Hayek, republican freedom, and the minimum income

How Milton Friedman's great contemporary helps make the case for unconditional cash transfers.

It may come as a surprise to some readers that Milton Friedman, widely viewed as the voice of free-market absolutism in the decades following the Great Inflation, supported unconditional cash transfers to low-income households. But as Jennifer Burns explains, Friedman viewed the “negative income tax” as a minimally intrusive solution to the problem of poverty in a market economy.

It was also an elegant response to the call by Friedrich Hayek, who had pulled together the Mont Pelerin meeting where Friedman pitched the idea, for an updated liberalism that would abandon the fundamentalism of laissez faire. And although Hayek himself opposed unconditional transfers, his own thought lays the foundations for a case in favor of a minimum income as a wellspring of individual freedom.

Hayek’s devotion to the ideals of free markets and limited government is well-known. His most famous book, The Road to Serfdom, argued that economic and political liberties are tightly connected, and that liberal democracies cannot safely curtail the former without also endangering the latter. His later works, especially The Constitution of Liberty, set forth a positive vision of a free society centered on the idea that individuals should be left largely free to act on the basis of their own values and beliefs, rather than those of government regulators or planners, in both the personal and economic dimensions of their lives.

While everybody knows that Hayek saw himself as a champion of individual freedom, few understand the precise nature of the freedom that Hayek sought to defend. Unlike many libertarians, who understand freedom primarily in terms of non-interference or respect for property rights, Hayek subscribed to a republican theory in which freedom consists of being able to live one’s life “according to [one’s] own decisions and plans, in contrast to … one who was irrevocably subject to the will of another.”

Understanding Hayek as a “commercial republican” helps to make sense of many different aspects of his political theory. It explains why, unlike many libertarians, Hayek was never seriously tempted by the idea of “anarcho-capitalism.” Hayek did not believe that government was necessarily inimical to freedom. Indeed, he believed that government, or at least governance, in the sense of a set of institutions that subject human conduct to general and impartial rules, is a necessary precondition for freedom. For example, traffic laws limit the actions we can perform, but they do so in a way that makes us more free rather than less. They do so by allowing us to form reliable expectations about the behavior of others, which enables us to carry out our own plans more effectively than we could without them. However, a tyrant who can order us to perform or refrain from specific behaviors at a whim deprives us of the ability to effectively set and pursue our plans with any confidence — even if the tyrant happens not to interfere at any given time. The fact that it is always in her power to intervene in any way she likes strips us of control over our lives, and thus renders us unfree. 

Considerations such as these explain why Hayek continually emphasized the distinction between general rules on the one hand and commands on the other (or between law and legislation) in his writings. To be subject to the commands of a tyrant is to be dependent on the arbitrary will of another person. The actions of those subject to commands are based not on the beliefs and values of the actor, but on the beliefs and values of the tyrant. In contrast, general and impersonal rules do not subject individuals to the will of anyone else. They are, in Hayek’s words, like “laws of nature” – stable facts of social existence around which individuals can learn to navigate and plan their lives. They do not place some citizens in a position of subordination, nor do they elevate others to a position of dominance.

Free markets and limited government

Hayek’s republican political theory provides one of the main theoretical foundations for his strong support of free markets. Although many contemporary republican theorists have been either overtly hostile or at best lukewarm toward the market economy, Hayek saw correctly that market competition can serve as one of the most effective guarantors of republican freedom.

The essence of market competition is the existence of alternatives, and the right to say “no” to offers that fail to serve one’s interests at least as well as one of those alternatives. In a competitive labor market, an employer who tries to force an employee to do something she doesn’t want to do is constrained by that employee’s ability to quit and find a job elsewhere. A used car dealer who would like to take advantage of a buyer by charging an unfairly high price is similarly constrained by the presence of a competing dealer next door. In general, the more competitive a market is, the more prices and other terms of agreements will be regulated by the impersonal forces of supply and demand, and the less any particular market agent will be able to impose her particular will on her partner in exchange. All market actors are constrained by the general, impersonal rules of the market. But those same rules generally work to prevent any market actors from achieving a position of dominance over others.

