One of the biggest names in economics, Daron Acemoglu, recently joined the mess that is Twitter. He wasted no time in throwing out big ideas for discussion and immediately getting tons of, let us say, spirited replies.
One of Acemoglu’s threads involved a discussion of F.A. Hayek’s famous essay “The Use of Knowledge in Society,” wherein Hayek questions central planners’ ability to acquire and utilize such knowledge. Echoing many other commentators, Acemoglu asks: can supercomputers and artificial intelligence get around Hayek’s concerns?
Coming back to Hayek’s argument, there was another aspect of it that has always bothered me. What if computational power of central planners improved tremendously? Would Hayek then be happy with central planning?
While there are a few different layers to Hayek’s argument, at least one key aspect does not rest at all on computational power. Hayek argues that markets do not require users to have much information in order to make their decisions.
To use Hayek’s example, when the price of tin increases: “All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere.” Knowing whether demand or supply shifted to cause the price increase would be redundant information for the tin user; the price provides all the information about market conditions that the user needs.
To Hayek, this informational role of prices is what makes markets unique (compared to central planning):
The most significant fact about this [market] system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to take the right action.
Good computers, bad computers—it doesn’t matter. Markets just require less information from their individual participants. This was made precise in the 1970s and 1980s in a series of papers on the “informational efficiency” of competitive markets.
This post will give an explanation of what the formal results say. From there, we can go back to debating the relevance for Acemoglu’s argument and the future of central planning with AI.
From Hayek to Hurwicz
First, let’s run through an oversimplified history of economic thought. Hayek developed his argument about information and markets during the socialist-calculation debate between Hayek and Ludwig von Mises on one side and Oskar Lange and Abba Lerner on the other. Lange and Lerner argued that a planned socialist economy could replicate a market economy. Mises and Hayek argued that it could not, because the socialist planner would not have the relevant information.
In response to the socialist-calculation debate, Leonid Hurwicz—who studied with Hayek at the London School of Economics, overlapped with Mises in Geneva, and would ultimately be awarded the Nobel Memorial Prize in 2007—developed the formal language in the 1960s and 1970s that became what we now call “mechanism design.”
Specifically, Hurwicz developed an abstract way to measure how much information a system needed. What does it mean for a system to require little information? What is the “efficient” (i.e., minimal) amount of information? Two later papers (Mount and Reiter (1974) and Jordan (1982)) used Hurwicz’s framework to prove that competitive markets are informationally efficient.
Understanding the Meaning of Informational Efficiency
How much information do people need to achieve a competitive outcome? This is where Hurwicz’s theory comes in. He gave us a formal way to discuss more and less information: the size of the message space.
To understand the message space’s size, consider an economy with six people: three buyers and three sellers. Some buyers—call them type B3—are willing to pay $3. Type B2 is willing to pay $2. Sellers of type S0 are willing to sell for $0. S1 for $1, and so on. Each buyer knows their valuation for the good, and each seller knows their cost.
Here’s the weird exercise. Along comes an oracle who knows everything. The oracle decides to figure out a competitive price that will clear the market, so he draws out the supply curve (in orange), and the demand curve (in blue) and picks an equilibrium point where they cross (in red).
So the oracle knows a price of $1.50 and a quantity of 2 is an equilibrium.
Now, we, the ignorant outsiders, come along and want to verify that the oracle is telling the truth and knows that it is an equilibrium. But we shouldn’t take the oracle’s word for it.
How can the oracle convince us that this is an equilibrium? We don’t know anyone’s valuation.
The oracle puts forward a game to the six players. The oracle says:
The price is $1.50, meaning that if you buy 1, you pay $1.50; if you sell 1, you receive $1.50.
If you say you’re B3 (which means you value the good at $3), you must buy 1.
If you say you’re B2, you must buy 1.
If you say you’re B1, you must buy 0.
If you say you’re S0, you must sell 1.
If you say you’re S1, you must sell 1.
If you say you’re S2, you must sell 0.
The oracle then asks everyone: do you accept the terms of this mechanism? Everyone says yes, because only the buyers who value it more than $1.50 buy and only the sellers with a cost less than $1.50 sell. By everyone agreeing, we (the ignorant outsiders) can verify that the oracle did, in fact, know people’s valuations.
