Peter Boettke’s Hayekian Ordoliberalism as a Foundation for Political Economy

Roland Fritz and Stefan Kolev
Peter J.Boettke, F. A. Hayek: Economics, Political Economy and Social Philosophy, Palgrave Macmillan, London2018, 323 pages

Peter J. Boettke, F. A. Hayek: Economics, Political Economy and Social Philosophy, Palgrave Macmillan, London 2018, 323 pages

Peter J. Boettke, Professor of Economics and Philosophy at George Mason University and Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics has published a most stimulating book about the economics, political economy and social philosophy of F. A. Hayek. Perhaps even more importantly, he also connects Hayekian approaches to contemporary economics and points out avenues for constructing a Hayekian research program in the social sciences. As such, the book is mostly about “the evolution of Hayekian ideas, (not) Hayek the man” (Boettke 2018, p. 2), and readers looking for a concise biographical account of Hayek’s life will sure find the book wanting in this respect (Boettke refers the reader to a variety of sources that deal more with the biographical aspects of Hayek’s life, especially Caldwell 2004). Boettke can look back (and forward!) to a long career dealing with the contributions of Hayek and other economists of the Austrian School, as well as with political economists in the liberal tradition more broadly. As such he is without doubt in an excellent position to attempt a concise as well as a profound presentation of Hayek’s oeuvre, and his expertise about the subject matter clearly shows when reading the book. Correspondingly, the book has so far been met with mostly highly positive reviews. Those have focused on the book’s take on Hayek’s economics and Austrian business cycle theory (Grudev 2019), its role in describing a program for liberalism in the 21st century (Matson 2018; Carden 2019; Horwitz 2019; Kolev 2020) and in debunking dubious claims about Hayek’s potential to serve as a role model for contemporary political movements on the far-right (Kolev 2019). Our focus in this review will be to hint at the ways in which Boettke manages to present the debates that Hayek was engaged in during his lifetime in rich detail and embedded in the context of the time, but also – and perhaps more importantly – how he points out in which ways Hayek’s ideas can be made fruitful to contemporary social problems and research questions. The reader thus can learn about manners to apply Hayek’s thought to modern economic and economic policy issues.

Before getting into the details of the book, it bears restating how much the book has to offer and how it seems to speak to the seasoned Hayek scholar as well as to the beginner at the same time. In a way, it is a very pleasing situation for reviewers of a book if they do not find much to disagree with. On the other hand, one sometimes feels as if one’s discussion is almost too friendly towards the author. Hence we feel compelled to highlight one aspect of the book that might potentially make readers of this very journal raise their eyebrows: namely the almost non-existent references to Hayek’s connection to the ordoliberals. While it is clear that Boettke’s take on Hayek will be influenced by his own specialization and background, it is still puzzling to find hardly any references to e. g. Walter Eucken or Wilhelm Röpke. We regret this exaggerated focus “Hayek the LSE political economist” for a number of reasons. Institutionally, Eucken, Röpke and other ordoliberals were formative for co-initiating jointly with Hayek the Mont Pèlerin Society in 1947 (Burgin 2012; Slobodian 2018; Kolev et al. 2020), and at the moment of the publication of this book, Boettke served as this Society’s president. Socially, Hayek was heavily integrated into the community of German political economists not only during his Freiburg years starting in 1962, but already as a founding member of the ORDO Yearbook’s editorial board from 1948 to 1991 as well as a 1954 founding member, long-time director and later honorary president of the Walter Eucken Institut. Last but not least, substantively we believe that the reader would have benefited from taking the “Freiburg connection” seriously because it would have emphasized something in Hayek’s liberalism which is truly ubiquitous in Boettke’s picture: His LSE-focused reconstruction of the 1930 s and 1940 s very much reads as a variety of ordoliberalism as it contemporaneously emerged in Eucken’s Freiburg and Röpke’s Geneva. Boettke’s emphasis on a rules-based approach to political economy, the necessity to formulate generalizable rules of the game as opposed to intervening into the moves of the game, and, above all, the omnipresence of the framework notion all perfectly fit into a portrayal of Hayek as an ordoliberal – of course, of his own variety stressing the importance of knowledge and learning processes. A more profound look at the Continent, but also at the “Old Chicago” School around Frank Knight and Henry Simons in the 1930 s and 1940 s, would have shown the importance of Hayek’s LSE as a hub of the burgeoning “laissez-faire within rules” research programs on both sides of the Atlantic a fortiori.

