Hayek’s Theory of Liberalism: Definition, Characteristics and Elements!
Definition of Liberalism:
Hayek in clear language has stated that he uses the word liberalism in the European nineteenth century meaning. It is, therefore, a clear indication of the fact that his concept of liberalism has attempted to revive the nineteenth century theory which is we have called classical liberalism. He defines the concept in different ways and one such definition is: “liberalism (in the European nineteenth century meaning) is concerned mainly with limiting the coercive powers of all government, whether democratic or not”.
Hayek’s another definition is “liberalism is a doctrine about what the law ought to be, democracy is a doctrine about the manner of determining what will be the law. Liberalism regards it as desirable that only what the majority accepts should in fact be a law, but it does not believe that this is therefore necessarily good law”.
In these definitions there are two clear meanings of liberalism. One meaning is liberalism means to limit the power and authority of the state authority. It is the most ordinary meaning of liberalism. Today we mean that when a government discharges its functions remaining within certain special limitations, we call it a liberal system. Hayek offers another meaning and this is liberalism is a doctrine. Since it is a political doctrine its envisages certain tenets and these we have already noted. It believes in natural rights, liberty of individuals and justice.
From the above analysis we come to know that liberalism is a policy—policy how to restrict the functions or policies of the government. Hayek refuses to call liberalism a political movement. His main concern is with its theoretical or doctrinal aspects. An important phrase in Hayek’s theory of liberalism is what law ought to be. We think this is the basic idea of liberalism because they ought to be character of law is to be decided by the people for whom it is enacted.
A political cannot be governed without any law. But what would be the exact nature of law, it is the people themselves who will decide it. If people’s verdict is not sought in enacting a law then there cannot be any distinction between authoritarian regime and liberal regime and because of that reason Hayek has included people’s role in the law-making process. He emphasises that a true character of liberalism will be understood by people’s role in law-making process.
The law-making proposal of the government must be endorsed by the people. This is the core idea of liberalism. In the first definition liberalism is equivalent to limiting the functions and authority of the state and people can exercise their power to restrict the authority of state through the direct participation in lawmaking process. Direct participation does not mean in Rousseau’s sense. A law must aim at satisfaction of people’s needs and when this happens that will be considered as their consent.
Characteristics of Hayek’s Liberalism:
If we go through the major portions we shall find some characteristics of liberalism:
(1) Liberalism occupies a middle position between socialism and conservatism. The aim of socialism is to reconstruct society in the line of ideology and schemes framed by the socialist. Hayek calls it “crude rationalism” based on the reason of an individual. But liberalism does not think of changing the social structure radically.
It envisages but those changes must be approved by the majority if not all persons. Conservatism has a strong attachment with the mysticism. It very frequently resorts to mysticism. Hayek claims that liberalism has no relationship with mysticism.
(2) Liberalism is never averse to evolution and change. Hayek observes that liberalism has never said that liberal ideas have been fully realised and nothing remains to be done. New ideas and views are enriching liberalism and it cordially accepts them. Liberalism also makes sincere efforts to translate them into reality and in this way this doctrine is advancing. From this point of view liberalism differs from the conservatism. The fundamental feature of conservatism is it is afraid of change but liberalism is never afraid of any type of change. Liberalism is eager to welcome change.
(3) Hayek has drawn an interesting difference between democratic way and liberal way. He is of opinion that a democrat always insists upon the principle of majority. Majority principle is no doubt a working principle because without this it is impossible to take any decision. The democrat further goes ahead when he says that a decision accepted by the majority is good. But the liberalism of Hayek does not agree with it Majority principle is not a sufficient ground for being good Hence the basic difference is liberalism emphasises on the character of ought to be and this ought to be is not satisfied by the majority principle.
(4) He points out a difference between democracy and liberalism, democracy is a political method to arrive at certain political, administrative and legislative decisions it is also the best method. But it is never an end in itself. Hayek s theory of liberalism proposes that liberalism is the end.
The end is the agreement on common general principles of long term in nature. Agreement on these long term common general principles is the sole objective of liberalism. “The dogmatic democrat feels that any current majority ought to have the right to decide what powers it has and how to exercise them, while the liberal regards it as important that the powers of any temporary majority be limited by long term principles”.
Elements of Hayek’s Liberalism:
(1) Market Economy:
An important component of Hayek’s theory of liberalism is the market economy. Hayek was always in favour of the introduction of market economy without which people’s economic freedom cannot function and flourish. At the same time if the individual entrepreneurs are deprived of economic freedom no economic progress is possible.
For this and other reasons Hayek has postulated the market economy as a part of liberalism. The advocacy of free market economy is based on the ground that too much regulations imposed by the government will destroy the initiative and spontaneity of the individuals. We know that classical liberalism also advocated in favour of unrestricted market economy and Adam Smith and his immediate followers proposed such an economy.
