Milton Friedman and Friedrich August von Hayek are two of the most prominent economic thinkers of the twentieth century. Both men are also deeply influential among those with conservative and/or libertarian philosophical leanings and the ideas of both have shaped global capitalism. Over the past year, I finally sat down and read two of the foundational works written by these men, Friedman’s Capitalism and Freedom and Hayek’s The Road to Serfdom and came to the conclusion that their views are actually quite different. Friedman’s view is more prescriptive and rigid, while Hayek’s is more philosophical and flexible. In this article, I will briefly review the main ideas of each work to explain why I believe our country needs a little less Friedman and a little more Hayek.

Milton Friedman’s Capitalism and Freedom presents what arguably could be called “free market fundamentalism.” His view leaves virtually no room for compromise. The list of things Friedman deems unjustifiable in a free market society includes minimum wage laws, social security programs, licensing procedures for various occupations (including medicine, although he concludes the case for it is strongest here), the V.A. home mortgage guarantee program, and national parks.¹ Inherent in Friedman’s thought is a strict scientific view of markets that leaves no room for morality or ethics:

“There is no personal rivalry in the competitive marketplace. There is no personal higgling. The wheat farmer in a free market does not feel himself in a personal rivalry with, or threatened by, his neighbor, who is, in fact, his competitor. The essence of a competitive market is its impersonal character.”²

This statement probably best reflects Friedman’s rigid and reductionist view of markets. What this view fails to realize is that markets only exist through people who feel, think, and have souls. Thus, those participating in markets do have rivalries as well as ethical and moral concerns. They are not “impersonal” agents. Further illustrating Friedman’s vehement rejection of morality in economic decision-making is the following remark:

“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”³

Friedman’s economic philosophy sees no role for corporations to treat their employees compassionately by paying them a living wage or taking care to protect the environment by properly disposing of harmful chemicals. The worldview of economists like Friedman has led to some disturbing practices in our contemporary economy. One of these can be found in the food industry where beef and poultry farmers have been known to grind up discarded parts from slaughtered animals in order to put them in the feed for the other animals, adding more protein to speed up their growth and to increase efficiency. It is practices like this that gave us mad cow disease.⁴ Many other examples could be given here, but for brevity’s sake we must move on to Hayek to see the contrast in these two men’s thought.

Hayek’s The Road to Serfdom offers a much less fundamentalist view of economic philosophy. For Hayek, the central problem is socialism, defined as government ownership of the means of production. Central to socialism is central planning – the idea that the government can effectively allocate scarce resources to provide for the people or at least direct the markets better than businesses themselves. Hayek is much less interested than Friedman in providing specific policy advice. What Hayek seeks to do is undermine the philosophical underpinnings of socialism, while also rejecting a laissez-faire attitude towards markets:

“There is nothing in the basic principles of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all…probably nothing has done so much to harm the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez-faire.”⁵

Here, it should be noted that Hayek uses the term “liberal” in its classical sense referring to Enlightenment ideals such as individual liberty and limited government. Far from seeing regulation as evil in and of itself, Hayek sees a role for regulations that prevent monopolies and protect people from harmful business practices. In order to illustrate this, I will provide two lengthy quotes here:

“To prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with competition…nor is the preservation of competition incompatible with an extensive system of social services…nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation.”⁶

“There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all without endangering general freedom. There are difficult questions about the precise standard which should thus be assured…but there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody…nor is there any reason why the state should not assist the individuals in providing for common hazards of life against which, because of their uncertainty; few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance…the case for the state’s helping to organize a system of social insurance is very strong.”⁷

The most important thing for Hayek is that competition is protected. It is competition, according to Hayek, that is most fundamental to a free society. People must be free to choose their careers, the food they want to eat, the clothes they wish to wear, and so on. It is consumer choices and market competition that lead to freedom. Hayek comments “it is of the utmost importance to the argument of this book for the reader to keep in mind that the planning against which all our criticism is directed is solely the planning against competition.”⁸ Thus, Hayek sees no conflict between social services that help those in need or regulations that protect citizens and the notion of competition. The fundamental problem is the control of the means of production. The state can provide food stamps to some as long as the government does not grow and control the food supply. The government can provide health insurance as long as the government does not manufacture the medical equipment and supplies. For the most part, basic social welfare programs do not inhibit the free market in any significant manner.

Both Friedman and Hayek see competitive markets as essential to any free society. Both are staunch defenders of capitalism over the freedom-killing menace of socialism. Both men are quoted frequently by Republicans, conservatives, libertarians, and all others promoting free market capitalism. Yet, many of these same people fail to carefully read Hayek and fully grasp what he is saying. Hayek understood that programs such as food stamps or unemployment insurance do nothing to interfere with competition in the marketplace as long as they are limited in scope. Hayek understood the naivety of market fundamentalism and laissez-faire policies.

A careful reading of American history tells us that the laissez-faire capitalism of the late nineteenth and early twentieth centuries was not pretty. American cities were choked to death, literally, from coal-fired power plants. Brutal and unsafe working conditions were the norm and unbearable levels of poverty existed. It is only when our nation learned to temper industrial capitalism that our country flourished. In recent years, there has been a marked turn towards an Ayn Rand-inspired “free market” fundamentalism in many political circles. That trend is troubling indeed. We must not forget our own past history with laissez-faire economics. This is why I believe we need a little less Friedman and a little more Hayek.