Angus Burgin has written a valuable book The Great Persuasion, which accounts for an interesting, political science reading of the development of the Mont Pelerin Society and the progress of free market advocacy in the post WWII period. It is a thoughtful book, coming from a scholar who is definitely not a libertarian but at the same time understands and values the role of ideas in the political debate.
Professor Burgin has more recently published a rather shocking - at least to me - op-ed on Bloomberg.com. His point is aptly summarized by a slightly esoteric title: “As Republican Hail Hayek, Their Plans Advance Friedman". Personally, I rejoice at seeing history of political thought to progress to the stage of political commentary. Plus, Hayek appears to be the good guy of the story: two cheers for Professor Burgin.
He aims to vindicate Hayek’s subtleties, from an inappropriate use of the Austrian economist as a rallying point. To this end, he goes back to one of the central points of his book. According to Burgin, within the Mont Pelerin Society and the classical liberal movement at large, we havemoved from a Hayek-hegemony to a Friedman-hegemony. Whereas the first was more focused on first principles, the latter was more policy-oriented (see also this EconTalk with Russ Roberts). “The rise of Milton Friedman represents both the realization of Hayek’s dream of inspiring broad popular support for the benefits free markets have to offer, and the failure of his ambition to create a new social philosophy that would moderate the excesses of prior modes of market advocacy”. This is a controversial reading: for one thing, there are differences between Manchester and Chicago but also, quite frankly, the free market movement does not look like that much of a well ordered army, ready to follow his generals, at least to me.
In his column, however, Professor Burgin makes his point by writing that:
Where Hayek perceived a host of areas that might be improved by regulation, Friedman saw almost none.
Well, is that true? Hayek and Friedman wrote very different kind of books. Hayek the-social-scientist is Hayek the-free-market advocate: there is no lack of continuity between the two. Friedman was both a theoretical economist and the most splendid public advocate of free market ideas. The two Friedmans wrote differently, for different audiences. As a free market publicist, Friedman dealt at length with specific policy issues, often pointing out the sheer stupidity of government regulation. But what Hayek did was showing that the stupidity, and in truth the unviability of central planning rested on the very nature of the knowledge upon which social life depends. Such knowledge cannot be concentrated in a single brain, not necessarily because it is knowledge of “complicated” things but because it is diffused throughout society.
As Hayek wrote:
The skipper who earns his living from using otherwise empty or half filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differencies of commodity prices - are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others.
Can, in principle, regulation ameliorate the workings of market? Perhaps yes - but consider the opportunity cost. Through the imperfect workings of markets, knowledge is generated and processed and used to allow for the social coordination of individual plans. There are mistakes, for sure: but through someone’s mistake the market feeds others’ opportunities. It might be true that some specific intervention may smoothen this process - who knows? But such a fabric of socially useful knowledge is fragile indeed, and a system based upon external intervention is more likely to jeopardize it all. If knowledge is dispersed, how could a single decision maker have a view wide enough to know how to "better" a complex economy?
This is why Hayek was always stressing the need for general, universally applicable laws - against norms that are tailored to specific circumstances and, at the end of the day, specific economic actors.
It is true that Hayek uses, in The Constitution of Liberty in particular, a language which is not inimical to all kind of regulation (“the range and variety of government action that is, at least in principle, reconcilable with a free system is (...) considerable”). However, he approved of the use of government coercive powers only insofar they “serve general and timeless purposes, not specific ends”. What we today call “regulations” are precisely rules with specific ends.
In short, Hayek’s work is certainly less a public policy beacon than Milton Friedman’s is. Was he less or more amicable to regulation than Friedman? He may sound, in The Constitution of Liberty or The Road to Serfdom, friendlier to some general outlines of regulation - but keep in mind he was quite skeptical of antitrust and favored the denationalization of money versus central banking. Neither of these views can be seen as mainstream among mild, middle-of-the-roadish economists.
More importantly, to be fair, no libertarians read Hayek nor Friedman as searching for all answers to all problems. The relevant question is what they teach us, so that we can interpret everydays’ life.
One thing is for sure. Hayek’s constant appeal to humility in front of reality, his stress over understanding the free market as a complex ecosystem and not simply a “machine” that could be easily turned this or that way, is irreconcilable with Dodd-Frank, to name but an egregious example of the fatal conceit in action.