Leftists for Hayek: what happens when a socialist applies the insights of Austrian economics?

• Author: Horwitz, Steven
• Position: Book review

Socialism After Hayek, by Theodore A. Burczak, Ann Arbor: University of Michigan Press, 172 pages, $19.95

IN 1995 THE economist Peter Boettke published a paper tided "Why Are There No Austrian Socialists?" He intended to prod the devotees of Ludwig von Mises (1881-1973) and F.A. Hayek (1899-1992), the two best-known exponents of the pro-market "Austrian" approach to economics, into articulating their arguments in ways that did not reduce them to ideological shoe pounding. But he also wanted to demonstrate to leftists that the Austrians' arguments were not mere dogma, that they were a series of analytical and empirical propositions about how the world worked that happened to lead to the conclusion that, if a healthy and wealthy economy is one of our goals, free markets are the best way to reach it.

The question in Boettke's title was a rhetorical one; he wasn't actually proposing a Misesian socialism. But in the intervening decade, Austrian economics in general and Hayek's work in particular have experienced a newfound, if sometimes grudging, respect. Several scholarly biographies of Hayek have appeared. The Society for the Development of Austrian Economics now runs the best-attended panels at the annual Southern Economic Association meetings, and "Hayek Studies" is a growth industry across the social sciences and even in neuroscience. Now, with the publication of Theodore Burczak's Socialism After Hayek, a scholar on the left has confronted Hayek's critique of socialism in a sympathetic and sustained way. Burczak, who teaches economics at Denison University, has produced a slim but very deep volume that contains the most fundamental challenge to Hayek's defenses of the market since his debates with the Polish socialist Oscar Lange in the 1930s. The book should reopen some conversations that have been closed for too long.

Lange and his allies argued that the complexity of modern society and the triumphs of modern science meant that the unplanned "anarchy" of capitalist production had to be replaced or supplemented by scientific management. Hayek argued that the very complexity of a capital-using economy is what would doom attempts to manage it. Burczak's market-socialist hybrid recognizes the power of Hayek's critique of central planning and markets' ability to coordinate the decentralized activities of individual people. Rather than substituting planning for markets, Burczak wants to supplement the market: He would stake all adult citizens with a rather large hunk of tax-funded wealth, and he would mandate worker ownership and management of firms. These changes, he argues, will enhance the chances that people will live "choiceworthy" lives--that they'll have the means and opportunities to make substantive decisions about the directions of their lives, as opposed to, say, choosing between starvation or working for minimum wage.

Hayek's critique of planning first came to the fore during what is known as the socialist calculation debate. Ludwig von Mises opened that conversation with a 1920 article on economic calculation and his 1922 book Socialism, both of which argued that no state could allocate resources rationally in the absence of private ownership of the means of production--or, more colloquially, that socialism in the classic sense was "impossible." Only private ownership, Mises argued, leads to a market that can produce meaningful prices, which are necessary to help people decide which of the many alternative uses of capital are most productive. For Mises and those who built on his arguments, the shortages and waste that plague real-word socialist economies are not incidental errors that could be corrected with better management; they are problems endemic to socialist institutions.

Lange replied in a 1936 paper, "On the Economic Theory of Socialism." Neoclassical economic theory, he argued, demonstrated that a system combining public ownership of capital with choice in consumer goods and occupations could produce a general equilibrium. The concept of "general equilibrium" was relatively new at the time but later became central to modern microeconomics; it is best understood as that state of affairs in which prices for both consumer goods and inputs enable all market participants to maximize utility or profit, and in which all resources are...