Socialism after Hayek

This is what makes Theodore Burczak’s Socialism after Hayek so refreshing and intriguing. He is a socialist who has mastered Hayek’s critique of socialist central planning and concluded that Hayek was right: It is impossible to do away with private property, competition, and prices if economic rationality, efficiency, and coordination are to be maintained.

In the opening chapters Burczak explains with impressive clarity the Hayekian view of the social order. Prices are essential for a functioning economic system because they capture and convey multitudes of bits of knowledge that are dispersed among all the members of society. The price system enables each person to use his unique knowledge of his own time and place in the division of labor while coordinating his actions with those of all the other social participants.

As an extension of this, Burczak also accepts Hayek’s argument that the social order that evolves out of the interactions of the multitudes over many years and generations contains more information and wisdom than any group of intelligent planners could ever know. Hence, the idea of socially engineering a society from top to bottom is both absurd and dangerous.

Burczak defends none of the twentieth-century experiments with “socialism in practice.” He views the Soviet Union as an oppressive and exploitive system that plundered the very people in whose name the regime legitimized its power. So the reader at this point might ask, “Then what is left for a self-proclaimed socialist to defend against the Hayekian critique of political and economic collectivism?”

Burczak tries to salvage a reformulated socialism by justifying the welfare state and defending a system of worker-owned and -managed firms in place of the more traditional “capitalist” enterprise in which the businessman hires the services of workers for which they receive contracted wages.

Since Hayek emphasized that human knowledge is inherently imperfect and is decentralized among billions of individuals around the world, Burczak tries to then paint Hayek as an apostle of “postmodernist” philosophy. Since nothing can ever be known for sure and what is tentatively known is always open for revision, Burczak argues that Hayek’s case for impartial rule of law and an equality of individual rights to life, liberty, and property is totally misplaced. The rule of law, he says, is really only the interpretive opinions and ideological biases of judges who serve “class interests.”

Since law cannot be impartial and “objective” in its principles and applications, then we should rely on the greater or more inclusive diversity of democratic politics to construct a consensus about what are the “rights” and social “duties” of each member of society. Since there can be no final “truth” concerning what should be considered the content of human rights, we will merely have a floating and ever-changeable group opinion about these things.

Burczak posits a consensus that we all have obligations to each other to assure a meaningful life worth living, which means a mandatory redistribution of wealth to guarantee everyone a minimum standard. He never deals with how this will be enforced, though of course there is no way to establish this guaranteed standard of living other than through compulsory taxation. Because there are no final or ultimate moral standards, the recalcitrant who may have to be brutalized, imprisoned, or even killed to see that he “contributes” his “fair share” will not have been coerced or murdered but merely “conversed” with in the continuing postmodern dialogue over what is socially good or just.

Of course, even if we accept the premise that as human beings we have a certain ethical obligation to assist our less fortunate fellow human beings to have a fuller life, it does not follow that this requires the welfare state. Indeed, one can easily apply Hayek’s arguments concerning the division of knowledge in society to argue that only individuals familiar with the particulars of the time and place in which they live will have sufficient usable knowledge to assure that those deserving of charity actually receive it in the most effective way. The welfare state has the same inherent organizational weaknesses as all other forms of government planning: it is imposed from the top down and must have some degree of a “one-size-fits-all” design. Private charity sets in motion what Hayek called the “discovery procedure” of competition. In the rivalry for voluntary support from the citizenry, private charities have to demonstrate their ability to better achieve the goals for which they have been established. Thus the likelihood of actually solving these “social problems” is increased.

The other element to Burczak’s “post-Hayekian” reconstruction of socialism is his case for worker-owned enterprises. He merely takes for granted all the ancient Marxian theoretical baggage concerning necessary labor (that amount of work and output needed for the worker to sustain himself and his family) and surplus labor (the amount of work and output in excess of this minimum). Through the wage contract, Burczak states, the capitalist-owner of the enterprise “demands” a portion of the “surplus” output that the workers’ own labor produces and therefore “exploits” them by that amount, with this being the “profit” the capitalist keeps for himself.

All of this was answered long ago, in the late nineteenth century by another Austrian economist, Eugen von Böhm-Bawerk. He showed that in the long run, in a competitive market, there are no profits. Entrepreneurial rivalry results in resource prices (including wages) being bid up as enterprisers attempt to expand output where profits exist; then when that greater output is offered on the market, consumer prices are bid down in the attempt to attract more customers until profits have been competed away.

Even in the long run, however, there is normally a discrepancy between what entrepreneurs pay for resources (including labor) and what the products sell for. But Böhm-Bawerk demonstrated that this is the implicit interest earned by businessmen-employers for advancing wages to their workers during the production process. Since all production takes time, if those employed in the enterprise are not to wait until the product is ready for sale in the future to receive their wages, then someone must pay them today for work that will not result in a completed product until tomorrow. To forgo other uses for which he could have applied his savings, the businessman-employer receives a  “premium” over even the long-run costs of production as compensation for “waiting” until the product is in finished form and sold to the buying public.

The other element that Burczak completely misses is that production does not just happen. It almost always requires a guiding mind that envisions a demand for a product in the future, who imagines ways of combining the factors of production to transform them into a useful finished product, and who sees ways of effectively organizing the enterprise to achieve this end. In other words, the entrepreneur is the element missing from Burczak’s analysis, and therefore he fails to fully understand why what most enterprises produce cannot be the result of some joint democratic decision-making process by the worker-owners.

Nothing prevents workers from pooling their savings and other resources and forming jointly owned firms among themselves. But we see few instances of this. This suggests that many people do not want to take on the time, risk, and uncertainties of being a boss. They want to have the greater certainty of a contracted wage for which they do a specified amount of work each day, while someone else bears the costs of planning, overseeing, and directing the enterprise.

If workers did see the benefits and advantages to more widely participating in worker-owned firms, it would not be necessary for Burczak to make the case for political prohibition of traditional employer-employee contractual relationships to force worker-ownership on “the masses.”

While a worthy attempt to honestly confront the challenge that Hayek made against socialism, Burczak’s analysis ends up simply demonstrating how hollow the socialist ideal remains, even in this reformulation.