Now, let’s count how much information the oracle needed to communicate. He needed to send a message that included the price and the trades for each type. Technically, he didn’t need to say S2 sells zero, because it is implied by the fact that the quantity bought must equal the quantity sold. In total, he needs to send six messages.
The formal exercise amounts to counting each message that needs to be sent. With a formally specified way of measuring how much information is required in competitive markets, we can now ask whether this is a lot.
If you don’t care about efficiency, you can always save on information and not say anything, don’t have anyone trade, and have a message space of size 0. That saves on information; just do nothing.
But in the context of the socialist-calculation debate, the argument was over how much information was needed to achieve “good” outcomes. Lange and Lerner argued that market socialism could be efficient, not that it would result in zero trade, so efficiency is the welfare benchmark we are aiming for.
If you restrict your attention to efficient outcomes, Mount and Reiter (1974) showed you cannot use less information than competitive markets. In a later paper, Jordan (1982) showed that there is no way to match the competitive mechanism in terms of information. The competitive mechanism is the unique mechanism with this dimension.
Acemoglu reads Hayek as saying “central planning wouldn’t work because it would be impossible to collect and compute the right allocation of resources.” But the Jordan and Mount & Reiter papers don’t claim that computation is impossible for central planners. Take whatever computational abilities exist, from the first computer to the newest AI—competitive markets always require the least information possible. Supercomputers or AI do not, and cannot, change that relative comparison.
Beyond Computational Issues
In terms of information costs, the best a central planner could hope for is to mimic exactly the market mechanism. But then, of what use is the planner? She’s just one more actor who could divert the system toward her own interest. As Acemoglu points out, “if the planner could collect all of that information, she could do lots of bad things with it.”
The incentive problem is a separate problem, which is why Hayek tried to focus solely on information. Think about building a road. There is a concern that markets will not provide roads because people would be unwilling to pay for them without being coerced through taxes. You cannot simply ask people how much they are willing to pay for the road and charge them that price. People will lie and say they do not care about roads. No amount of computing power fixes incentives. Again, computing power is tangential to the question of markets versus planning. Superior computational power doesn’t help.
There’s a lot buried in Hayek and all of those ideas are important and worth considering. They are just further complications with which we should grapple. A handful of theory papers will never solve all of our questions about the nature of markets and central planning. Instead, the formal papers tell us, in a very stylized setting, what it would even mean to quantify the “amount of information.” And once we quantify it, we have an explicit way to ask: do markets use minimal information?
For several decades, we have known that the answer is yes. In recent work, Rafael Guthmann and I show that informational efficiency can extend to big platforms coordinating buyers and sellers—what we call market-makers.
The bigger problem with Acemoglu’s suggestion that computational abilities can solve Hayek’s challenge is that Hayek wasn’t merely thinking about computation and the communication of information. Instead, Hayek was concerned about our ability to even articulate our desires. In the example above, the buyers know exactly how much they are willing to pay and sellers know exactly how much they are willing to sell for. But in the real world, people have tacit knowledge that they cannot communicate to third parties. This is especially true when we think about a dynamic world of innovation. How do you communicate to a central planner a new product?
The real issue is the market dynamics require entrepreneurs who are imagining new futures with new products like the iPhone. Major innovations will never be able to be articulated and communicated to a central planner. All of these readings of Hayek and the market’s ability to communicate information—from formal informational efficiency to tacit knowledge—are independent of computational capabilities.
This post is the second in a three-part series. The first installment can be found here and the third can be found here.
In just over a century since its dawn, liberalism had reshaped much of the world along the lines of individualism, free markets, private property, contract, trade, and competition. A modest laissez-faire political philosophy that had begun to germinate in the minds of French Physiocrats in the early 18th century had, scarcely 150 years later, inspired the constitution of the world’s nascent leading power, the United States. But it wasn’t all plain sailing, as liberalism’s expansion eventually galvanized strong social, political, cultural, economic and even spiritual opposition, which coalesced around two main ideologies: socialism and fascism.
In this post, I explore the collectivist backlash against liberalism, its deeper meaning from the perspective of political philosophy, and the main features of its two main antagonists—especially as they relate to competition and competition regulation. Ultimately, the purpose is to show that, in trying to respond to the collectivist threat, successive iterations of neoliberalism integrated some of collectivism’s key postulates in an attempt to create a synthesis between opposing philosophical currents. Yet this “mostly” liberal synthesis, which serves as the philosophical basis of many competition systems today, is afflicted with the same collectivist flaws that the synthesis purported to overthrow (as I will elaborate in subsequent posts).
