Economic Theory

Don Lavoie: The most important libertarian – and Leftist! – you’ve never heard of


Any free market liberal worth their salt will be familiar with the basic argument made about central planning by the likes of Ludwig von Mises and F.A. Hayek. This is that comprehensive central planning is undesirable because rational economic calculation is near impossible without the information transmitted by markets and prices, which in turn are predicated on property rights and voluntary exchange. Mises and Hayek have their critics on this front and others, but even a lot of their critics would accept that some degree of market freedom is necessary to coordinate the distribution of resources.

After the Second World War, however, free-marketers were losing the argument. Sure, the abject horrors of Nazism and Fascism became etched in the collective mind of the West, and the equally sinister reality of Soviet socialism was becoming apparent, which made comprehensive planning a harder sell. But the West embarked on what we now call ‘the post-War consensus’, heavily influenced by the likes of John Maynard Keynes, whereby many formerly liberal nations embarked on a heavily planned, regulated, and redistributive economic model. Most of these models were types of non-comprehensive planning, allowing market forces to exist, but in a fashion limited by nationalisation of ‘vital’ industries, strong trade unions, high taxes, high regulation, and a large welfare state.

For a while, this consensus seemed to function well, a balance seemed to have been struck between the excessive inequality of markets and the poverty-inducing tyranny of comprehensive planning. Then the 1970s came around, with stagflation, the collapse of the Bretton-Woods system, and widespread economic inefficiencies reigniting debates over the role of government in the economy.

The failure of this model stimulated the re-emergence of free-market views, with Milton Friedman and the wider Chicago School of Economics providing the most prominent and effective voice in favour of shrinking the state. There were, likewise, other voices who lent their expertise to the resurgence of free-market economics who are less well known.

Among these was Don Lavoie, an Austrian School economist who taught at George Mason University throughout the 1970s and 1980s. In two books, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered and National Economic Planning: What Is Left? (both 1985), Lavoie added his contribution to critiquing comprehensive economic planning from an Austrian perspective. Lavoie also goes a step further by targeting his attention at the non-comprehensive planning which characterised the post-war consensus, and which is advocated to varying degrees by market socialists, social democrats, and even some neoliberals.

Lavoie points out in Rivalry and Central Planning that discussing the matter of economic calculation in terms of ‘comprehensive planning vs. all other systems’ leads to the belief that market systems and planned systems can be reconciled with one another, a view which Lavoie categorically rejected.

Building on the existing cannons of economic calculation literature, which mainly concerned comprehensive planning and far-Left economic theory, Lavoie critiqued neoclassical advocates of non-comprehensive planning, writing “In neoclassical economics, the assumption is typically made that at the producers disposal is a complete set of recipes upon which to draw (…) but this assumption precludes any need for experimentation with alternative methods of production, which is, in the real world, one of the producer’s primary tasks” (National Economic Planning, p.49).

Lavoie agrees with the core contention that entrenched power and wealth should be challenged but argues that market forces and the power of creative destruction are a more moral and effective conduit for disrupting existing patterns than empowering a small group of government agents.

Lavoie sees markets as a constantly evolving process in which entrepreneurs, not the state play the role of positive disruptors (pp.78-86). This view has both political and economic implications. On one hand, it disputes the modern Left’s contention that the state has a role to play in checking corporate power and domination. On the other, it runs contrary to the steady-state equilibrium model offered by many neoclassical economists, which lends itself towards non-comprehensive planning. By disputing that contention, Lavoie further critiqued advocates of non-comprehensive planning by arguing that the signals sent by the market forces which are allowed to flourish in a mixed economy will, at best, only provide the central planner a picture of what currently exists (p.54). The economy, Lavoie argued, it not merely an exercise in implementing the right incentives and maximising efficiency of the market as is, but rather a constantly evolving process, one which a central planner lacks the foresight to bring about (pp.51-93).

Most free-market liberals will see the appeal of Lavoie, but what interests me the most about his contribution to the economic calculation debate is the way in which he challenges the widespread assumption on the Left that central planning is the best means through which to achieve their goals.

Lavoie argues that central planning is fundamentally reactionary, appealing to the common anti-authoritarian heritage of liberalism and Leftism. He charts an intellectual history to a time when Leftists and liberals shared common cause – disdain of elitism, militarism, and traditionalism. Embodied in groups like The Levellers of the English Civil War, the pro-Enlightenment French Revolutionaries, and American anti-colonists, this tradition naturally lent itself towards equality before the law, free markets, and anti-imperialism (p.215).

The shift of many Leftists away from this vision, Lavoie argues, occurred in the early 18th Century and was itself embodied in Henri de Saint-Simon, whose work represented a radical vision predicated on a top-down reconstruction of society by intellectuals (pp.216-221). The Saint-Simonian tradition rejected anti-elitism, choosing instead to pursue a vision based on having ‘the right type’ of elites. Marxism, according to Lavoie, is the fruition of this philosophical outlook.

