The Case for Freedom in Ludwig von Mises, F.A. Hayek, and Ayn Rand

Three names are widely associated with the cause of human freedom and economic liberty in the twentieth century: Friedrich A. Hayek, Ludwig von Mises, and Ayn Rand. Indeed, it can be argued that Hayek’s Road to Serfdom (1944) and Constitution of Liberty (1960), Mises’s Socialism (1936) and Human Action (1949), and Rand’s novels The Fountainhead (1943) and Atlas Shrugged (1957) did more to turn the intellectual tide of opinion away from collectivism in the second half of the twentieth century than any other works that reached out to the informed layman and general public.

The common historical contexts of their time 

Hayek, Mises, and Rand each made his case for freedom and the political order that accompanies it in his own way. While Mises was born in 1881 and, therefore, was 18 years older than Hayek (who was born in 1899) and nearly a quarter of a century older that Rand (who was born in 1905), there were a number of historical experiences they shared and which clearly helped shape their ideas.

First, they came from a Europe that was deeply shaken by the catastrophic destruction and consequences of the First World War. Both Mises and Hayek experienced the trauma of military defeat while serving in the Austro-Hungarian army, as well as experiencing the economic hardships and the threat of socialist revolution in postwar Vienna. Rand lived through the Russian Revolution and Civil War, which ended with the triumph of Lenin’s Bolsheviks and the imposition of a brutal and murderous communist regime; she also experienced “socialism-in-practice” as a student at the University of Petrograd (later Leningrad, now St. Petersburg) as the new Marxist order was being imposed on Russian society.

Second, they also experienced the harsh realities of hyperinflation. Rand witnessed the Bolsheviks’ intentional destruction of the Russian currency during the Russian Civil War and Lenin’s system of war communism, which was designed as a conscious attempt to bring about the abolition of the market economy and capitalist “wage slavery.” In postwar Germany and Austria, Mises and Hayek watched the new socialist-leaning governments in Berlin and Vienna turn the handle of the monetary printing press to fund the welfare statist and interventionist expenditures for instituting their collectivist dreams. In the process, the middle classes of Germany and Austria were demolished, and the social fabric of German and Austrian society was radically undermined.

Third, Rand was fortunate enough to escape the living hell of socialism-in-practice in Soviet Russia by coming to America in the mid 1920s. But from her new vantage point, she was able to observe the rise and impact of American-style collectivism during the Great Depression and the coming of Franklin Roosevelt’s New Deal in the 1930s. In Europe, Mises and Hayek watched the rise of fascism in Italy in the 1920s and then the triumph of Hitler and National Socialism in Germany in 1933, the same year that Roosevelt’s New Deal was implemented in the United States. For both Mises and Hayek, the Nazi variation on the collectivist theme not only showed it to be one of the deadliest forms that socialism could assume. It represented, as well, a dark and dangerous “revolt against reason” with the Nazi’s call to the superiority of blood and force over the human mind and rational argumentation.

Their common premises on collectivism and the free society 

What were among the premises that Mises, Hayek, and Rand shared in the context of the statist reality in which they had lived? First, the “nations,” “races,” “peoples” to which the totalitarian collectivists, respectively, appealed resulted in reminders from Mises, Hayek, and Rand to their readers that these are short-hand terms and do not exist separate or independent from the individual people who make them up.

Second, all three rejected positivism’s denial of the human mind as something real, and as a source for knowledge about man and his actions. Mises and Rand, especially, emphasized the importance of man’s use of his reasoning ability to understand and master the world in which he lived. Mises and Rand considered the entire political trend of the twentieth century to be in the direction of a revolt against reason.

Though sometimes classified as an anti-rationalist because of his emphasis on the limits of human reason in trying to design the institutions of society, Hayek went out of his way to insist that he was never challenging the centrality of man’s reasoning and rational faculty, but, instead, criticizing the intellectual arrogance of the central planners who want to coercively remake the world.

Third, all three firmly believed that there was no societal arrangement conceivable for free men and human betterment other than free-market capitalism. Only a private-property order that respects and protects the right of the individual to his life, liberty, and honestly acquired possessions gives people control over their own lives. Only the market economy allows each individual the institutional means to be free from the power of the government and its historical patterns of plunder and abuse.

And, finally, Mises, Hayek, and Rand all emphasized the importance of the intellectuals in society in influencing the tone and direction of political, economic, and social ideas and trends. These “second-hand” thinkers were the driving force behind the collectivist ideas that emerged in the nineteenth century and triumphed in the twentieth century. They were the molders of public opinion who have served as the propagandizers and rationalizers for the concentration of political power and the enslavement and death of hundreds of millions of people — people who were indoctrinated about the need for their selfless obedience and sacrifice to those in political power for a “greater good” in the name of some faraway utopia.

The consequentialist rationale for freedom 

Where they differed was on the philosophical justification for the free society and the rights of individuals within the social order. Both Mises and Hayek were what today might go under the term “rule utilitarian.” Any action, policy, or institution must be evaluated and judged on the basis of its “positive” or “negative” consequences for the achievement of human ends.