Switching now to the actual matter of the book, what is impressive is Boettke’s persistent willingness to mingle with (mis)interpretations of Hayek in modern economic theory. As such, the excellent Chapter 4 focuses largely on Hayek’s essays on knowledge and their reception in information economics and mechanism design. While the Hayekian roots of both strands of economic thought are usually acknowledged, Boettke argues that many crucial parts of Hayek’s arguments are omitted in the formal models or that – even worse – Hayekian positions on the matter are sometimes deliberately misrepresented. Boettke demonstrates in which ways Hayek’s actual concerns are mostly unanswered by large parts of current theorizing in these fields. Grossman and Stiglitz (1976; 1980) are Boettke’s favorite target on this. While the notion of knowledge dispersion, and the market’s role in alleviating it, was certainly picked up by these authors, Boettke makes clear how they understand Hayek as having argued that knowledge of prices is the only necessary form of knowledge in order to reach equilibrium. Corresponding models of “market failure” in information economics are then built up on these assumptions, which certainly do not do justice to the Hayekian roots. More importantly, Boettke also asks whether some aspects of Hayek’s thought are inherently incapable of being formalized, at least with the currently fashionable tools of potentially doing so. While models like Grossman’s and Stiglitz’ heavily rely on the notion of equilibrium and ultimately orient themselves on the possibility of attaining equilibrium at some point, Hayek’s approach considers economy-wide equilibria not likely to be a commonly observed state of the “real-world” economy, and the real task of the economist would correspondingly be to illustrate how the supposed tendency towards equilibrium comes about in the real world.

Also, Hayek’s role in the “socialist calculation debate” ought, according to Boettke, be revisited. While Hayek was thought to have lost that debate to the likes of Oskar Lange or Abba Lerner for a long time, at least since the breakdown of “real-world socialism” in Eastern Europe (and the enormous economic difficulties preceding it) Hayek has been partially vindicated. The inability to use the communicative and information-processing ability of markets is now, together with incentive-related issues and the necessary infringements on political freedom, seen as a major reason for the underperformance and ultimate downfall of real-world socialism. However, Boettke asks whether the lessons learned from Hayek's battle over economic calculation were perhaps somewhat simplistic and did not fully capture the extent of Hayek’s critique. As such it is no surprise that recently the topic has regained traction and prominent economists (Posner and Weyl 2018), as well as political pundits, are speculating about computing power being able to substitute for market processes to allocate goods and services. Oftentimes the big tech companies in the US and China are seen as drivers of this change, whereby the concentration of data in the hands of some big companies seems to naturally favor arguments for planning (“Amazon knows what I want better than myself anyway!”). While Boettke does not deal with all the respective proposals in detail, he clearly demonstrates that Hayek’s legacy about the information-communicating function of markets, which can never be substituted for with computing power (for the simple reason that the subjective preferences of human actors, as well as future developments on the supply side, are necessarily unpredictable), needs to be communicated anew and re-applied to the problems and debates of today.