The Collectivist Backlash
By the early 20th century, two deeply illiberal movements bent on exposing and demolishing the fallacies and contradictions of liberalism had succeeded in capturing the imagination and support of the masses. These collectivist ideologies were Marxian socialism/communism on the left and fascism/Nazism on the right. Although ultimately distinct, they both rejected the basic postulates of classical liberalism.
Socially, both agreed that liberalism uprooted traditional ways of life and dissolved the bonds of solidarity that had hitherto governed social relationships. This is the view expressed, e.g., in Karl Polanyi’s influential book The Great Transformation, in which the Christian socialist Polanyi contends that “disembedded” liberal markets would inevitably come to be governed again by the principles of solidarity and reciprocity (under socialism/communism). Similarly, although not technically a work on political economy or philosophy, Knut Hamsun’s 1917 novel Growth of the Soil perfectly captures the right’s rejection of liberal progress, materialism, industrialization, and the idealization of traditional bucolic life. The Norwegian Hamsun, winner of the 1920 Nobel Prize in Literature, later became an enthusiastic supporter of the Third Reich.
Politically and culturally, Marxist historical materialism posited that liberal democracy (individual freedoms, periodic elections, etc.) and liberal culture (literature, art, cinema) served the interests of the economically dominant class: the bourgeoisie, i.e., the owners of the means of production. Fascists and Nazis likewise deplored liberal democracy as a sign of decadence and weakness and viewed liberal culture as an oxymoron: a hotbed of degeneracy built on the dilution of national and racial identities.
Economically, the more theoretically robust leftist critiques rallied around Marx’ scientific socialism, which held that capitalism—the economic system that served as the embodiment of a liberal social order built on private property, contract, and competition—was exploitative and doomed to consume itself. From the right, it was argued that liberalism enabled individual interest to override what was good for the collective—an unpardonable sin in the eyes of an ideology built around robust nodes of collectivist identity, such as nation, race, and history.
A Recurrent Civilizational Struggle
The rise of socialism and fascism marked the beginning of a civilizational shift that many have referred to as the lowest ebb of liberalism. By the 1930s, totalitarian regimes utterly incompatible with a liberal worldview were in place in several European countries, such as Italy, Russia, Germany, Portugal, Spain, and Romania. As Austrian economist Ludwig Von Mises lamented, liberals and liberal ideas—at least, in the classical sense—had been driven to the fringes of society and academia, subject of scorn and ridicule. Even the liberally oriented, like economist John Maynard Keynes, were declaring the “end of laissez-faire.”
At its most basic level, I believe that the conflict can be understood, from a philosophical perspective, as an iteration of the recurrent struggle between individualism and collectivism.
For instance, the German sociologist Ferdinand Tonnies has described the perennial tension between two elementary ways of conceiving the social order: Gesellschaft and Gemeinschaft. Gesellschaft refers to societies made up of individuals held together by formal bonds, such as contracts, whereas Gemeinschaft refers to communities held together by organic bonds, such as kinship, which function together as parts of an integrated whole. American law professor David Gerber explains that, from the Gemeinschaft perspective, competition was seen as an enemy:
Gemeinschaft required co-operation and the accommodation of individual interests to the commonwealth, but competition, in contrast, demanded that individuals be concerned first and foremost with their own self-interest. From this communitarian perspective, competition looked suspiciously like exploitation. The combined effect of competition and of political and economic inequality was that the strong would get stronger, the weak would get weaker, and the strong would use their strength to take from the weak.
Tonnies himself thought that dominant liberal notions of Gesellschaft would inevitably give way to greater integration of a socialist Gemeinschaft. This was somewhat reminiscent of Polanyi’s distinction between embedded and disembedded markets; Karl Popper’s “open” and “closed” societies; and possibly, albeit somewhat more remotely, David Hume’s distinction between “concord” and “union.” While we should be wary of reductivism, a common theme underlying these works (at least two of which are not liberal) is the conflict between opposing views of society: one that posits the subordination of the individual to some larger community or group versus another that anoints the individual’s well-being as the ultimate measure of the value of social arrangements. That basic tension, in turn, reverberates across social and economic questions, including as they relate to markets, competition, and the functions of the state.
