Is freedom as non-domination a right-wing idea?

The Hayekian capitalist republic

The central claim in Irving’s book is that Hayek was actually a critic of liberalism, or at least of its foundational idea of freedom as non-interference. This rejection was the basis of his later own version of republicanism. Irving starts his demonstration by connecting Hayek’s early economic work, and most notably his disagreements with John Maynard Keynes and his input in the socialist calculation debate, with late Hayek’s political and philosophical writings. The problem, Hayek argued, is that the liberal core tenet of freedom as non-interference permits too much state intervention in the economy. Indeed, the type of progressive monetary policies that he opposed as an economist, such as inflationary reductions of unemployment, do not count as interferences per se. And yet they are arbitrary decisions that harm individuals by undermining the reliability of prices, and various other economic mechanisms, that convey the information these individuals need to plan their lives.

Irving’s book is an intellectual biography in the sense that it chronologically connects all of Hayek’s work into a coherent argument. The basis of Hayekian republicanism is his well-known epistemic defence of the free market. Individuals need knowledge in order to make plans, and acquiring and using that knowledge in the fulfilment of these plans is how they use their economic liberty. This knowledge can only be used and acquired within the market, most notably through the price mechanism (Hayek, 1945). Hayek does not only understand liberty as merely economic. He restricts it even further – conceptually, one can only be said to be free in the market (p. 13).

This epistemic individualism determined Hayek’s participation in two of the major economic disputes of the previous century – his well-known opposition to John Maynard Keynes and his own input in the so-called socialist calculation debate. Hayek opposed Keynesian policies on two main fronts. The first was his defence of the gold standard and of monetary stability, the second his rejection of the idea that economic policies could be sufficiently informed by any form of data gathering (Ch. 1). Hayek thought that monetary stability was necessary for individuals to make reliable plans, and his rejection of data gathering was a corollary of his epistemic individualism. As for the socialist calculation debate, the dispute opposed, roughly, advocates of central planning and free market liberals. The former considered that the rationality of central economic planning would be in the long term more effective than the perceived intrinsic irrationality of the free market. The latter, like Hayek and his Austrian colleague and compatriot Von Mises, believed that efficient planning is basically impossible, and that the market actually achieves rationality through the price mechanism’s indication of the relative scarcity of goods. ¹ The debate is generally considered to have been won by the free market side. Irving notes that, contrary to his neoclassical allies in this debate, Hayek turned to a dynamic, ever-changing understanding of price equilibria. Such an understanding was more in line with his epistemic individualism, for it conceived equilibria as following the various decisions that economic actors were making while acquiring and using new knowledge (Ch. 2).

Armed with these two ideas, Hayek then turned to political philosophy – first with his rejection of liberalism, and second with his properly republican writings. Irving argues that when Hayek was writing his early work, classical free market liberalism as a political and economic paradigm was pretty much dead outside of the Austrian School. The rise of socialism and the falsity of some of its core economic – mostly Malthusian – assumptions regarding the correlation between wages and population size had made it almost disappear from the political scene. This has led many liberals, including for example one of Hayek’s particular bête noires, John Stuart Mill, to embrace a conception of liberty as self-development and fulfilment much more expansive than the mere freedom-as-non-interference. This conception of liberty, however, allowed much more extensive political interference with the economy. For example, Hayek feared that the tempering with the price mechanism by stimulating demand, something Keynes among others advocated in the name of general welfare, would not count as actual interference and thus could be acceptable on liberal grounds (Ch. 3). But such an intervention, Hayek thought, quoting various figures such as John Locke, Bernard Mandeville or Adam Ferguson (p. 48), was what liberalism was specifically supposed to prevent in the first place.

Hayek conceived liberalism in this proper, original form as a British phenomenon, whereas he saw France and its state schools such as the Ecole Polytechnique as the main breeding ground for the errant version. The opposition between the state and the economy was, however, and paradoxically, an idea that was more vehemently defended by French liberals, amongst whom Hayek could have found more explicit allies. For example, the broken window fallacy – a thought experiment that is often used to illustrate the shortcomings of Keynesian policies – was originally imagined by the French economist Frederic Bastiat. It is debatable whether Hayek actually took French liberals seriously at all, given that those he identifies as such and which are listed by Irving, such as Auguste Comte, were anything but (pp. 47–51).

