1926.. Hayek failure to critique corporations.

Hayek remains important in large part because of his defense of free markets and attacks on the state for interfering with a natural process. Progressives are often saying free markets fail . But markets are not allowed by corporations to operate as free markets but as rules set up by monopolies. Free markets would be hard to achieve (requiring legal framework to function, such as dependence on banks and contracts). The spirit of a corporation is not that of being a member of a happy community of equals, but a drive for a spirit of monopoly that makes losers of the others.

In Hayek’s view there is government and the market. But civil society is a third source of power and ideas, and corporations which so far as I can see he ignores, are a fourth (media make a fifth). But Hayek makes civil society nothing more than the preferences of isolated individuals. Meanwhile he attacked (and the popularity today of Hayekian ideas are because they can still be used to attack governments) as being a planning machine, too abstract and bureaucratic to respond to real signals in the economy, in society.

But many corporations today are larger than any country was at the time Hayek wrote his criticism of governments. He fails to be critical of the planning processes within corporations, even though Adam Smith was super clear that monopolization ruined markets. There are thirteen references to corporations in Wealth of Nations, all critical, all claiming that corporations were inherently monopoly seeking. The spirit of corporations is not to create a happy community of satisfied citizens but a competitive arena which spawns meanness and creates losers.
Hayek might be forgiven as reacting to the soviet reality, but that is long gone. Yet the neoliberal corporate wing still relies of Hayek’s anti planning critique without turning it on themselves.

Lots of progressives remain critical of markets and “market failures” even though we have never had a free market and that corporate interference, through paid politicians, is clearly creating those market failures.

Why does economics seem to allow the Hayekian attack on soviet style planning by governments but fail to turn that analysis to corporations?
—————
Having just writen this,I came across a review of a new biography of Karl Polanyi – The Great Transformation New York Review of Books.
http://www.nybooks.com/articles/2017/12/21/karl-polanyi-man-from-red-vienna/ Review by Robert Kuttner.

 

_________

Notes

Philip Mirowski  “Friedrich Hayek and Fritz Machlup, initiated the “socialist calculation debate,” eventually positioning neoliberal economics as the most important intellectual foe of scientific and technocratic socialism.”

To show there is some grey area, Journal of the History of Ideas, 73 (2012),

Hayek was not sure about the causal factors contributing to the large size of corporations. Therefore, he was reluctant to jump to the conclusion that, as advocated by Lippmann, the rights of corporations to grow beyond a certain size — by reinvesting retained earnings — should be limited.

Nevertheless, Hayek believed that the precise contours of property and contract rights were not fixed for all time. Therefore, while the rule of law necessitated each of these realms of rights, it did not rule out all changes.

Hayek’s on corporations.

“But the whole matter is one of extreme complexity and difficulty, and I cannot say, that I have definitely made up my mind. My main doubt is whether it really is the corporate law which has given rise to corporations bigger than they would become under the . . . free market, or whether it is not largely the greater influence on the political machine, which the great corporation exerts, which has favoured its growth.”

(*The letter appears in Ben Jackson, “Freedom, the Common Good and the Rule of Law: Lippmann and Hayek on Economic Planning,”

An interesting diagram from  the blog thinkmarkets.

 

 

Image Copied on 2017-12-18 at 08.31.27 AM

 

For those historically inclines it sh ould be pointed out that Hayek was Vienna friends and later with Karl Popper. Ernst Gombrich, art Historian remained friends with both. (The correspondence is at Hoover at Stanford.)

From http://dailyimprovisation.blogspot.com/2014/05/gombrich-popper-and-hayek.html

“Popper’s book “The Open Society and its Enemies” owed its publication in 1945 to Ernst Gombrich. They were both Viennese, and although they didn’t know each other well before arriving in England, became firm friends. Popper’s approach to science became the underpinning of Gombrich’s approach to art. However, the story of the publication of Popper’s book involves another of Gombrich’s friends Friedrich Hayek.

“Hayek was connected to Routledge and so Gombrich’s move, on receiving a request from Popper for help, was to send the manuscript to Hayek. Hayek was impressed enough to offer a readership to Popper at the LSE (those were the days!). But the Hayek-Gombrich connection is fascinating because Hayek major concern in economics was to do with information. In particular the distribution of information among a population, and the way that prices worked as signals within the economy. Stafford Beer apparently met Hayek and declared “at last, an economist who understands cybernetics!” (although he retracted this after learning of Hayek’s support for General Pinochet and his endorsement by Mrs. Thatcher).

“But Gombrich’s interest in information theory seems directly related to his awareness of his friend’s interest in information in the economy. Yet, the pieces don’t appear to have been assembled. It may be that Gombrich’s redundancy theory of art is of great importance in our understanding of the way that information works in the economy. I’m increasingly impressed by a theory of information which privileges the study of redundancies and not messages. The fact that such an approach makes sense in the study of art and music suggests to me that it’s wider application and truth are more than possible.

 

2 thoughts on “1926.. Hayek failure to critique corporations.

  1. Hi Doug. This is my reply to your request posted over at ‘Uneasy Money.” I posted it there, too.

    My statement that markets “naturally concentrate wealth and income” is basically an interpretation of the observation that the demand curve slopes up to the left away from the equilibrium point. In a final market, this merely means that the consumers far to the left of the equilibrium point have more fun with their purchases than those close to the equilibrium point. In a factor market, though, it implies that those far to the left derive greater profit from their buying, and since the market operates continuously they can reasonably be expected to persist in growing at a faster rate than less efficient users of that factor. Indeed, those consumers of factors close to the equilibrium point may not profit enough to grow at all, especially if we consider that much of that, or any, market near the equilibrium point is likely sustained by borrowing. That is, in the net, (at least some of) these people are losing out from participating in that market.

    The same is true, of course, regarding more efficient producers. It is in their interests to produce more, drive down the price, and drive the inefficient producers out of business. It seems the very essence of the market is as an instrument of concentration.

    As for the distinction between factor and final markets, this is not so clear. One can always interpret (at least many important) final markets as factor markets for labor.

    I am an amateur. I am not paid to think about this sort of stuff. So if you have issues to raise with how I am interpreting the diagram, please, I need to hear them.

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