Hayek versus Habermas: Round 3

In this final round of the H versus H contest I want to question the claim that communication in markets is ‘distorted’ by ‘money power’. According to this Habermasian refrain not only do markets embody and reproduce inequalities they also corrupt the democratic process by allowing those with deeper pockets to buy support and to entrench established positions. If democracy is to fulfil the ideal of ‘un-coerced discourse’ where decisions are based on the ‘power of the better argument’ rather than on the political clout that money can buy then a fundamental redistribution of wealth is required in order to launch a process of democratic renewal.

There are several aspects of this argument that need to be dealt with. First is the failure to recognise that far from ‘distorting’ social communication some inequalities (though not all) may actually aid the process of communication. As Hayek noted in The Constitution of Liberty, ‘if the results of individual liberty did not demonstrate that some manners of living were more successful than others then much of the case for it would vanish’ (p.85). In markets, for example, it is precisely the unequal discovery of profit opportunities by more alert actors that facilitates the spread of the most successful production and consumption models via a process of imitative learning. Habermasians themselves seem to acknowledge the inevitability of unequal influence by suggesting that those who give better arguments should exercise greater influence over the allocation of resources. If inequalities resulting from the exercise of the ‘better argument’ are acceptable, however, then it is not clear why inequalities which result from persuading others to purchase goods are not. Indeed, as noted in my first post there is a strong case that markets may be more egalitarian than deliberative democratic processes precisely because they do not rely exclusively on formal argumentation. Procedures that privilege the use of explicit reasoning systematically exclude those who are less able to engage in articulate persuasion but who may still possess valuable knowledge embodied in the exercise of entrepreneurship or a practical skill.

Inequalities in markets may, of course, be ‘reproduced’ owing to the ‘inheritance effect’ where people invest in the wealthy or those with an established reputation simply because they have wealth or reputation rather than backing a newcomer who may have the better ideas. Deliberative democratic procedures are, however, also prone to a variant of this ‘inheritance effect’. Those who have exercised the ‘power of the better argument’ in the past will inevitably come into the deliberative process with a greater stock of social status in the same way that those with a track record of prescient entrepreneurship enter markets with greater buying power. Moreover, because democratic procedures tend to encourage a ‘group centred’ rather than an individualised form of representation, people may ‘inherit’ a hearing for their views by mere virtue of their attachment to those groups whose representatives have won out in earlier rounds of public debate. Spokespersons for business associations, trades unions or environmental groups may be invited to participate in a public forum primarily because previous representatives of these groups have offered persuasive arguments. In principle, there seems little difference between such cases and those where a person inherits greater buying power in a market because a family member was a successful entrepreneur.

Now, it might be argued that the capacity to maintain such ‘undeserved’ influence in a democratic forum depends on the ability of today’s representatives to continue offering good arguments. Yet, the same logic may be applied in the case of inherited wealth. In a competitive market the capacity of the wealthy to maintain their standing will depend on whether they invest their assets in ways which enhance consumer welfare. Habermasians argue for wealth redistribution prior to the process of public debate on grounds that private ‘money power’ exercised via campaign contributions and political advertising enables the wealthy to manipulate the process in order to entrench established positions. In this they will find no argument from Hayekians. The response to the financial crisis confirms only too well that bail-outs justified in the name of ‘saving capitalism’ were actually designed to save key elements of the ruling financial elite. The capacity of the wealthy to maintain their position in ways which diminish consumer welfare is not, however, an intrinsic element of a market economy but results from the capture of an interventionist state apparatus that shelters the wealthy from the ‘creative destruction’ characteristic of unfettered markets. If we want as Hayek puts it to ‘save capitalism from the capitalists’ then we should not seek to expand ‘democratic control’ over markets but to limit the scope of state intervention whether conducted democratically or otherwise. Of course, this ideal may be dismissed as a libertarian fantasy. I submit, however, that it is a more worthy, realistic and attainable ideal than the fantasy of a perfectly egalitarian process of public deliberation.