Competition Under Marxism
Karl Marx argued that the course of history was determined by material relations among the social classes under any given system of production (historical materialism and dialectical materialism, respectively). Under that view, communism was not a desirable “state of affairs,” but the inevitable consequence of social forces as they then existed. As Marx and Friedrich Engels wrote in The Communist Manifesto:
Communism is for us not a state of affairs which is to be established, an ideal to which reality [will] have to adjust itself. We call communism the real movement which abolishes the present state of things. The conditions of this movement result from the premises now in existence.
Thus, following the ineluctable laws of history, which Marx claimed to have discovered, capitalism would inevitably come to be replaced by socialism and, subsequently, communism. Under socialism, the means of production would be controlled not by individuals interacting in a free market, but by the political process under the aegis of the state, with the corollary that planning would come to substitute for competition as the economy’s steering mechanism. This would then give way to communism: a stateless utopia in which everything would be owned by the community and where there would be no class divisions. This would come about as a result of the interplay of several factors inherent to capitalism, such as the exploitation of the working class and the impossibility of sustained competition.
Per Marx, under capitalism, owners of the means of production (i.e., the capitalists or the bourgeoisie) appropriate the surplus value (i.e., the difference between the sale price of a product and the cost to produce it) generated by workers. Thus, the lower the wages and the longer the working hours of the worker, the greater the profit accrued to the capitalist. This was not an unfortunate byproduct that could be reformed, Marx posited, but a central feature of the system that was solvable only through revolution. Moreover, the laws, culture, media, politics, faith, and other institutions that might ordinarily open alternative avenues to nonviolent resolution of class tensions (the “super-structure”) were themselves byproducts of the underlying material relations of production (“structure” or “base”), and thus served to justify and uphold them.
The Marxian position further held that competition—the lodestar and governing principle of the capitalist economy—was, like the system itself, unsustainable. It would inevitably end up cannibalizing itself. But the claim is a bit more subtle than critics of communism often assume. As Leon Trotsky wrote in the 1939 pamphlet Marxism in our time:
Relations between capitalists, who exploit the workers, are defined by competition, which for long endures as the mainspring of capitalist progress.
Two notions expressed seamlessly in Trotsky’s statement need to be understood about the Marxian perception of competition. The first is that, since capitalism is exploitative of workers and competition among capitalists is the engine of capitalism, competition is itself effectively a mechanism of exploitation. Capitalists compete through the cheapening of commodities and the subsequent reinvestment of the surplus appropriated from labor into the expansion of productivity. The most exploitative capitalist, therefore, generally has the advantage (this hinges, of course, largely on the validity of the labor theory of value).
At the same time, however, Marxists (including Marx himself) recognized the economic and technological progress brought about through capitalism and competition. This is what Trotsky means when he refers to competition as the “mainspring of capitalist progress” and, by extension, the “historical justification of the capitalist.” The implication is that, if competition were to cease, the entire capitalist edifice and the political philosophy undergirding it (liberalism) would crumble, as well.
Whereas liberalism and competition were intertwined, liberalism and monopoly could not coexist. Instead, monopolists demanded—and, due to their political clout, were able to obtain—an increasingly powerful central state capable of imposing protective tariffs and other measures for their benefit and protection. Trotsky again:
The elimination of competition by monopoly marks the beginning of the disintegration of capitalist society. Competition was the creative mainspring of capitalism and the historical justification of the capitalist. By the same token the elimination of competition marks the transformation of stockholders into social parasites. Competition had to have certain liberties, a liberal atmosphere, a regime of democracy, of commercial cosmopolitanism. Monopoly needs as authoritative government as possible, tariff walls, “its own” sources of raw materials and arenas of marketing (colonies). The last word in the disintegration of monopolistic capital is fascism.
Marxian theory posited that this outcome was destined to happen for two reasons. First, because:
The battle of competition is fought by cheapening of commodities. The cheapness of commodities depends, ceteris paribus, on the productiveness of labor, and this again on the scale of production. Therefore, the larger capital beats the smaller.
In other words, competition stimulated the progressive development of productivity, which depended on the scale of production, which depended, in turn, on firm size. Ultimately, therefore, competition ended up producing a handful of large companies that would subjugate competitors and cannibalize competition. Thus, the more wealth that capitalism generated—and Marx had no doubts that capitalism was a wealth-generating machine—the more it sowed the seeds of its own destruction. Hence:
While stimulating the progressive development of technique, competition gradually consumes, not only the intermediary layers but itself as well. Over the corpses and the semi-corpses of small and middling capitalists, emerges an ever-decreasing number of ever more powerful capitalist overlords. Thus, out of “honest”, “democratic”, “progressive” competition grows irrevocably “harmful”, “parasitic”, “reactionary” monopoly.
