14 November 2016

Why we should trust Hayek more than Monbiot


As one of the few people to self-refer as a “neoliberal”, along with my colleagues at the Adam Smith Institute, I take umbrage at George Monbiot’s denunciation of neoliberalism and all who sail in her. It’s not simply because he disagrees with me and mine. No, the umbrage comes from Monbiot’s entire and total ignorance of what to be liberal, neo- or not, actually means.

Take, this, from his article:

The book was ‘The Constitution of Liberty’ by Frederick Hayek. Its publication, in 1960, marked the transition from an honest, if extreme, philosophy to an outright racket. It saw competition as the defining characteristic of human relations. The market would discover a natural hierarchy of winners and losers, creating a more efficient system than could ever be devised through planning or by design.

Anything that impeded this process, such as significant tax, regulation, trade union activity or state provision, was counter-productive. Unrestricted entrepreneurs would create the wealth that would trickle down to everyone.

Hayek didn’t state that regulation was to be forbidden. He insisted that the right to freedom of association, aka trade unions, was just as important as the right to free speech and was simply another form of that essential liberty.

There was, of course, always going to be – and should be – state provision of certain things and a tax system would be necessary to pay for such.

Nor did he suggest, and nor was anyone else ever stupid enough to suggest, that wealth trickled down from anywhere. People discovered new ways to produce it, certainly, and when it was produced it could then be consumed.

But where Monbiot has really got it wrong is in his misunderstanding of markets. As he concludes in his piece:

A few of us have been working on this, and can discern what may be the beginning of a story. It’s too early to say much yet, but at its core is the recognition that – as modern psychology and neuroscience make abundantly clear – human beings, by comparison with any other animals, are both remarkably social and remarkably unselfish.

The atomisation and self-interested behaviour neoliberalism promotes run counter to much of what comprises human nature.

But markets are the method by which human beings cooperate. If I grow apples which you make into cider, we are cooperating in that boon to mankind, enabling people to get drunk.

Competition is the relatively unimportant part of that market system: comprising the selection of who we will cooperate with. Perhaps I compete with other farmers, with other orchards, for your custom in selecting those apples. But the aim of the whole thing is still that cooperation in enabling drunkenness.

As Hayek’s Nobel acceptance speech makes clear, there is no alternative. We do not have any other method of organising the cooperation of seven billion people.

We don’t have any other method of even calculating the desires of seven billion people. We can only look to markets and prices to see what it is that they do want and what they’re willing to do.

As Cosma Shalizi’s outrageously good essay points out, the only Soviet economics Nobel Laureate, Kantorovich, also came to the same conclusion.

Even if we are to postulate an economy working to scientific socialism, computed to perfection, we must still start with market prices to see what it is that should be done.

What really irks me is that Monbiot has written an entire book based on his misunderstanding of it all. Markets are voluntary cooperation. They are the aggregation of the individual acts of social and sometimes even unselfish behaviour of us strange mammals.

Even the simplest of voluntary exchanges is cooperation. This chipped flint for that piece of meat – a piece of cooperation just like this jet engine for that pile of money.

Markets are how we organise joint human activity, how we select who we’re going to cooperate with, and how we find out what it is that should or could be done if we cooperate. To laud joint human activity but reject markets is simply nonsensical.

Tim Worstall is senior fellow at the Adam Smith Institute.