Saint-Simonians and Marxists continued to pay lip service to the radical liberal values which preceded them. They opposed imperialism, while advocating for the continued employment of military force; in Marx’s case, to bring about and spread revolution and in Saint-Simone’s case, to execute the “scientific” reformation of society. They opposed domination but warped its liberal definition – synonymous with coercive power – into ideas like ‘wage slavery’, which blur the lines of individual consent and autonomy (p.219). While Saint-Simone and his followers openly viewed democracy with disdain, Marx and the Marxists saw central planning as its pinnacle (pp.217).

Far from being revolutionary, according to Lavoie, this return to elitism and militarism was highly reactionary, undermining the moral principles that enlightenment revolutionaries sought to enact. Lavoie argued it was no coincidence that the top-down planning advocated by the likes of Saint-Simone and Marx was pioneered during the First World War (p.219-227). For one, the War was highly nationalistic in origin and brought with it a previously unseen degree of militarisation on both the battlefield and home front. This created the perfect conditions for planning and centralisation, which were seized by the likes of David Lloyd George (an advocate of increased economic intervention), Erich Ludendorff (a nationalist general with a background in minor aristocracy), and Bernard Baruch (a member of the Wall Street elite) in their respective countries.

The wartime planning headed up by these elite figures exposed more than just the reactionary theory that laid behind central planning: it revealed the reactionary outcomes. Lavoie emphasises that the wartime planning overseen in Britain, Germany, and America was of tremendous benefit to the entrenched elites in society. For example, Baruch’s War Planning Board was headed up by representatives from large companies responsible for manufacturing vital material for the war effort and embarked in systematic price fixing, benefiting entrenched market incumbents (pp.223-227).

This serves to highlight two of Lavoie’s main arguments against left-wing planners:

  1. That planners lack understanding of market innovation and the tacit knowledge communicated through prices and regular transactions. Consequently, they can only use their understanding of the economy as it already exists, which stifles innovation and benefits elite market incumbents. As such, the creative destruction of the market is a better mechanism to hold entrenched elites to account, not central planners.

  2. That giving people power over vast swathes of society’s activities creates a ‘power problem’ as well as a knowledge problem.


On the second point, pro-planning Leftists reveal themselves to be reactionaries in revolutionary clothing. The goal of Leftist interventionism is generally to disperse power, wealth, and opportunity and to diminish the power of privileged elites. Any type of central planning, however, necessitates leaving vast amounts of authority and resources to the discretion of a small group of politicians, bureaucrats, and well-connected market incumbents (pp.223-232).

Lavoie further argues that central planners who are given this power will soon realise – as the knowledge problem demonstrates – that they are unable to deliver their rational panacea. Consequently, they will adopt more overtly militaristic tactics, both in pursuit of greater efficiency and to demonstrate their strength (pp.227-230). This is one reason why militarism seems to be intrinsically linked to planned economies, with abundant examples from the USSR and North Korea to fascist Italy and Ba’athist Iraq. Once again, Lavoie appeals to the Left’s anti-militarism, arguing that good rhetoric on opposition to foreign wars, military-industrial corporatism, and military chauvinism cannot be reconciled with the security apparatus that planned economies lend themselves towards.

In summary, I recommend that any advocate or student of liberalism and free markets reads Lavoie. His contribution to the cannon of literature on the economic calculation problem is as engaging and thought-provoking as Hayek’s and he makes a powerful case for radical liberalism, one which is unafraid of embracing a systematic, consistent, and principled approach to opposing the state.

But above all, Lavoie is a must read for those on the Left. Lavoie described the halcyon days of unity between the liberal and Leftist branches of Enlightenment thought, one which opposed entrenched power and militarism, while expounding the emancipatory potential of individual autonomy and free markets. Lavoie persuasively outlines the folly of embracing planning to achieve Leftist goals. Far from challenging elites and counteracting domination, economic planning (comprehensive or otherwise) will only ever result in a powerful elite class, one which will supress individual flourishing, enhance material deprivation, patronise its allies at the expense of the populace, and perpetuate the militarisation of society.

 

______ 

Suggestions for further Reading

Boettke, P. (2006). Don Lavoie’s Contributions to Comparative Economics. In: D.L. Prychitko, ed., Humane Economics: Essays in Honor of Don Lavoie. [online] George Mason University, pp.47–63. Available at: https://www.researchgate.net/publication/280385103_Don_Lavoie’s_Contributions_to_Comparative_Economics

Hayek, F.A. (2019). The Use of Knowledge in Society. [online] Econlib. Available at: https://www.econlib.org/library/Essays/hykKnw.html

Lavoie, D. and Boettke, P.J. (2000). Rivalry and central planning. London: Routledge.

Lavoie, D. and Coyne, C.J. (2016). National economic planning : what is Left? Arlington, Virginia: Mercatus Center, George Mason University.

Ludwig Von Mises (2008). Economic calculation in the socialist commonwealth. Auburn, Ala.: Ludwig Von Mises Institute, Auburn University.


Leave a Reply

Your email address will not be published. Required fields are marked *


SIGN UP FOR IEA EMAILS