Economics: Assess Hayek’s claim that the market is to be preferred to any system based on planning.

Assess Hayek’s claim that the market is to be preferred to any system based on planning.

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Assess Hayek's claim that the market is to be preferred to any system based on
During one of her first Cabinet meetings as Prime Minister of the United Kingdom, Margaret
Thatcher "once famously slapped Hayek's The Constitution of Liberty on the table and
announced: 'This is what we believe in" (Hesselink, 2008, p. 7). Hayek's monetary model
proved central to the supply-side economic policies put into place during the 1980s in
Britain. Hayek championed the theory that governments should only intervene in the
economy in order to develop as free a market as possible, through methods such as
reducing business and income taxes, as well as privatising pre-nationalised industries by
transferring ownership to a private company. In this essay I will briefly look at the political
ideology of classical liberalism that Hayek helped to revive, and how it links into the
philosophical ideas of positive and negative liberty. I will then break down the key assertions
made by Hayek, primarily his arguments supporting the idea of a free market and those
against centralised planning. I will also tackle Hayek's main claim made in The Road to
Serfdom that government intervention leads to a loss of personal liberty, by looking at the
compromises he makes in his idealised theory of a free market economy.
We begin by looking at the branch of political theory known as classical liberalism, the
ideology that Hayek (1944) principally identified with. Classical liberalism promotes individual
rights and freedoms under the context of protecting individuals from government
intervention. The powers of government have to be constrained - it is the government's
responsibility to protect individuals from each other (Hobbes, 1991), and nothing more.
Individuals should be able to practice and do as they want (unless they harm another
individual (Mill, 1974)) without fear of constraint by the state. Economically speaking,
classical liberalism theorises that individuals live day-to-day in search of their own interests,
seeking to meet their own goals and ambitions. Money is sovereign: maximizing people's
money to take home maximises economic choice and therefore freedom.
This belief in that "a person or group of persons -- is or should be left to do or be what he is
able to do or be, without interference by other persons" (Berlin, 1969) represents negative
liberty, promoting freedom from interference by the state and other people. In terms of
promoting free markets, this represents tax cuts (leaving more money in people's pockets,
with which individuals can then choose how to spend), as well as removing restrictions and
other barriers to trade. The other side of the coin, central planning, is often linked with
collectivism, socialist attitudes to social justice and in turn, positive liberty. Positive liberty
argues that the state is there to provide opportunities for all citizens to achieve their own
goals and fulfil their potential regardless of their socio-economical background. It is the great
`springboard' of the poor, and the equaliser of the people. By opening up opportunities to
people maximises their choice of what to do in life, and therefore their freedom.
Classical economics theory, that Hayek largely followed, rests on the assumption that in any
market, forces of supply and demand naturally find an optimal equilibrium. Providing there

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This optimal price maximises efficiency: it gains the maximal amount of profit for all
companies in the market as well as achieving the maximal amount of surplus (the gain
obtained by paying less for a good then they were willing) for all consumers. In this classical
model, interfering with these forces, such as by placing a tax or a sales quota on a good,
causes inefficiencies in the market, and an optimal output is not achieved.…read more

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Mined, grown, hunted or drilled, the business always
withdraws a resource from nature. Without careful planning on how much of these
resources are extracted, and how their withdrawal affects nature, widespread irreversible
environmental effects can take place. Oil and other fossil fuels are, for all intents and
purposes, finite ­ without careful planning and research into alternatives, the world could
face an energy crisis. Under free-market economics, businesses are only interested in
maximising their profit during their (short) lifetime.…read more

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Caldwell, 1997, p. 1857). This has opened new opportunities
for organisations owned by the public to thrive. The co-operative movement in the UK has
gone from strength to strength, showing that economic systems that are owned by the
customers and ran for their interests can be effective in a market economy. The largest
co-op in the UK, the Co-operative Group, has managed to integrate rigorous ethical policies
and successfully compete in the market.…read more

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Focus should also be brought upon what Hayek does not say in his The Road to Serfdom.
Earlier, we looked at how Hayek concedes that with regards to the environment, a free
market economy would not sufficiently control the externalities that businesses cause to
nature. He believed that a form of planning would need to be incorporated to secure the
future of the environment for generations to come.…read more

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Caldwell, B., 1997. Hayek and Socialism. Journal of Economic Literature, 35(4), pp. 1856-1890.
Hayek, F. A., 1944. The Road to Serfdom. Chicago: University of Chicago Press.
Hayek, F. A., 1945. What Price a Planned Economy?. American Affairs - The Economic
Record, 3(3), pp. 178 - 182.
Hesselink, M. W., 2008. A Spontaneous Order for Europe? Why Hayek's Libertarianism is Not
the Right Way Forward for European Private Law. s.l.:University of Amsterdam.
Hobbes, T., 1991. Leviathan (1651). Cambridge: Cambridge University Press.
Mill, J. S., 1974.…read more


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