This is one of a series of posts that will ask what the most pertinent question raised by a prominent influencer of political economy might have been, and what the relevance of that question might be today. There is a list of all posts in the series at the end of each entry. The origin of this series is noted here.
After the first two posts in this series, the topics have been chosen by me, and this is one of those. This series has been produced using what I describe as directed AI searches to establish positions with which I agree, followed by final editing before publication.
The Hayek Question
Friedrich Hayek argued that markets, not governments, should be the primary mechanism for allocating resources. In his famous book, The Road to Serfdom, published in 1944, he warned that state planning would inevitably lead to tyranny. Freedom, he claimed, depended upon markets left to operate without interference.
His ideas became the intellectual foundation for the neoliberal turn of the late 20th century. Thatcher and Reagan drew directly on Hayek to justify privatisation, deregulation, and the retreat of the state. In their rhetoric, markets would deliver efficiency, innovation, and liberty. Government, by contrast, was cast as the enemy: clumsy, coercive, and dangerous.
But the lived results of four decades of neoliberalism tell a different story. Instead of liberty, we have insecurity. Instead of dispersed opportunity, we have concentrated wealth. Instead of democratic control, we have captured politics. Which brings us squarely to the Hayek Question: if markets are left to decide everything, how can democracy, fairness and collective need survive?
1. Markets and the myth of neutrality
Hayek believed markets were neutral arenas. Through price signals, he argued, they coordinate the dispersed knowledge of millions of individuals better than any planner could. The market, in this story, is simply a mechanism, free from bias.
But markets are not neutral. They are embedded in institutions, rules, and power relations. Who owns assets, who sets wages, and who controls credit all play a role in determining outcomes. A market is not a disembodied calculator. It is a system structured by power. To ignore that is to ignore reality.
2. Markets and inequality
Left to themselves, markets concentrate wealth. Those who begin with assets earn returns; those without are left behind. Over time, this dynamic compounds. Monopoly power emerges. Oligarchs dominate. Far from dispersing opportunity, unregulated markets narrow it.
Hayek claimed markets protect liberty. In reality, concentrated wealth erodes it. The billionaire who owns your housing, your job, and your media has as much power over your life as any government bureaucrat. Markets unchecked do not disperse power; they entrench it.
3. Markets and insecurity
Hayek dismissed collective guarantees, such as welfare states and public services, as dangerous steps toward central planning. But without them, insecurity flourishes. Markets are volatile. Jobs are lost. Illness strikes. Housing becomes unaffordable. A society that relies only on markets leaves individuals exposed to risks they cannot control.
True liberty requires security: the ability to live without constant fear of destitution. That cannot be delivered by markets alone. It requires collective provision.
4. Markets and democracy
Markets, when left unchecked, also undermine democracy. Wealth buys influence. Corporations fund campaigns, lobby politicians, and shape regulation in their favour. Policy ceases to reflect the will of citizens and instead reflects the interests of capital.
We see this clearly in tax havens, financial deregulation, and privatisation. Markets did not emerge spontaneously. They were designed and sustained by governments captured by wealth. To imagine that markets can exist without politics is a fantasy.
5. Markets and collective need
Markets respond to purchasing power, not to need. If clean air cannot be bought and sold, markets ignore it. If the poor cannot pay for healthcare, markets deny it. If climate change is an externality, markets discount it.
Collective needs such as public health, education, environmental stability, and collective infrastructure are systematically undervalued by markets. Meeting them requires deliberate public action. Left to themselves, markets will not provide.
6. What Hayek missed
Hayek was right to fear unaccountable state power. However, he overlooked the fact that unaccountable private power can be just as corrosive. Liberty is not only threatened by governments. It is also threatened by monopolies, landlords, creditors, and employers.
By insisting that markets must decide everything, Hayek ended up defending the liberty of the few at the expense of the many. His vision of freedom was narrow: freedom from the state, but not freedom from want, insecurity, or domination by capital.
Inference
The Hayek Question exposes the core contradiction of neoliberalism. Markets cannot decide everything without destroying democracy, fairness, and collective need. They concentrate wealth, generate insecurity, ignore public goods, and capture politics.
True freedom requires more than markets. It requires democratic states willing to constrain capital, provide collective goods, and guarantee security. Hayek warned that planning leads to tyranny. But our experience shows the reverse: markets left to themselves lead not to liberty, but to oligarchy and insecurity.
If we want democracy, fairness, and collective survival, markets must be tools, not masters.
Previous posts in this series
- The economic questions
- Economic questions: The Henry Ford Question
- Economic questions: The Mark Carney Question
- Economics questions: The Keynes question
- Economics questions: The Karl Marx question
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As usual you are being far far to fair.
“he warned that state planning would inevitably lead to tyranny. Freedom, he claimed, depended upon markets left to operate without interference.”
