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3.0 out of 5 stars The past and the present, 17 Feb 2011
Luc REYNAERT (Beernem, Belgium) - See all my reviews
These characteristic comments show F. Hayek's fundamentalist beliefs, main preoccupations and `holy' issues blatantly.
Apart from more technical problems (the Ricardo effect, Carl Menger and the value of goods) and a lecture on B. Mandeville, the main items discussed here are the free market system, governmental intervention in the economy, political issues (democracy) and lifelong wrestling with J.M. Keynes.

The spontaneous order of the free market system
F. Hayek treats his real holy market system as if it is an ideal-typical model in the Weberian sense. For him, it is an efficient communication system of price signals and a self-regulating order.
But, who is the market? For all monetary matters, he IS the market who quotes 'buy 0.99/sell 1.01'; in other words all financial agents like bankers and brokers. Are those people perfect?
All other transactions are individual `contracts' between a buyer and a seller (we are indeed still in a face-to-face society). Are these people perfect and are these transactions flawless? Absolutely and fundamentally not. Already the information about the goods is biased. Normally the seller knows more about the goods than the buyer (J. Stiglitz). In fact, there is a spontaneous disorder: markets are flawed, rigged, `designed' by the market participants.
Moreover, history is a long story of monopolies granted to special interests.

Governmental intervention, trade unions
For F. Hayek, governmental intervention in the economy equals a falsification of the price signals of the market, `in the hope thereby of giving benefits to special interests (like the poor, the sick or the injured). In the name of his holy flawed market F. Hayek rules out completely `the mirage of social justice' or `the redistribution of incomes'. For him, it represents a misallocation of scarce money means.
No trade unions should be allowed because they make the market mechanism for the determination of wages largely inoperative.
The role of the government should be limited to the enforcement of general rules of just conduct (anti-discrimination and penal law, property rights, contracts, freedom of opinion and media, education)'
Like in `The Road to Serfdom', he proposes a minimum income to all should be assured, but not as a governmental monopoly, only within a liberal framework.

F. Hayek defends democracy, because it enables any majority to rid itself of any government. But, he is obsessed by a Rousseau-an dictatorship of a democratic majority of special interests, which could destroy all traditional values and the spontaneous order formed in the past.
Therefore, he proposes `a system of representation by age-groups: each generation electing once in their lives representatives to serve for 15 (!) years. IMHO, a very broad highway (not a road) to endemic corruption 15 years long.

Hayek and Keynes
Hayek's punching mate was J.M. Keynes with his policies of governmental interventions during a slump. For Hayek, Keynes's solution of the problem of unemployment (pumping up aggregate demand through an increase of the money supply and public works) is a serious error. It will create inflation and only short-time jobs. When the money supply will dry up, unemployment will be higher than before (misallocated jobs)'
Firstly, all infrastructure projects are stricto sensu not permanent.
Secondly, Hayek himself admits that `we can never know at what system of relative prices and wages such equilibrium would establish itself'!
Thirdly, Keynes's system worked for more than 30 years. Only spikes in the price of oil (a spontaneous free market for an all important commodity?) created inflation and stagflation. These spikes presented a worldwide taxation of the whole world population for special oil and banking interests.
For Hayek, Keynesianism will only be an `episode' in economic history. But, the series of busts in the last fifteen years and the collapse of the banking system made massive governmental intervention necessary to save the core of the whole capital(ist) system.

A special self-interest
For F. Hayek, there is only one major exception for his holy market rule: the exchange rates should be fixed. Fixed rates force the politicians and the monetary authorities to maintain a stable currency and so protect `our' money.

The past and the present
F. Hayek looks nearly only to the past in order to save his `spontaneous order of the free market', while J. M. Keynes looks at the present ('There is work to do; there are men to do it. Why not bring them together!'). Of course, `in the long term we are all dead', but not Keynesianism.

These are stimulating, but for a democrat like me, flawed studies.
It is nevertheless an essential read for all those who want to understand neoliberalism through the writings of one of its fathers.
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