Correspondingly, the subsequent Chapter 6 revisits the debates around Hayek’s most famous book, “The Road to Serfdom”. Without entering into the matter too much at this point, it is worth pointing out that it is a recurring theme in Boettke’s book how we today all too often forget about the institutional preconditions of individual liberty in contemporary democracies and the importance of economic liberty for political liberty. While we clearly do not face extensive pleas for the introduction of “pure theory” socialism in most places at the moment, the Hayekian question about the incompatibility of certain collectivist economic arrangements with the political principles of democracy that are universally desired is as relevant as ever. Newly reheated demands for “democratic socialism” both in Europe and the US or long written off notions of “national sufficiency” offer plenty of training ground for Hayekian scholars to demonstrate in which sense these policy solutions might not only be bad ideas from an economic point of view, but also how they could also infringe on civil and political liberties over time. Thus, Boettke asks (political) economists to be bold enough to dabble with big, philosophically seeming questions and to ask whether proposed institutional arrangements are capable of fulfilling the desiderata of individual liberty and human equality. “The devil” (and thus the place to focus our attention on) – Boettke thinks – “will always be found in the institutional details” (Boettke 2018, p. 63).

Another point that Boettke consistently stresses throughout the book is how Hayek’s ideas ought not be taken as dogmas or a fully perfected system of thought, but rather as suggestions or inspirations for carrying out a “progressive research program in the social sciences” (Boettke and Coyne 2015, p. 1) inspired by Hayekian ideas. Boettke’s own highly productive efforts at carving out new research areas and making ideas accessible owe credit to Hayek’s work (for instance his frequent combination of the Austrian School with the Bloomington and Virginia Schools). Just like Hayek himself (“I view Hayek’s constant learning throughout his career as one of the most attractive features of his work”, Boettke 2018, p. 72), contemporary students of society ought not take Hayek’s system of thought as a fixed set to be worshiped or preached, but instead as an inspiration and a guide to further their own research endeavors in political economy. “Hayek’s system is pregnant with ideas” (Boettke 2018, p. 284), as Boettke puts it. Thus, young “Austrian-inspired” economists (but of course also contributors from other camps) will find reading the book enlightening and inspiring to their own research agendas. As such, let this review end with a quote about the beauty, but also the great responsibility of being a social scientist, taken from one of Hayek’s letters to his friend and colleague Fritz Machlup (Boettke 2018, p. 9). In it, Hayek referred to having initiated a particular project (“The Abuse and Decline of Reason”) as “the best I can do for the future of mankind.” This sentence perfectly captures how serious the endeavors of the social scientist are and how helpful understanding and tracing the long and varied career of a thinker like Hayek can be. The stakes are high, but the academic game is fun. Professor Boettke’s book certainly helps to play it well.

References

  • Boettke, Peter J. (2018), F. A. Hayek: Economics, Political Economy and Social Philosophy, London.

  • Boettke, Peter J. and Christopher J. Coyne (2015), Introduction: Austrian Economics as a Progressive Research Program in the Social Sciences. In: Peter J. Boettke and Christopher J. Coyne (eds.), The Oxford Handbook of Austrian Economics, New York, pp. 1–12.

  • Burgin, Angus (2012), The Great Persuasion: Reinventing Free Markets since the Depression, Cambridge.

  • Caldwell, Bruce J. (2004), Hayek’s Challenge: An Intellectual Biography of F. A. Hayek, Chicago.

  • Carden, Art (2019), Read Hayek as if Your Children’s Lives Depend on It, American Institute for Economic Research, online available: https://www.aier.org/article/read-hayek-if-your-childrens-lives-depend-it.

  • Grossman, Sanford J. and Joseph E. Stiglitz (1976), Information and Competitive Price Systems, American Economic Review, Vol. 66, pp. 246–253.

  • Grossman, Sanford J. and Joseph E. Stiglitz (1980), On the Impossibility of Informationally Efficient Markets, American Economic Review, Vol. 70, pp. 393–408.

  • Grudev, Lachezar (2019), Review of Peter J. Boettke’s “F. A. Hayek: Economics, Political Economy and Social Philosophy”, Erasmus Journal for Philosophy and Economics, Vol. 12, pp. 108–113.

  • Horwitz, Steven G. (2019), Review of Peter J. Boettke’s “F. A. Hayek: Economics, Political Economy and Social Philosophy”, Independent Review, online available: http://www.independent.org/ publications/tir/article .asp?id=1425.