Based on a single example: Austria – which in th 1920s took a step in the direction of state planning for housing etc (plus other things) & which made it easy for the Nazis to take total control. Toby Judt in “Evils Fares the Land” called it a category error, I agree. But we never heard a mea cupla from Hayek (too arrogant? or just too stupid?).
The Smurfdom book (I have too much contempt for Hayek to assign it the correct title) was a response to the Beveridge report. There was a lively exchange of letters/articles in the newspapers of the day between Hayek and Keynes on the subject. Hayek, as per with blinkers on. Hayek, a small man, with ideas founded on fantasy reasoning & a total failure to look around at the real world.
Apologies for sometimes just being too kind 🙂
Just as with Adam Smith and his “invisible hand”, what Hayek actually said is a bit more nuanced and complicated than “markets good; state bad”.
Here is a quote from the Road to Serfdom:
“There is no reason why, in a society which has reached the general level of wealth ours has, (the certainty of a given minimum of sustenance) should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”
So although Hayek is often deployed to argue that everything should be left to markets, that was his position. He recognised that there is a role for the state as the provider of a safety net for all. He was not arguing against state provision of welfare, but rather against the sort of centrally planned economy that you found in places such as the USSR, with its five year plans. It would be interesting to see what he thought about the economic success of counties like China.
Remember the tech bros subscribe to this now.
But it is not socialism.
It is about keeping people from rioting against them.
There was there benevolence or care in what Hayek had to say, I suggest. Nor, really, a safety net, except for the wealthy.
Market, what market?
That’s a serious question.
There is no one “market”. They are set up by people with rules (if government doesn’t set the rules then the powerful will to the detriment of everyone else). So there are multiple types of market depending on their rules. You can’t generalise that “markets are good” because there is no one market.
Markets are like cars. There are lots of types of cars. And cars are great for getting from A to B. But, just like markets, unless cars are properly driven and controlled they inevitably crash. Leaving things to the market is like getting into a car and setting off without holding the wheel. Disaster will ensue.
For “markets” you need to amend to free-to-enter markets.
Markets which are not exposed to creative destruction tend to monopoly, as even Marx observed iirc.
There are no free to enter markets
I think Hayek disagreed with definition of free market that the is found in a textbook. Existing markets should not be tested against a hypothetical perfected version of themselves. Instead we should test actual market data against the the idea of the actual market not existing. Are our markets producing outcomes preferable to them not existing? Many people say NO. Increasing excess would be the completely wrong policy, that is not what is wrong with markets.
Much of my thinking about Hayek in the last 5 years has been greatly influenced by John Gray. Who was a great friend of Hayek and was a colleague when they both worked for the Conservative Party. This make him a witness to the crimes of the century. What Hayek understood and everyone didn’t was the role of algorithms in society and the power that they have over us. Markets work like algorithms. The central planning committees of the Soviet Union was an algorithm. What Hayek believed was that the Soviet Union was removing political democracy and mandating market behaviour onto political decisions. What Hayek stated was that political freedom comes first and economic freedom is always defined by political power. You can’t define political freedom in terms which argue that true economic freedom is necessary prior to having political freedom. For Hayek that isn’t freedom. John Gray has also offered multiple critiques of Hayek and says that much of what they were up to was actually a continuation of the Attlee regime. The elite in the conservative party had no idea what they were doing and had their own ideas and direction. Their direction was disaster. They abandoned continuation and became fundamentalist revolutionary ideologues. They hadn’t understood what Hayek was trying to say. They put their own interpretation onto him. It is an interpretation that Hayek did not reject. Perhaps he should have done so. Maybe he didn’t do so because he believed that it should be up to others to reject. If we don’t do so, there is no one else who will.
I have to admit I have considerable difficulty working out what your argument is in this post. Might you rephrase it? In particular, I can see no way in which Hayek was continuing the Atll government’s policies, so can you explain that?
What in God’s name is Toyota whatshisname talking about?
‘Free to enter markets’.
Does ‘it’ have any examples?
Like you, I can think of none. When I was in retailing, and (say) Cadburys was bringing in a new chocolate bar, it would be reassuring retailers that the new product entry was supported with a launch budget so it would go on the shelves and come off in shoppers baskets and not be sitting there going out of date.
‘Free to enter markets’ – and once again we see the paucity of accounting don’t we – there is no real cost recorded properly on the creation of these markets – nothing really is for free, creating markets costs not just money, but costs the infrastructure and the planet itself. And all of this has been hidden by capitalism since its creation. Mass delusion at its best.
I think Toyota thinks it’s cool to pretend he understands the economics of the far right: it isn’t. He spouted nonsense.
Sorry to post again – I meant to add that von Hayek’s ‘theories’ can be seen as nothing but wishful thinking. At a more granular level for example he never ever considered well known human attributes as such as altruism. Von Hayek was a reactionary made by reactionaries (in his case, Nazism).
He is the cod intellectual grand father of BREXITEERS, Thatcherites, New Labour, Starmerism, Faragists, Yaxley-Lennon – the list of reactionaries could go on.