However, the benchmark for such evaluation and judgment is not the immediate positive or negative effects from any action or policy. It must, instead, be placed into a longer-run context of theoretical insight and historical experience to determine whether or not the policy or action and its effects are consistent with the sustainability of the overall institutional order that is judged to be most effective in furthering the long-run possible goals and purposes of the members of society, as a whole.

Thus, the rule utilitarian is concerned with the so-called moral hazard arising from an action or policy implemented. That is, will it create perverse incentives that lead members of society to act in ways inconsistent with the long-run betterment of their circumstances?

Ludwig von Mises’s case for freedom and the market order 

In Mises’s system of thought, the guiding idea is human cooperation: how shall men best associate to achieve the goals and ends that matter to each of them? The presumption is that individuals should be free and be protected and secure in their liberty to pursue the ends that matter to them and give meaning to their life.

The political-economic institutional setting that makes this possible, Mises spent his life demonstrating, is laissez-faire capitalism. Men cooperate through a system of mutually beneficial exchange in a social system of division of labor.
Indeed, such cooperative specialization and trade was the logical explanation for the permanent network of human interaction that we call “society,” in Mises’s view.

Private property in both consumer goods and the means of production not only creates incentives for productive and economizing uses of scarce resources by those who own them, it also provides the basis for a rational system of economic calculation. Through the network of market exchanges, individuals express their valuations for goods and their appraisements of the factors of production in terms of their value and usefulness in being applied to produce competing products.

The resulting emergent system of market prices enables all those participating in the exchange process to contribute their knowledge and information about what they value and consider best uses for the resources available. Market prices “objectify” information about all the subjective judgments of the members of society.

This became the basis of Mises’s critique of both socialism and the interventionist state. By abolishing private property and banishing the market-exchange process, and therefore preventing a free, competitive price system from emerging in the arenas of human association, socialist central planning does away with the essential and irreplaceable societal institutional prerequisites for rational coordination of the interdependent actions of all those in society.

In the interventionist state of government price controls, production regulations, and coerced redistributions of wealth, the market is not abolished as under comprehensive socialist planning. However, all the controls, regulations, and wealth transfers slowly undermine and finally prevent the market from doing its job. Under price controls, for instance, prices no longer “tell the truth,” resulting in imbalances and distortions preventing the smooth and coordinative function of the market.

The choice, Mises insisted, was between the free market or government command — between the freedom of choice and action by every individual member of society, or for all to be compelled to obey orders of the one or the few holding the reins (and whips) of political coercive power.

If men value having the freedom to live their own lives as they choose, and if they understand and wish to have an institutional arrangement through which their interdependent actions may be rationally arranged so that the goals and purposes each has might be satisfied as best as possible — then, there is no alternative to a politically unhampered free-market economy.

That, at the same time, largely defines the role of government in society. The task of the monopoly agency of force in any community should be limited to defining, enforcing, and respecting each individual’s right to his life, liberty, and honestly acquired property. Government’s limited but essential role is the securing of the institutional order for the market to effectively function.

Hayek’s case for freedom owing to man’s ignorance 

Hayek’s defense of freedom and the market economy is also consequentialist. Its starting points are Mises’s critique of socialism and that of Carl Menger (the founder of the Austrian school of economics), that much of what we call the “social order” is the cumulative result of multitudes of individual human actions and interactions, but not of any intentional human design.

Hayek’s justification for the free society is the inherent and inescapable limits to man’s knowledge to know how to design or consciously direct the development of society as a whole. Men pursue goals and implement plans to bring them about. However, the more complex the network of human relationships becomes through the development of the system of division of labor, the less feasible that any one man or group of men (no matter how wise and knowledgeable they may be) can know enough or fully understand all of the detailed workings of the social and market order as a whole.

Hayek argued that many forms of social interaction are coordinated through institutions that at one level are unplanned and are part of a wider “spontaneous order.” To a large extent, he explained, language, customs, traditions, rules of conduct, and exchange relationships have all evolved and developed without any conscious design guiding them. Yet without such unplanned rules and institutions, society would have found it impossible to progress beyond a rather primitive level.

Another way of expressing this is that in Hayek’s view the unique characteristic of an advanced civilization is that no one mind (or group of minds) controls or directs it. The complexity of social and economic activity makes it impossible for any individual to master the information necessary to coordinate all the activities of all the members of the group. Neither will all the members continue to agree on the same values or have the same relative preferences; their actions and interests will become more diverse and pluralistic.

The benefits of the unplanned society and market prices

An advanced society, therefore, must always be a “planless” society. That is, a society in which no one overall plan is superimposed over the actions and plans of the individuals making up that society. Instead, civilization is by necessity a spontaneous order, in which the participants use their own special knowledge and pursue their own individually chosen plans without a higher will or mind guiding them in one direction or into a predesigned pattern.

Hayek emphasized that the division of labor has a counterpart: the division of knowledge. Each individual comes to possess specialized and local knowledge in his corner of the division of labor that he alone may fully understand and appreciate how to use. Yet if all of these bits of specialized knowledge are to serve everyone in society, some method must exist to coordinate the activities of all the interdependent participants in the market.

