Daniel Dennett, the renowned philosopher of science, proposed four steps for critiquing an intellectual opponent: First, one should attempt to re-express the opponent’s position so clearly, vividly, and fairly that the opponent would say, “Thanks, I wish I’d thought of putting it that way.” Second, one should list any points of agreement, particularly those that are not widely acknowledged. Third, one should highlight anything learned from the opponent. Only after completing these steps is one permitted to engage in rebuttal or criticism.
It seems that Nobel laureate Joseph Stiglitz did not even pass the first step in critiquing Friedrich Hayek in his latest book, The Road to Freedom: Economics and the Good Society. Hayek is mentioned 44 times throughout the book, primarily in the first three chapters and the final chapter. What is remarkable, however, is that the portrayal of Hayek in this book seems to describe entirely different individuals. This inconsistency prompts me to comically ask: “Is Hayek in the room with us?”
In this article, I will not discuss whether Stiglitz’s Road to Freedom is actually a road to serfdom (though I believe it is) as that topic has been thoroughly examined in works by David Gordon on the Mises Institute website. Instead, I will focus on how Stiglitz mischaracterizes Hayek and fundamentally misunderstands his contributions—not just to economics but to the social sciences as a whole.
Hayek Did Not Defend a Society Without Rules
Stiglitz begins his critique of Hayek in the book’s preface, writing:
Hayek and Friedman were the most notable mid-twentieth-century defenders of unfettered capitalism. “Unfettered markets”—markets without rules and regulations—is an oxymoron, because without rules and regulations enforced by government there could and would be little trade. Cheating would be rampant, trust low. A world without any restraints would be a jungle in which only power mattered, determining who got what and who did what. It wouldn’t be a market at all. Contracts agreeing to receive a good today in return for payment later couldn’t exist, because there would be no enforcement mechanism. But there is a big difference between saying that a well-functioning society needs to have some contract enforcement and saying that any contract should be enforced. (p. 13)
If there were one school of thought that deeply understood the necessity of rules for the existence of markets, it would be the Austrian School. As Peter Boettke notes, price theory, especially in the hands of Mises and Hayek, was institutional in nature—placing a priority on the framework within which economic life occurs.
When writing about Hayek, it is impossible to ignore Law, Legislation, and Liberty, his Cairo lectures, and The Constitution of Liberty—all of which focus precisely on the role of rules and the rule of law in a free society. Criticizing Hayek for advocating a lawless society is akin to criticizing Milton Friedman for neglecting the importance of money or Frank Knight for ignoring uncertainty.
The Problem of Knowledge, Not Incentives
In Chapter 1, Stiglitz continues:
Friedman and Hayek, like many other conservatives, have an unfailingly dismal view of human nature. It may have been because of deep introspection that they arrived at their extreme views about individual selfishness, which they then generalized to everyone. They fail to recognize that many, many people enter public service because they want to do good, not because they want to aggrandize themselves. (p. 35)
When Hayek dedicated The Road to Serfdom “To the socialists of all parties,” he was not questioning their intentions. Rather, he was warning of the unintended consequences of their policies. While it is fair to say that Hayek, like Lord Acton, was skeptical that power corrupts, his primary concern was not merely finding the well-intentioned philosopher-kings of Plato. His concern was far more fundamental: the knowledge problem. Even the most benevolent and selfless rulers lack the necessary information to centrally plan an economy effectively.
Hayek and Perfect Information
Stiglitz further argues:
Friedman and Hayek examined the economy from an ideological perspective, not a dispassionate one. They attempted to defend unfettered markets and existing power relations, including as reflected in the distribution of income and wealth. They were not really attempting to understand how capitalism actually worked. They assumed markets were essentially always highly competitive, with no firms having power to set prices, when it was obvious that critical markets were not competitive. They assumed in much of their work that there was perfect information, or at least that markets were informationally efficient—conveying costlessly and instantaneously all the relevant information from the informed to the uninformed and aggregating all the relevant information to be perfectly reflected in prices. (p. 50)
By this point in the book, if one still held any doubts about whether Stiglitz had actually read Hayek, this passage should remove them entirely. Hayek and perfect information? You can’t be serious!
Another aspect of his criticism is the assumption made by Hayek and Friedman that markets are always highly competitive and that no firm has the power to set prices. This might lead one to believe that Hayek subscribed to the idea of perfect competition, but this is not the case at all. In fact, Hayek criticized economists who upheld the notion of perfect competition in his article “The Meaning of Competition.” He defended competition, not on the grounds that markets are fully efficient, that marginal revenue equals marginal cost, or that all firms are price takers, but rather because competition functions as a discovery process. In his view, competition can only be properly understood in the context of imperfect information. Accusing Hayek of assuming perfect information is like accusing Karl Marx of endorsing the subjective theory of value.
If Stiglitz were discussing Eugene Fama—the Chicago School economist who won the Nobel Prize in 2013 for his work on efficient markets—this paragraph would be somewhat reasonable. Fama believes in efficient markets and perfect information. But to attribute such beliefs to Hayek, whose most famous works include “The Use of Knowledge in Society” and “The Pretence of Knowledge,” both explicitly arguing against the assumption of full information, is intellectually indefensible. One must ask: has Stiglitz ever actually read Hayek?
The “Friedman-Hayek” Label
The only direct quotation from Hayek in The Road to Freedom appears on page 68, taken from The Road to Serfdom:
Nor can certain harmful effects of deforestation, or 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. In such instances we must find some substitute for the regulation by the price mechanism.
Elsewhere, Stiglitz repeatedly invokes the phrase “Friedman and Hayek”—blurring their distinctions and allowing him to misattribute views from one to the other. This rhetorical technique enables him to paint both economists with the same broad brush of “neoliberalism,” while avoiding serious engagement with their actual positions.
Conclusion
A look at the book’s references reveals that Stiglitz cites Hayek only once—The Road to Serfdom—and only in relation to externalities. The most charitable interpretation is that Stiglitz has never read Hayek. The alternative—that he has read Hayek but deliberately misrepresents him—is far worse. For a Nobel Prize-winning economist, such an omission is inexcusable.