In any case, Irving argues that Hayek developed his own version of market republicanism as a way to reject a liberalism that became too permissive towards governmental economic planning and interventionism. Irving identifies three of its core features. The first is a conception of liberty as non-domination that goes back through the Whig party in early modern England to classical antiquity, and more specifically to Ancient Rome (Irving, 2017). Irving here frames his book very much in the neo-republican history of the idea of liberty as understood by Pettit. He argues that Hayek indeed took from Antiquity the idea that arbitrary uncontrolled political power is the main threat to individual liberty. He notes however that, contrary to contemporary neo-republicans, Hayek did not apply the concept consistently, and was solely concerned with imperium and pretty much ignored dominium. In this he shares the blind spots of the early republicans, who, as propertied and wealthy men, often benefited from the latter while being often afraid of ending up at the receiving end of the former (Ch. 4).

Hayek considered democracy, or at least its majoritarian understanding, as the paradigmatic modern form of imperium (Ch. 5). The republican idea of a mixed constitution with separated powers and which actively regulates the exercise of political power, be it held by a monarch or the people, is an old one and is developed at length in Hayek’s two magnum opi, The Constitution of Liberty and Law, Legislation and Liberty. The constitution he outlines there is, just as any republican constitution, one that limits the opportunities for power to interfere with individual freedom. Since freedom is exercised in the free market, the Hayekian model constitution protects people from any political intervention (Ch. 7). It is however important, Irving notes, not to classify Hayek in the broader laissez faire movement. Hayek did not advocate the withdraw of the state from other areas of social and economic life. On the contrary, he borrowed from German ordoliberals the idea that the role of the state was to actively maintain the conditions necessary for individuals to exercise their freedoms following the rules constitutionally established. The role of the state in fact was, following his earlier work on the centrality of the price mechanism to individual liberty, to maintain economic stability.

It is, however, what Irving identifies as Hayek’s third main idea that drives his point home. Republicanism is a theory of government that protects individuals from arbitrary interference. This concern is central to Hayek’s model constitution, where he saw arbitrariness in the contemporary world as taking the form of any pursuit of the ‘will o’ the wisp of social justice’ (Hayek, 1982: 67). Originally, Hayek did not seem to see inflationary policies, especially those destined to decrease unemployment, as a threat to liberty, and only condemned them on the basis of his earlier economic work. Irving notes, however, a radicalisation in Hayek’s thought over time, after he saw his fear concerning the consequences of Keynesian policies confirmed. Hayek thought that socialists and progressives, having reckoned with the failure of central planning after the liberal victory in the socialist calculation debate, were now using inflationary monetary policies to serve their agenda. An extension of his second main idea – that the role of the state was to maintain economic stability – was therefore to withdraw the control of money from the hands of the state (Ch. 8). Hayek advocated the free circulation and usage of money across all international borders, which would allow individuals to favour the most stable ones and therefore sanction states that had too flippant an attitude towards the value of their own currencies.

This fear of unlimited democracy might explain some of Hayek’s involvement with real world politics, from his attempts to advise democratically elected governments such as Margaret Thatcher’s in the United Kingdom to his more infamous support for authoritarian capitalist and free market regimes, most notably Augusto Pinochet’s Chile and Antonio Salazar’s Portuguese Estado Novo (Ch. 9). Irving shows that two of these were mainly based on a misunderstanding – Salazar was far from being a supporter of the free market, and Thatcher seems to have politely dismissed Hayek’s advice as being out of touch with the requirements of British democratic politics. It is, however, unclear how to interpret Hayek’s support for Pinochet’s United States-backed coup d’état, if indeed Hayek really supported it. More than a compromise of Hayek’s ideas, I rather tend to take these three instances as cautions against intellectuals proclaiming themselves advisors to the prince. Nevertheless, even if it has probably been exaggerated – Irving restates here the cliché that the new Chilean constitution was written under a Hayekian influence, for which there is no actual evidence (Caldwell and Montes, 2015) – there is no doubt that Hayek’s thought seems ill-equipped to issue a philosophical condemnation of Pinochet’s style of dictatorial capitalism. For if freedom is only exercised in the free market, then one can be free in a dictatorship that preserves it. In fact, one can be freer there than in an interventionist democracy. This obviously makes Hayek contrast sharply with today’s very pro-democratic neo-republican mainstream, even those republicans who are friendly to the free market.