(2) Free Market Economy is not Without Rules:
The most interesting aspect of Hayek’s theory of liberalism is that he does not rule out the interference of state and its laws with the functioning of market economy. Here the main point is many classical liberals and economists opposed the intervention of law with the working of market economy. But Hayek does not agree with them. He has introduced a very innovative definition of free market economy.
He says: “Freedom of economic activity had meant freedom under the law, not the absence of ail government action”. He further observes that the working of the free market economy presupposes some activities on the part of the state authority. He does not support the inactivity or wrong-doing of the government because all these will cripple the market economy.
If it is allowed to happen (inactivity/wrong-doing) the whole concept of liberalism will badly suffer. For this reason Hayek argues that it is better to have some regulations than no rules and regulations and it would be the duty of the state to confine itself within these regulations.
(3) Compatibility Factor:
For the proper functioning of the free market economy, we have just now said, certain regulations are necessary within whose confinement the state will work. But the problem that arises here is what rules the government will impose? Here Hayek s reply is very straight forward. The market economy will welcome only those regulations. Which are compatible with it and which possesses sufficient expediency?
The rule and its application both are related to the coercive action and he believes that indiscriminate application of rule with coercion will invite uncertainties in the market economy. Therefore all coercive power must be circumscribed by a clearly formulated legal framework and this framework cannot be changed according to the sweet will of certain persons.
(4) Arbitrary Control and Liberalism:
Arbitrary control in respect of prices, production and distribution are incompatible with free functioning of market economy as well as liberalism.lt has been found that in the name of general welfare of the community or for the improvement of the economic conditions of the weaker sections of the community the government sometimes enthusiastically declares the policy of price and production control and he believes that such a procedure poses danger to the market economy Hayek has argued that it would be an impractical venture if the government fixes the prices and policy of production on a long term basis. Market conditions will change and such a policy will adversely affect the market economy.
There is another reason why controlled prices are harmful for the free market economy. If there are differences between the controlled prices and the prices that would be, the demand and supply would be unbalanced. When the government proceeds to control the prices that procedure is bound to be arbitrary because it is not acquainted with the price production and distribution.
The determination of prices should be left to the producers alone. If the government imposes restrictions on the economy these may not always be exercised with proper caution and care. Irrational exercise will prevent the market economy from functioning freely. There is every possibility that the government officers will misuse the power. This is the-general trend of all government controlled system.
Reconciliation between Government Control and Liberalism:
Hayek cautiously deals with a very sensitive issue. The issue is the relationship between the governmental control through the enactment of rules and laws on the one hand and liberalism on the other. He says that the relation has not been properly studied and as a consequence number of misunderstandings have cropped up particularly, many people think- that the imposition of limitations means curbing of the sphere of liberalism. But exact situation is quite different.
In democratic countries the citizens are allowed to enter into contract with other citizens and the freedom of contract is likened with other like freedoms Again in every democracy the performers are to obey certain rules and norms. Some people raise a general objection that the governmental rules go against the freedom of contract.
But Hayek does not subscribe to this general view. The finalization of all contracts must conform to the general rules and regulations and other legal processes the persons who have made contract must do this. Previously Hayek has said that liberalism does not exclude the existence and application of general rules and governmental procedures. What Hayek emphasizes here is that governmental rules must always conform to the general principles of liberalism.
On the issue of reconciliation between regulations and liberalism Hayek has suggested another condition. Hayek tells us that for a comprehensive development of liberalism it is unnecessary to adhere to the old laissez-faire which puts intervention and non-intervention into two watertight compartments. A free market economy does not recognise the old doctrine of non-intervention.
In his opinion we find the following: “The formulae of laissez-faire or non-intervention do not provide us with an adequate criterion for distinguishing of between what is and what is not admissible in free system”.
The old doctrine of laissez-faire simply states that any type of state intervention is against the interest of free market economy and simultaneously of liberalism. But Hayek in the light of his age and events does not agree with this. For the proper functioning of free market economy both intervention and nonintervention are necessary and the latter must help flourish the free market economic system. What he wants to say is that there shall be reconciliation between every type of intervention and non-intervention.
Both institution and society are to be rearranged and restructured so that the market economy is best placed. Let us conclude this part of our analysis by again quoting few words from Hayek’s The Constitution of Liberty: “During the last few generations certain new aims of policy have emerged…. In order to achieve these aims, it would have to pursue a policy which is best described by the French word dirigisme, that is a policy which determines for what specific particular means are to be used”.
Planning, Free Market and Liberalism:
In our analysis of free market we have pointed out two important points. The assurance of the functioning of free market is the “foremost precondition” of liberalism. At least Hayek thinks so. Another point is, free market economy does not mean absence of all regulations and legal processes. In the background of these two points we like to throw some light on the idea of planning in relation to free market.
Hayek believes that any type of government planning aims at controlling the economy to suit the objectives and designs of the planning body and the market economy will be deprived of basic and necessary freedom of action. The control planning body will plan about prices, production, distribution and even the mode of investment.