The second reason Marxists believed the downfall of capitalism was inevitable is that the capitalists squeezed out of the market by the competitive process would become proletarians, which would create a glut of labor (“a growing reserve army of the unemployed”), which would in turn depress wages. This process of proletarianization, combined with the “revolutionary combination by association” of workers in factories would raise class consciousness and ultimately lead to the toppling of capitalism and the ushering in of socialism.
Thus, there is a clear nexus in Marxian theory between the end of competition and the end of capitalism (and therefore liberalism), whereby monopoly is deduced from the inherent tendencies of capitalism, and the end of capitalism, in turn, is deduced from the ineluctable advent of monopoly. What follows (i.e., socialism and communism) are collectivist systems that purport to be run according to the principles of solidarity and cooperation (“from each according to his abilities, to each according to his needs”), where there is therefore no place (and no need) for competition. Instead, the Marxian Gemeinschaft would organize the economy around rationalistic lines, substituting cut-throat competition for centralized command by the state (later, the community) that would rein in hitherto uncontrollable economic forces in a heroic victory over the chaos and unpredictability of capitalism. This would, of course, also bring about the end of liberalism, with individualism, private property, and other liberal freedoms jettisoned as mouthpieces of bourgeoisie class interests. Chairman Mao Zedong put it succinctly:
We must affirm anew the discipline of the Party, namely:
1. The individual is subordinate to the organization;
2. The minority is subordinate to the majority.
Competition Under Fascism/Nazism
Formidable as it was, the Marxian attack on liberalism was just one side of the coin. Decades after the articulation of Marxian theory in the mid-19th century, fascism—founded by former socialist Benito Mussolini in 1915—emerged as a militant alternative to both liberalism and socialism/communism.
In essence, fascism was, like communism, unapologetically collectivist. But whereas socialists considered class to be the relevant building block of society, fascists viewed the individual as part of a greater national, racial, and historical entity embodied in the state and its leadership. As Mussolini wrote in his 1932 pamphlet TheDoctrine of Fascism:
Anti-individualistic, the Fascist conception of life stresses the importance of the State and accepts the individual only in so far as his interests coincide with those of the State, which stands for the conscience of the universal, will of man as a historic entity. It is opposed to classical liberalism […] liberalism denied the State in the name of the individual; Fascism reasserts.
Accordingly, fascism leads to an amalgamation of state and individual that is not just a politico-economic arrangement where the latter formally submits to the former, but a conception of life. This worldview is, of course, diametrically opposed to core liberal principles, such as personal freedom, individualism, and the minimal state. And surely enough, fascists saw these liberal values as signs of civilizational decadence (as expressed most notably by Oswald Spengler in The Decline of the West—a book that greatly inspired Nazi ideology). Instead, they posited that the only freedom worthy of the name existed within the state; that peace and cosmopolitanism were illusory; and that man was man only by virtue of his membership and contribution to nation and race.
But fascism was also opposed to Marxian socialism. At its most basic, the schism between the two worldviews can be understood in terms of the fascist rejection of materialism, which was a centerpiece of Marxian thought. Fascists denied the equivalence of material well-being and happiness, instead viewing man as fulfilled by hardship, war, and by playing his part in the grand tapestry of history, whose real protagonists were nation-states. While admitting the importance of economic life—e.g., of efficiency and technological innovation—fascists denied that material relations unequivocally determined the course of history, insisting instead on the preponderance of spiritual and heroic acts (i.e., acts with no economic motive) as drivers of social change. “Sanctity and heroism,” Mussolini wrote, are at the root of the fascist belief system, not material self-interest.
This belief system also extended to economic matters, including competition. The Third Reich respected private property rights to some degree—among other reasons, because Adolf Hitler believed it would encourage creative competition and innovation. The Nazis’ overarching principle, however, was that all economic activity and all private property ultimately be subordinated to the “common good,” as interpreted by the state. In the words of Hitler:
I want everyone to keep what he has earned subject to the principle that the good of the community takes priority over that of the individual. But the State should retain control; every owner should feel himself to be an agent of the State. […] The Third Reich will always retain the right to control property owners.