In conclusion, the main point Irving makes is that Hayek defended in his political writings a republican conception of freedom as non-domination, which he understood as solely being exercised in markets, and which was more able to ground his rejection of the state’s intervention in the economy. This made Hayek obsessed with institutional stability and gave him a notorious critique of unlimited democracy which may explain his support of authoritarian capitalist regimes. Most crucially, Hayek grounded his defence of freedom as non-domination in his epistemic individualism and extended it as the main reason to reject any collective or political attempts to regulate, intervene in or guide the free market and the economy at large.

Now, Irving’s goal in this republican exegesis of Hayek’s work is to highlight what he sees as a contradiction between Hayek’s denunciation of imperium – domination by the state – and his leniency towards dominium, that is the interpersonal type of domination that Irving argues often characterises market relations with significant differences of bargaining power. And this, I believe, is where Irving loses his reader, especially if they happen not to be republican.

Domination in the free market?

Sean Irving’s book is without doubt a must-read for all Hayek scholars. The first chapters also explains very well two major economic debates in a way that theorists unfamiliar with the history of economics will certainly find useful.

Most importantly, and this is what makes the book of more general interest, it also opens a new strand in the debate between liberal and neo-republican freedom by connecting it to disputes over monetary policies. This is, however, where the main problem lies. Irving repeatedly extends Hayek’s argument to the private sphere in order to highlight what he perceives as a contradiction between his concerns about the power of the state and his flippant attitude towards the power of bosses. He then uses that argument to justify workplace democracy. When I closed his book, however, I had failed to notice any contradiction at all. I was however even more convinced than before that any republican critique of capitalism might be at the very least a misguided endeavour, as I shall explain now.

The seemingly obvious connection between freedom as non-interference and free market liberalism has already been criticised (Carter, 2011; Cohen, 2001), and several left-leaning thinkers have defended egalitarian conclusions with just such a conception of freedom (Dworkin, 2000; Steiner, 1981, 1983). Irving’s book makes the symmetrically opposite point: it shows how freedom as non-domination may lead to the support of a right-wing, anti-egalitarian economic agenda. To make my point, let me simply follow the thread of his argument and contrast how well the two conceptions of freedom fare in analysing capitalistic relations of production, and in justifying progressive, interventionist economic policies.

First, why would there be any contradiction between Hayek’s denunciation of the power of the state and his acceptance of it within firms? Republicans have an ambivalent relationship with the free market. Philip Pettit, for instance, has argued that the nature of the free market should lead to a form of republican ‘complacency’ towards it. Market competition dilutes the power of bosses, for ‘no one would depend on any particular master and so no one would be at the mercy of a master: he or she could move on to employment elsewhere in the event of suffering arbitrary interference’ (Pettit, 2007: 142). Critics of republicanism have contested that assertion by pointing out that workers as a class are structurally dominated in the free market, which shows either that freedom as non-domination makes no sense for it leads to the seemingly absurd conclusion that we are now all unfree (Sagar, 2019), or that republicanism should lead to socialism (Vrousalis, 2019).

Hayek, however, understands, as Irving himself argues, domination in a way that is related to his epistemic defence of the free market. Domination occurs when people are rendered unfree to acquire and use knowledge by the arbitrary whims of a planner who does not and cannot know as much as they do. This does not happen in this way within capitalist firms, either in an individual or structural fashion. First, it is not clear how rank and file workers’ knowledge could be used better than it already is. Most workers are hired precisely because they are expected to use their knowledge and skills that are relevant for the firm’s productive process. Second, the absence of democracy within the capitalist firm is justified precisely on epistemic grounds. A hierarchical organisation of production allows managers to read price signals external to the firm in order to organise production – one could draw a parallel with political representatives needing leverage to use their specialised knowledge in the parliament. Workers’ cooperatives and partnerships still have managers for that very reason. Irving himself acknowledges that the reason firms exist in the first place is because of the gains in production efficiency made possible by hierarchy (p. 41), and it therefore seems unclear in what sense bosses’ interference is arbitrary in a Hayekian sense. Perhaps workplace democracy might have efficiency-enhancing criteria based on its epistemic virtues (Richard, 2019: 13), but Hayek certainly did not see democratic procedures as epistemically valuable. Indeed, it seems contradictory to use Hayekian republicanism to justify the very decision-making process – democracy – that Hayek himself was so opposed to.