  • Kolev, Stefan (2019), A Warning Calls to the Liberals: False Friends of Friedrich von Hayek, Frankfurter Allgemeine Zeitung, 29 April 2019, p. 16.

  • Kolev, Stefan (2020), F. A. Hayek, Gemeinschaft and Gesellschaft, Globalization and Digitalization, Cosmos + Taxis. Studies in Emergent Order and Organization, forthcoming.

  • Kolev, Stefan, Nils Goldschmidt and Jan-Otmar Hesse (2020), Debating Liberalism: Walter Eucken, F. A. Hayek and the Early History of the Mont Pèlerin Society, Review of Austrian Economics, forthcoming.

  • Matson, Erik W. (2018), Hayek and the Liberty of Knowledge, Russell Kirk Center for Cultural Renewal, online available: https://kirkcenter.org/reviews/hayek-and-the-liberty-of-knowledge/.

  • Posner, Eric A. and E. Glen Weyl (2018), Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Princeton.

  • Slobodian, Quinn (2018), Globalists: The End of Empire and the Birth of Neoliberalism, Cambridge.

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  • Boettke, Peter J. (2018), F. A. Hayek: Economics, Political Economy and Social Philosophy, London.

  • Boettke, Peter J. and Christopher J. Coyne (2015), Introduction: Austrian Economics as a Progressive Research Program in the Social Sciences. In: Peter J. Boettke and Christopher J. Coyne (eds.), The Oxford Handbook of Austrian Economics, New York, pp. 1–12.

  • Burgin, Angus (2012), The Great Persuasion: Reinventing Free Markets since the Depression, Cambridge.

  • Caldwell, Bruce J. (2004), Hayek’s Challenge: An Intellectual Biography of F. A. Hayek, Chicago.

  • Carden, Art (2019), Read Hayek as if Your Children’s Lives Depend on It, American Institute for Economic Research, online available: https://www.aier.org/article/read-hayek-if-your-childrens-lives-depend-it.

  • Grossman, Sanford J. and Joseph E. Stiglitz (1976), Information and Competitive Price Systems, American Economic Review, Vol. 66, pp. 246–253.

  • Grossman, Sanford J. and Joseph E. Stiglitz (1980), On the Impossibility of Informationally Efficient Markets, American Economic Review, Vol. 70, pp. 393–408.

  • Grudev, Lachezar (2019), Review of Peter J. Boettke’s “F. A. Hayek: Economics, Political Economy and Social Philosophy”, Erasmus Journal for Philosophy and Economics, Vol. 12, pp. 108–113.

  • Horwitz, Steven G. (2019), Review of Peter J. Boettke’s “F. A. Hayek: Economics, Political Economy and Social Philosophy”, Independent Review, online available: http://www.independent.org/ publications/tir/article .asp?id=1425.

  • Kolev, Stefan (2019), A Warning Calls to the Liberals: False Friends of Friedrich von Hayek, Frankfurter Allgemeine Zeitung, 29 April 2019, p. 16.

  • Kolev, Stefan (2020), F. A. Hayek, Gemeinschaft and Gesellschaft, Globalization and Digitalization, Cosmos + Taxis. Studies in Emergent Order and Organization, forthcoming.

  • Kolev, Stefan, Nils Goldschmidt and Jan-Otmar Hesse (2020), Debating Liberalism: Walter Eucken, F. A. Hayek and the Early History of the Mont Pèlerin Society, Review of Austrian Economics, forthcoming.

  • Matson, Erik W. (2018), Hayek and the Liberty of Knowledge, Russell Kirk Center for Cultural Renewal, online available: https://kirkcenter.org/reviews/hayek-and-the-liberty-of-knowledge/.

  • Posner, Eric A. and E. Glen Weyl (2018), Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Princeton.

  • Slobodian, Quinn (2018), Globalists: The End of Empire and the Birth of Neoliberalism, Cambridge.

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