FRIEDRICH VON HAYEK and Walter Eucken parted company over the issue of power formation in the private sector. Hayek, a leader of the Austrian school of liberalism, believed that keeping government small was enough to preserve competition. Eucken, who founded the school’s German branch, felt that anyone with excessive power, whether a government or a company, could threaten economic freedom. It is a pity that neither was alive this week to analyse the case of Hong Kong….
Our local readers in Hong Kong quite enjoyed this framing of what they considered their “little” hometown business controversies, since they don’t usually see their city connected to the big debates among Western intellectuals.
I, however, was fascinated by precisely those local controversies, for two reasons:
- I consider Hong Kong the freest place in the world (and thus worth studying), and
- I have a personal connection to that debate between Hayek and Eucken, which I’ll tell you about at the end of this post.
Liberalism vs Libertarianism
What reminded me of all this was a post the other day by one of my colleagues about the two isms, Liberalism and Libertarianism. He concludes that the difference is basically about the precise role of government and
which approach is likeliest to lead to the most freedom.
So, because I’ve been parsing Liberalism here on The Hannibal Blog for a couple of years now, I thought I’d add a “continental” twist for those of you who are connoisseurs of all things liberal.
Between Freiburg and Vienna
For a lot of “Anglo-Saxons”, in my experience, the first surprise is that that there is a continental twist at all. Surprise turns into shock when the twist turns out to be specifically Germanic. Could Germans really have much to say about freedom?
Well, yes, a whole lot. The liberal tradition is long and deep in the German-speaking countries. Obviously it suffered a near-death experience during the Nazi years, but then it came roaring back in the post-war years.
More to the point, a lot of what we now tend to think of as “Anglo-Saxon” ideas actually have an intellectual pedigree that goes back to these “Germanic” (mainly German and Austrian) thinkers.
Ludwig von Mises (above) was the first giant of the so-called “Austrian School”, and in turn influenced the even more gigantic Friedrich von Hayek. Hayek in turn influenced Milton Friedman, who in turn influenced Ronald Reagan and Margaret Thatcher, thus re-branding Austrian Liberalism in the minds of many people as an “Anglo-Saxon” thing.
Walter Eucken, on the other hand, founded the so-called “Freiburg School” of Liberalism (after the university town where they hung out), which included liberal thinkers such as Alexander Rüstow (above) and Wilhelm Röpke (below).
How spontaneous is order?
The first and most important thing to understand about all these thinkers is that they were friends. They liked each other’s company and liked debating one another. They viewed themselves not on opposing sides of anything, but on the same side: the side of individual freedom (which is what all classical Liberals agree on).
The subtlety that kept them busy (and I deliberately oversimplify) had to do with order. The Latin for order is Ordo, so the Freiburg School eventually even called themselves Ordoliberals.
Order, as opposed to anarchy, is necessary for individuals to be free. The question, however, is whether or not order comes about spontaneously.
Option 1: Yes
If the answer is Yes, as the “Austrians” basically believed, then the conclusion has to be that we simply need to keep government out of the equation entirely.
The “market” (and this could apply to more than material things — ie, ideas, culture, etc) will then “order” itself spontaneously, though competition. The prerequisite is merely the rule of law.
Option 2: Jein
The Ordoliberals did not counter that the answer is No. Instead, I would call their answer Jein (a contraction of Ja and Nein in German). Yes, markets can spontaneously create order. But that order is not always stable. Worse, that order could be of a sort that robs individuals of liberty.
What they had in mind were cartels, tycoons, cabals, and anybody else who amassed an unhealthy amount of power.
So whereas the “Austrians” worried almost exclusively about excessive government power, the Ordoliberals worried about all excessive power, whether in the private or public sector.
This led the Ordoliberals to the conclusion that government must, yes, stay limited, but must also supplement the “spontaneous” ordering of markets with “corrective” ordering. Government had to crack down hard on cartels and monopolies, for example.
My personal interest
I mentioned a personal connection to the debate. Well, I wrote my Master’s thesis at the London School of Economics about it (or rather, about an obscure aspect of it). My dad had once written his PhD thesis about another obscure aspect of it. And that was probably because his uncle and godfather was somebody by the name of Ludwig Erhard (“Uncle Lulu“). Here they are in the sixties, Lulu on the left, dad on the right:
And if Hayek influenced Ronald Reagan and Margaret Thatcher, and thus “Anglo-Saxon” policy, the Ordoliberals shaped Ludwig Erhard and thus post-war West German policy, for Uncle Lulu was West Germany’s first economics minister and then its second chancellor.
Postscript: Liberal v Libertarian (again)
So back to those two isms.
In essence, I think that Libertarians trace their evolution back to the Austrians featured here, and Liberals to the Ordoliberals.
However, those Austrian and Ordo-Liberals themselves, if we were able to bring them here today, would be puzzled by the debate. They would abhor some of the intellectual excesses committed in both names, and remind us that they were originally almost indistinguishable.