, which will tend to make repeated malinvestments. In short, the thesis of Hayek was that, in the absence of the information that only markets could generate, central planning institutions would not coordinate economic activity and would instead yield economic chaos.

The Hayek thesis, which had been studiously neglected for nearly half a century or more by the mainstream Western academy, has been dramatically vindicated by the revelations of glasnost in Eastern Europe. What has been disclosed is a spectacle of miserable living standards, especially in housing and medical care; antiquated industrial plants; inefficient work practices; malinvestment; and disastrous environmental degradation. The planned economies have been revealed as a sort of gigantic rustbelt, whose industries have staved off complete collapse only through the transfer of Western technology and credit. It is now universally recognized in Eastern Europe, and increasingly grasped in the Soviet Union, that only wholesale market reform can allow the communist bloc countries to attain Western living standards and, indeed, to avoid further impoverishment. In those countries, the work of Hayek is read avidly by economists, politicians, and ordinary citizens, for its extraordinary prescience in predicting and explaining the catastrophes of central economic planning.

It cannot be said that Western academic economists have yet absorbed the Hayekian lessons of the communist collapse of the past year. Most have invested too much intellectual capital in bankrupt interventionist theories to be able intellectually to respond to the developments of the past year. There is another, deeper reason why Western academic opinion has been slow to recognize recent developments as a victory for market institutions. Western opinion has, almost without exception, accepted the hypothesis that uncorrected market distributions violate social justice. On this view, even if unhampered markets are maximally efficient, they remain unjust and so morally defective. It is Hayek’s achievement to have given a devastating critique of this conventional academic conception of social justice.

Hayek’s critique has four distinct elements. In the first place, he points out that market distributions of income and capital are to a considerable extent a matter of chance and are therefore unpredictable, and so uncontrollable, by government.

This is the epistemic objection to social justice—that market distributions are so complex, fluid, and unpredictable that government can never know enough about them to implement the preferred principles of social justice, or to know when these are in fact satisfied.

The second objection is an objection to the very criteria of social justice. Typical criteria of conventional conceptions of social justice are that resources be allocated according to need or merit. Hayek’s insight is, first, that we have among us no consensus as to what constitutes need or merit. More exactly, we lack sufficient consensus on relative degrees of merit and need for communally acceptable judgments to be made. What happens when one need collides with another, or one sort of merit competes with another? Hayek perceives that, in such circumstances, we lack the scales on which to weigh the conflicting claims.

If the criteria of social justice can thus encompass incommensurables, any decision is bound to be arbitrary—and to be unacceptable to significant sectors of the population. Any decision will not, in other words, possess the attribute of rational universalizability that is essential to non-arbitrary authority and therefore to the rule of law. Hayek’s second insight, accordingly, is that the incommensurability of the values specified in the criteria of social justice imparts to the public authorities empowered to implement the demands of social justice the character of arbitrariness. The inherently and intractably controversial content of social justice makes of it a recipe for arbitrary rule.

The third objection to social justice refers to its effects on the market as a system of institutions. The pursuit of social justice will, Hayek suggests, harm the efficiency of the market system since it will alter the signals which tell persons where the most profitable opportunities lie. If, as social democrats advocate, we superimpose on a capitalist system of production a different pattern of distribution, then the information embodied in market pricing signals is at least partly lost, and the market becomes less coordinated and so less efficient. The pursuit of social justice involves accepting a lower level of production than might otherwise have been achieved.

Many social democrats and egalitarians might accept this, but maintain that the trade-off is well worth making. Hayek’s fourth objection undermines this response. Hayek points out that, in the absence of clearly applicable and conflict-free criteria, the idea of social justice will be deployed by established interest groups to promote their entrenched interests. Social justice becomes, in effect, the slogan of those who wish to resist the negative feedback that is inseparable from market processes. If this is so, then social justice is a conception whose practical political uses are conservative or reactionary rather than liberal or egalitarian. But in that case the pursuit of social justice will not result in an increase in equality which might offset the attendant losses in productive efficiency. Hayek’s argument is that the political pursuit of social justice will, almost inevitably, have as its upshot the further entrenchment of established interests and the continued neglect of those interests that are not politically well-organized.

As with his understanding of the economic chaos consequent on central planning, Hayek’s theses about social justice are brilliantly corroborated by evidence from the communist blocs. In these countries, the pursuit of conceptions of social justice has had haphazard effects. It has, however, predictably enhanced the arbitrary powers of government and reduced productive efficiency. Most signally, it has spawned an exploitative class, the communist nomenklatura, whose existence mocks any notion of equality or equity. The ugly reality behind the egalitarian or proletarian rhetoric of the communist states is that in them working people are worse treated than in any capitalist country, and privileges and positions (including decent medical care, housing, and education) are monopolized by a corrupt caste. Hayek’s fourfold critique of social justice is, then, revealingly reinforced by all the evidence we have from the societies in which social justice has been most relentlessly and consistently invoked.

It may now appear, as Hayek himself argues, that we can, and indeed must, abandon the concept of social justice altogether. There are several reasons why this is not so, and why Hayek’s account, as it stands, may well be defective.

There is, first and foremost, the question of how market capitalism is to find a secure legitimacy in mass democracies. This question of legitimation has been obscured by the long period of postwar economic growth in which almost all groups have benefitted from rising living standards. Should there be any protracted period of economic difficulty—as is inevitable in the nature of human affairs—the fairness of the system may come into question with politically significant sectors of the populace. The limitations of Hayek’s critique is that it lacks the resources to give a positive response to such questioning.

Its positive contribution consists solely of treating the historic distribution of assets as a fait accompli and conceiving of justice in purely procedural terms. This leaves unanswered, and unasked, the question of how the spread of initial endowments—the resources with which people come into the market—is to be justified. Hayek’s purely procedural account of justice as keeping to the rules of the market game also leaves unaddressed the claims of those—the very old and needy, the chronically sick, and the disabled—who through no fault of their own cannot effectively participate in market institutions. In failing to address these two areas of concern, Hayek’s account fails to respond to legitimate questions about the justice of unrestrained capitalism.

Any adequate, post-Hayekian conception of social justice would have to accept Hayek’s devastating critique of attempts to “correct” market distributions. It could nevertheless properly concern itself with securing conditions of fairness by operating outside the market process. It could do this, in part, by providing as a matter of entitlement generous benefits for the categories of unfortunate and helpless persons mentioned earlier. (I do not here refer to the so-called underclass, which I regard as in large part an artifact of misconceived welfare policies.) At the same time, an enriched conception of social justice could aim to spread out more evenly pre-market endowments, so as to approximate equality of opportunity. Such a two-sided approach has been advocated by Hayek’s friend and critic, James Buchanan, the father of the school of public choice.

The key insights to grapple with, then, are the folly of attempting to remodel market distributions on the one hand, and on the other the inadequacy of a purely negative, procedural view of justice that runs the risk of leaving the defense of capitalism morally empty. Capitalist institutions can be reconciled with democracy only if citizens are persuaded that the market is a game whose rules and starting positions are roughly fair, as well as a device that delivers prosperity to them. If they are persuaded of this, they will not be tempted by schemes which extinguish both prosperity and liberty in the vain pursuit of a vision of social justice which, in truth, only democratic capitalism can realize.

Author

  • John Gray

    John Nicholas Gray (born 1948) is an English political philosopher with interests in analytic philosophy and the history of ideas. He is formerly School Professor of European Thought at the London School of Economics and Political Science.

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