The market’s solution to this problem, Hayek argued, was the competitive price system. Prices not only serve as an incentive to stimulate work and effort, they also inform individuals about opportunities worth pursuing. He insisted that this demonstrated scientifically that socialism was impossible, because if it is logically and factually beyond the capability of a central planning agency to successfully integrate and coordinate the immense amount of knowledge that is absolutely essential to solve the economic problem of society, then the planned economy can never replace the market order without threatening the standard of living that comes only from a social order possessing the current level of complexity and adaptability to change.

Rand’s moral case for individual rights

Ayn Rand starts her analysis, if you will, at the other end. She asks, what is the nature of man; what is needed for his survival and betterment; what institutional arrangement can be shown to be most consistent with recognition of his nature and for him to develop the potential that is within him? Thus, man is the end and the social and political order is the means for his successful existence.

Man’s essential tool of survival and betterment is the use of his reason. Instinct and emotion are either inadequate or faulty means for the preservation or improvement of his life. Men must use their mind’s cognitive and conceptual capabilities, or their lives may turn out to be “nasty, brutish, and short.”

Each individual person, therefore, must have the freedom to apply his intellect in ways that he discovers and learns will most effectively further his life. If he is to survive and prosper, he must be at liberty to make his own decisions. Otherwise, he relies on fate and chance, or he abdicates his own judgment and places his life in the hands of another’s knowledge and decisions.

Contrary to distorted interpretations, Rand never presumes that each man is an island unto himself. Man is a being who has the ability to learn from and take advantage of the knowledge, wisdom, and experiences of others, both his contemporaries and those who have passed away but left a written record of their thoughts and deeds. But either the individual has the autonomy to decide whose knowledge, experience, and association to benefit from, given the goals and purposes he has set for himself, or he submits to the blind control of another.

The danger of those wanting to make you sacrifice for them

On what basis or rationale might an individual give up the direction of his life to another? It is here that Rand emphasizes the power and danger of ideas. Those who fear others or who want to plunder their fellow men as the means of their own livelihood try to propagandize and indoctrinate others in society. What do they try to persuade those others to believe? That they must sacrifice their lives for a “higher good” that the propagandizers and potential plunderers claim to understand in a way that the rest in society cannot rightly comprehend, owing to their misguided and narrow selfishness in pursuit of their “mere” individual ends and goals.

To use a Marxian phrase, collectivist intellectuals and plunderers use indoctrination to impose a false consciousness on the productive members of society to convince them that their lives and the fruits
of their labor must be given up for the common good and the general welfare of all. Whether it is called communism, socialism, fascism, Nazism, democracy, or interventionist-welfare statism, or any number of other labels, the man who should be free is made to accept his own partial or total enslavement to the will of another. And to the extent that this succeeds, the slave-masters obtain the “sanction of the victim” of those they have enslaved.

If a man is to be free, he must understand that he has a right to be free. That is, that he has a right to his own life, guided according to his own reason and judgment; that he should have the liberty to design and direct the ends that will give meaning and fulfillment to his own life. That he has a right to the fruits of his own labor, which are always and ultimately the fruit of his own mind’s creative potential. And that in pursuing the ends that he has chosen for his own life, he decides how and in what forms he shall peacefully and voluntarily associate and collaborate with other men, who are recognized as having the same rights as himself to do the same.

This led Rand to argue, therefore, that the only moral and appropriate political and economic system consistent with such a view of man is laissez-faire capitalism. Every person should be viewed as an end in himself, not the means to others’ ends. Therefore, the goal of individual freedom is a reflection of what man requires for his life — its survival and betterment — through the use of his mind and his abilities as he sees fit. The political and social means to that end are, respectively, individual rights and human association based on voluntary exchange and not physical force — i.e., laissez-faire capitalism.

The political system of a capitalist society, therefore, logically and morally restricts the duties and responsibilities of government to the protection of each individual’s rights. Rand’s frequent insistence that there can be no compromise, that either the individual is free in all these matters or he is not, is derived from that starting premise of man’s having control over his own mind and own life.

The losing battle for freedom without a moral foundation 

This is why freedom’s cause continually seems to be losing in the battlefield of ideas. Why every apparent turn away from collectivism ends up being a temporary delay in what seems like an inevitable trend toward bigger and more intrusive government. As long as people can be persuaded that they are morally required to sacrifice themselves in some way for others, or that they have a right — an entitlement — to live at the expense of others, there will be no permanent and comprehensive turning away from that “road to serfdom.”

This is why the economist’s argument for individual liberty and economic freedom — as brilliantly formulated by Mises and Hayek — needs the complementary and fundamental philosophical argument for individual rights derived from an understanding of the nature of man. Otherwise, the cause of human freedom will not prevail in the long run. Appreciating the importance of such a philosophical foundation for the defense of man’s rights explains the continuing relevance and significance of Ayn Rand’s moral case for capitalism.

This article was originally published in the January 2021 edition of Future of Freedom.

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