The solution was a totalitarian system of government control that maintained private enterprise and profit incentives as spurs to efficient management, but narrowly circumscribed the traditional freedom of entrepreneurs. Economic historians Christoph Buchheim and Jonas Scherner have characterized the Nazis’ economic system as a “state-directed private ownership economy,” a partnership in which the state was the principal and the business was the agent. Economic activity would be judged according to the criteria of “strategic necessity and social utility,” encompassing an array of social, political, practical, and ideological goals. Some have referred to this as the “primacy of politics over economics” approach.
For instance, in supervising cross-border acquisitions (today’s mergers), the state “sought to suppress purely economic motives and to substitute some rough notion of ‘racial political’ priority when supervising industrial acquisitions or controlling existing German subsidiaries.” The Reich selectively applied the 1933 Act for the Formation of Compulsory Cartels in regulating cartels that had been formed under the Weimar Republic with the Cartel Act of 1923. But the legislation also appears to have been applied to protect small and medium-sized enterprises, an important source of the party’s political support, from ruinous competition. This is reminiscent of German industrialist and Nazi supporter Gustav Krupp’s “Third Form”:
Between “free” economy and state capitalism there is a third form: the economy that is free from obligations, but has a sense of inner duty to the state.
In short, competition and individual achievement had to be balanced with cooperation, mediated by the self-appointed guardians of the “general interest.” In contrast with Marxian socialism/communism, the long-term goal of the Nazi regime was not to abolish competition, but to harness it to serve the aims of the regime. As Franz Böhm—cofounder, with Walter Eucken, of the Freiburg School and its theory of “ordoliberalism”—wrote in his advice to the Nazi government:
The state regulatory framework gives the Reich economic leadership the power to make administrative commands applying either the indirect or the direct steering competence according to need, functionality, and political intent. The leadership may go as far as it wishes in this regard, for example, by suspending competition-based economic steering and returning to it when appropriate.
After a century of expansion, opposition to classical liberalism started to coalesce around two nodes: Marxism on the left, and fascism/Nazism on the right. What ensued was a civilizational crisis of material, social, and spiritual proportions that, at its most basic level, can be understood as an iteration of the perennial struggle between individualism and collectivism. On the one hand, liberals like J.S. Mill had argued forcefully that “the only freedom which deserves the name, is that of pursuing our own good in our own way.” In stark contrast, Mussolini wrote that “fascism stands for liberty, and for the only liberty worth having, the liberty of the state and of the individual within the state.” The former position is rooted in a humanist view that enshrines the individual at the center of the social order; the latter in a communitarian ideal that sees him as subordinate to forces that supersede him.
As I have explained in the previous post, the philosophical undercurrents of both positions are ancient. A more immediate precursor of the collectivist standpoint, however, can be found in German idealism and particularly in Georg Wilhelm Friedrich Hegel. In The Philosophy of Right, he wrote:
A single person, I need hardly say, is something subordinate, and as such he must dedicate himself to the ethical whole. Hence, if the state claims life, the individual must surrender it. All the worth which the human being possesses […] he possesses only through the state.
This broader clash is reflected, directly and indirectly, in notions of competition and competition regulation. Classical liberals sought to liberate competition from regulatory fetters. Marxism “predicted” its downfall and envisioned a social order without it. Fascism/Nazism sought to wrest it from the hands of greedy self-interest and mold it to serve the many and the fluctuating objectives of the state and its vision of the common good.
In the next post, I will discuss how this has influenced the neoliberal philosophy that is still at the heart of many competition systems today. I will argue that two strands of neoliberalism emerged, which each attempted to resolve the challenge of collectivism in distinct ways.
One strand, associated with a continental understanding of liberalism and epitomized by the Freiburg School, sought to strike a “mostly liberal” compromise between liberalism and collectivism—a “Third Way” between opposites. In doing so, however, it may have indulged in some of the same collectivist vices that it initially sought to avoid— such as vast government discretion and the imposition of myriad “higher” goals on society.
The other strand, represented by Anglo-American liberalism of the sort espoused by Friedrich Hayek and Milton Friedman, was less conciliatory. It attempted to reform, rather than reinvent, liberalism. Their prescriptions involved creating a strong legal framework conducive to economic efficiency against a background of limited government discretion, freedom, and the rule of law.