The individual initiative in respect of production, prices and distribution will have no importance at all. Market economy will operate, Hayek says, on the basis of demand and supply. The discrepancy between demand and supply will invite a bigger chaos in the market sector. Naturally, the government will have to refrain from controlling the market through the pervasive planning mechanism.
There were two problems before Hayek—economic progress through the state sponsored planning and the same through individual initiative and spontaneity. F.A. Hayek threw his full weight through meticulous reasoning in favour of the latter and this he did for the sake of liberalism.
He believed that liberalism is the best way to release the human efforts for the betterment of society as well as the development of the individual. The vital aspect the Hayek’s liberal philosophy is through liberalism or liberal policy the all-round development of person and the society is to be assured.
Hayek smelt another foul element in government planning. In his opinion planning means coercion which acts upon the mind of a person and the authority apply coercive power in such a way that the individual is practically left with no alternatives.
He is to act in accordance with the directives of the authority. “Coercion is thus bad because it prevents a person from using his mental powers to the full and consequently from making the greatest contribution that he is capable of to the community”.
Planning has also another side. It delivers monopoly powers of employment, prices, production to the government as it is found in a socialist state. Hayek quotes Trotsky, “In a country where the sole employer is the state, opposition means death by slow starvation. The old principle, who does not work shall not eat, has been replaced by a new one, who does not obey shall not eat”.
Here it is to be noted that in the considered opinion of Hayek planning does not normally help the progress of economy because the important elements of progress are spontaneity and freedom and planned economy is the enemy of these two elements.
Definition and Nature:
Hayek defines the concept of justice in the following language, “Justice ought to be confined to the deliberate treatment of men by other men. It is an aspect of intentional determination of those conditions of people’s lives that are subject to such control….. Justice does require that those conditions of people’s Hues that are determined by government be provided equally for all. But equality of those conditions must lead to inequality of results”.
In this definition of justice there are few points to note. One, justice is mainly an affair among men themselves which means the state authority has nothing to do. Two, justice depends upon the activities among the men.
The overall justice of the society depends upon the behaviour, activities, attitude which men perform or demonstrate. Third, activities they do or behaviour show on their own accord. No outside force is behind the actions or behaviour constituting justice. Fourth, Hayek does not completely rule out the intervention of government in the matter of ensuring justice.
It is the duty of the government to create congenial conditions/atmospheres in which people can have justice. The creation of the conditions is not all; these must be equally distributed among all men. Though the conditions are equally distributed among men, the ultimate results may not be equal, and if the results are unequal the government need not interfere.
Principle of Distributive Justice:
Hayek explains his ideas about distributive justice: “Distributive justice requires an allocation of all resources by a central authority; it requires that people be told what to do and what ends to serve. Where distributive justice is the goal, the decisions as to what the different individuals must be made to do cannot be derived from general rules but must be made in the light of the particular aims and knowledge of the planning authority.”
Several points are implicit in this analysis of distributive justice:
(1) The prevailing distribution of income and resources is not in conformity with the basic principles of justice and naturally it requires modification or rectification.
(2) The modus operandi of the distribution shall be taken up by a central authority.
(3) People will be asked to do some work or to serve certain services.
(4) This is to be decided by the planning authority and not by the general rules of law.
(5) Hayek also speaks of a general consensus about the concept of justice. The authority cannot take any decision ignoring the general public opinion. The authority must respect the sentiment of the public.
In fact, there is hardly any place of arbitrariness in the efforts leading to the attainment of distributive justice. The central idea of distributive justice is to take steps for redistributing income and resources so that none can become the victim of wrong or unjustified distribution of resources.
Distributive Justice and Freedom:
In course of his analysis of distributive justice Hayek raises a very crucial question about the protection of individual freedom—an important constituent of liberalism. In his opinion there is a conflict between individual freedom and the governmental action in regard to distributive justice. In many democratic countries the rule of law is strictly observed and the chief objective of rule of law is to ensure equality before law, equal protection of law which aims at individual liberty.
It is apprehended that the steps designed to correct the inequalities and wrongs in the distribution of income and resources will ultimately come into conflict with the freedom of individuals. This consequence is absolutely uncalled-for if freedom is considered.
It has been found that any action on the part of the government for the rectification of injustice is bound to be discretionary and discriminatory. This is against the basics of liberalism. Hayek wants to say that the attempts to achieve distributive justice may be noble no doubt but the problem remains how to make them compatible with liberalism.
A reconciliation between governmental action and basic tenets of liberalism is a ‘must’ for all policy-makers. “The ultimate results of their efforts will necessarily be, not a modification of the existing order but its complete abandonment by an altogether different system—the command economy”.
Like other philosophers of the second-half of twentieth century Hayek believes that only a free market economy can be a guarantor of justice particularly in its distributive form. People’s share in wealth and income can come only through the free play of demand and supply.