In a way, Irving seems to reiterate here an increasingly clear deadlock in debates on workplace democracy. On one hand are those who oppose it and see it as incompatible with the various economic functions the firm is supposed to fulfil. On the other are its proponents, who advocate its imposition from the perspective of an external, broader theory of democratic justice – most republican critiques of capitalism mentioned above find themselves in this category. The two are basically opposed in the way they conceive the ends of the firm, either as an institution focused on economic production or as an institution that produces justice, as it were. Now, workplace democrats are obviously on to something when they worry about the various abuses and rights violations that characterise the contemporary workplace. But if interference, rather than Hayekian domination, is what we should be concerned about, a better way to problematise the relationship between the bosses and the worker could be to refocus on this interference itself rather than on its arbitrary or unjustified character.

The same goes, more crucially, for monetary policy. This is the most important lesson of Irving’s book. When it comes to progressive and left-wing economic policies, freedom as non-interference actually permits a lot. A convinced anti-capitalist, and especially one who takes seriously Hayek’s caution towards central planning and direct democratic control of the means of production, might very well see here a feature in what he dismissed as a bug. One can here think of more up to date and contemporary examples than Hayek’s obsession with monetary stability and inflation. Take for example what some economists call the crowding out effects of the state’s interventions in the economy. Public spending – for public goods, welfare programmes and various other government functions – requires the state to draft an increasing amount of a given total of available loanable funds in order to financially sustain itself. The amount of loanable funds being scarce, like every existing economically commodifiable good, this consequently increases the price of these funds, that is the interest rate at which they are awarded. The consequence is an increase in the opportunity costs of, and thus a decrease in, private investment. If interest rates are too high, private actors will simply refrain from investing. It seems at first debatable whether crowding out is a problem at all; we live currently in a world of constant public deficit, and yet it does not look like private investment has diminished. However, crowding out effects do not only apply to loanable funds – even if these are the most commonly discussed cases – and the example is worth discussing as a hypothetical.

Take, then, the negative consequences of crowding out effects according to some economists, for example slower rates of economic growth, and consider their relationship with individual freedom. Assume, for the sake of argument, that these consequences are real. Theoretically at least, crowding out is then a good candidate for the type of state policies that Hayek loathed. These policies diminish the subjective capacity of individuals to make plans by reducing the range of their action as market agents. Freedom as non-domination sides with the economists’ critique here. Crowding out effects are simply the consequence of the actions of an always-changing democratic majority that undermines economic stability. These actions interfere with the economic freedom of private investors and other various individual economic agents which are deprived of their capacity to make long-term plans. One does not even have to adopt Hayek’s stringent freedom-as-market-freedom view or his epistemic individualism, but simply to acknowledge that individuals are made in a sense less free here than they could have been if the state completely refrained from that type of economic policy, and this is especially true if we understand their freedom as a status that should be protected. But if one has a view based on non-interference, then none of this really matters. Your capacity to invest has been diminished, but not exactly interfered with, and none of your rights has been infringed upon. You are still ‘formally’ free, in a sense, but if the circumstances just so happen to be unfavourable to long-term investments, then tough luck. Wait for the next elections or invest in something else.

Freedom from interference seems, then, to grant the state much more latitude to follow the majority’s will regarding monetary and indirect economic policies. A Hayekian might reply here that the problem would be that public investment will be less effective that its private counterpart. Again, state planners are less effective than uncoordinated individuals. However, note that this objection, if it assumes a conception of freedom as non-interference, is no longer one based on these individuals having been rendered unfree. The question that Irving’s book raises inadvertently is therefore that perhaps left-wing critiques of the free market will find in freedom as non-domination a much less helpful ally than they expected. And perhaps freedom as non-interference allows much more political (democratic!) control of the economy than its traditional free market supporters and left-wing critics would think.