Constitution of Liberty Part II… Please Click Here and scroll to the bottom of the page to add a comment.

This is the 2nd part of my discussion of Frederick Hayek’s  The Constitution of Liberty Chapter 5, and the book’s remarkable foresight concerning the current assault on free markets and liberty.


The Great Man himself

The Great Man himself


So continuing on from my previous post, how else does this dissertation on individual responsibility tie in with current events?  In one word-entrepreneurialism.  How about the current legislation on “tax cuts” for those not paying taxes, and the inverse relationship taxes have on motivation and risk assumption?

Regarding motivation, Hayek says:  “Yet there can be no doubt that the discovery of a better use of things or of one’s own capacities is one of the greatest contributions that an individual can make in our society…  Whoever leaves to others the task of finding some useful means of employing his [own] capacities must be content with a smaller reward.”

Besides this wonderful argument for entrepreneurialism, there are additional parallels.   How about the continual debate between conservatives and liberals on risk assumption and its relationship to success?  (Or failure!)  And how about those who believe the successful should be punished by making them responsible for those unwilling to risk the consequences of their own decisions?  (Class warfare and income redistribution.)  This is another great tie between Hayek’s ideas in The Constitution of Liberty and our current dilemma.  In other words, he says there are no guarantees in life, and government picking winners and losers in the marketplace is highly destructive.

This is a can of worms that has been opened in our recent political climate with regards to the debacle of GSEs (govt. sponsored enterprises: Fannie Mae etc.) and their unintended consequences of an unsustainable real estate bubble based on a home ownership entitlement for all regardless of credit.  This trend towards the government “insertion” of  individuals into a higher demographic without their earning it cancels out the oftentimes unpleasant but necessary results of risk assumption.  These consequences are what’s called “moral hazard”:  meaning the government mandated reduction of risk caused by bailing out losers in the marketplace. Whether it be the Treasury bailing out defaulting homeowners, or the Treasury bailing out corporate  holders of Mortgage Backed Securites (MBS) at above market prices:  it’s all the same.   The result of market manipulation by the government never changes when people are not allowed to reap the rewards, or suffer the consequences of their decisions and assumption of risk.

The new president and congress is taking us down disappointing and uncharted territory.   Free market conservatives must impress upon their entitlement-centered liberal friends the wisdom of Frederick Hayek’s not only historic but continuously relevant ideas.

For those interested in further review of Frederick Hayek’s works, I recommend these sites.

Comments con and pro from readers most welcome!


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4 CommentsLeave a comment

  1. I don’t believe there was a choice for government to intervene. The bubble created by the common man was so large that any self correction would have devastated far too many. The key now is the clean up.Pretty soon we will see what the free market really thinks of US Govt debt. And as a contrarian, I think that interest rates will rise modestly. Gold is the real bubble.

    • Paulson and Bernanke would agree with you. I just don’t see any real evidence of the systemic risk issue, or if it was that bad, where so where did all of the original TARP money go to (?)
      If the govt had to step in, it’s to solve a problem that wouldn’t have happened in the first place if it wasn’t for typical altruistic intent gone bad. CRA, strong arming banks, etc. Kind of like pushing someone towards a cliff then asking for praise for pulling you back at the last second. (At great expense! 🙂 )
      Thanx for your comment Cirrus Pilot!

  2. I don’t think the big O really has anyone’s best interests in mind except for his own. He is a political animal of the worst kind, a predator and will gobble up every inch of freedom we have, if we let him. He has no qualms about the constitutionality of his plans.

    Excellent analysis on your part and the humor really gets your point across. Looking forward to many more.

  3. President Obama and the people he brought into government have little regard for the entrepreneur. They are not interested in fostering a dynamic, ever-changing economy driven by the ideas and hard work of individuals. Instead, they wish to create a corporate state that forms economic policy through agreement between the government, the unions and large corporations. This was the objective of the government during the Roosevelt administration, which it tried to implement by legislation like the National Industrial Recovery Act. The Obama administration has the same objective.

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