Friedrich Hayek won the Nobel Prize in economics in 1974 but is much better known for his writings of classical liberalism, particularly the dangers and fallacies of a centrally planned economy.  His works are usually demonized by the left but often misunderstood and over simplified by the right.

In the Claremont Review of Books Edward Freer offer a critical look at his works in Hayek’s Tragic Capitalism.


What Hayek was opposed to was governmental activity that would undermine the operation of the free-market price mechanism. In his view, prices generated in the market encapsulate the information that is unavailable to the central planner, and thereby enable rational economic activity. For example, the price of oranges in Omaha reflects the effects of blight on orange crops in Florida, a bumper crop of oranges in California, higher demand for oranges in New York City, lower demand in Fargo, increases in the price of fuel needed to transport oranges across the country, and so on. No human mind need gather and process all of this information, because the market price is generated in a way that already reflects all of it. Consumers in Omaha need only respond to the current price (by buying fewer oranges, say, because the price has gone up) in order to coordinate their activity with that of other economic agents elsewhere in the country. The invisible hand does what the planner cannot, precisely because it is an impersonal mechanism rather than a mind.

This strength is also a weakness. Precisely because they arise out of an impersonal process, market outcomes are amoral. Hayek thought it unwise to defend capitalism by emphasizing the just rewards of hard work, because there simply is no necessary connection between virtue of any kind, on the one hand, and market success on the other. Moreover, the functioning of the market economy depends on adherence to rules of behavior that abstract from the personal qualities of individuals. In particular, it depends on treating most of one’s fellow citizens not as members of the same tribe, religion, or the like, but as abstract economic actors—property owners, potential customers or clients, employers or employees, etc. It requires allowing these actors to pursue whatever ends they happen to have, rather than imposing some one overarching collective end, after the fashion of the central planner.

Hayek did not deny that all of this entailed an alienating individualism. On the contrary, he emphasized it, and warned that it was the deepest challenge to the stability of capitalism, against which defenders of the market must always be on guard. This brings us to his account of the moral defects inherent in human nature. To take seriously the thesis that human beings are the product of biological evolution is, for Hayek, to recognize that our natural state is to live in small tribal bands of the sort in which our ancestors were shaped by natural selection. Human psychology still reflects this primitive environment. We long for solidarity with a group that shares a common purpose and provides for its members based on their personal needs and merits. The impersonal, amoral, and self-interested nature of capitalist society repels us. We are, according to Hayek, naturally socialist.

The trouble is that socialism is, again, simply impossible in modern societies, with their vast populations and unimaginably complex economic circumstances. Socialism is practical only at the level of the small tribal bands in which our psychology was molded. Moreover, whereas in that primitive sort of context, everyone shares the same tribal identity and moral and religious outlook, in modern society there is no one tribe, religion, or moral code to which all of its members adhere. Socialism in the context of a modern society would therefore also be tyrannical as well as unworkable, since it would require imposing an overall social vision with which at most only some of its members agree. A socialist society cannot be a diverse society, and a diverse society cannot be socialist.


Walter Williams properly noted that socialism works if you know everybody’s name; in small family and tribal units.  It is poorly suited to the dispersed knowledge that is the glue of an integrated complex world.  Capitalism is efficient but contrary to our biological nature.  It is no surprise that the growth of tribalism in politics is accompanied by anti-capitalist rhetoric. Capitalism, like democracy, depends on values that may be contrary to human nature, while serving the betterment of mankind in our complex world.

Read the link in full.  It is an excellent review of Hayek for the novice or the serious Hayek students.