Similarly, it is largely because Hayek views competition as such an effective check on coercion that he views government power with suspicion. After all, government is the only institution within society to claim and generally possess an effective monopoly on the use of force. And this monopoly on force is often used to establish and maintain other monopolies: on roads, on the delivery of regular mail, on the creation and enforcement of criminal law, and so on. Because individuals who value these services have nowhere else to go, they are often left with no practical alternative to compliance with the government’s demands. 

Moreover, as legal rules become more numerous and complex, as ordinary individuals become unable to know in advance what actions are permitted and which are prohibited, as law enforcement becomes practically unable to enforce all the rules that they could, in theory, enforce, the extent of individual discretion within government increases, and so too does the possibility of arbitrary coercion. In that case, individuals are no longer required to comply with “the law,” but with the edicts of a bureaucrat behind a desk, or an officer behind a badge. When the agents of the state are granted a practically unchecked power to apply the law (or not) in whatever way he sees fit, individuals are no longer fully free.

When free markets aren’t enough

But while Hayek’s republicanism provides strong support for the ideals of free markets and limited government, it also provides a criterion for determining when those institutions are not enough. Market competition generally protects the consumer against predation by unscrupulous sellers, but this protection can be undermined by collusion and natural monopolies. Similarly, competition in the labor market might protect workers from exploitation when those workers have an adequate range of alternatives available to them, but fall short when those alternatives are limited either by features of the local economy (a lack of jobs) or by characteristics of the employee (e.g., limited skills or lack of mobility).

In order to protect individual freedom in these circumstances, Hayek believed that some governmental action was both necessary and appropriate. Indeed, Hayek took great pains even in his most partisan work, The Road to Serfdom, to distance himself from a dogmatic opposition to government action, writing that “nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire.” Hayek believed that government had a legitimate (though delicate) role to fill in preventing and/or regulating monopolies. He believed that government had important work to do in the areas of sanitation, health services, and public works. And, most strikingly of all, he believed that it was not only permissible but necessary for government to redistribute income in order to provide a social safety net that would ensure “a certain minimum income for everyone, or a certain floor below which nobody need fall even when he is unable to provide for himself.”

A guaranteed minimum income for all?

Hayek himself did not have much to say about why he thought such a policy might be justified. But Hayek’s commitment to republican freedom provides a starting point from which an argument can easily be constructed. Poverty, while not itself coercive, renders people vulnerable to coercion by others. A wife who is dependent on her husband’s paycheck may have to put up with abusive behavior simply in order to keep a roof over her head. And as Hayek himself noted, an employee in a slack labor market must do what his boss tells him or else risk destitution. In these cases and many more, people are unable to escape serious and pervasive interference by others because they lack the financial resources to stand on their own. Providing people with money gives them options, and thus the ability to live their lives in accordance with their own will, rather than in subjugation to the will of another.

Moreover, there are strong Hayekian reasons for providing assistance in the form of cash, rather than in-kind benefits. One of the most powerful and consistent themes in all of Hayek’s work is the idea that government planners often lack “knowledge of the particular circumstances of time and place” that would be necessary to carry out their plans effectively. For Hayek, that limitation was an important part of the case for decentralized (i.e., free market) economic planning. But these same considerations provide a powerful argument for redistribution taking the form of cash grants, as opposed to in-kind transfers. Cash gives individuals the freedom to decide for themselves what they need, whether that is paying rent, buying groceries, or saving for future consumption. A system of in-kind transfers, in contrast, puts those decisions in the hands of government, where they are at least as likely to be determined by powerful special interests as they are by genuine and accurate considerations of recipients’ basic needs. 

Hayek’s support of a minimum income is compatible with his famous rejection of “social justice.” There is a difference, Hayek argued, between a society that “accepts the duty of preventing destitution and of providing a minimum level of welfare” and one which seeks to “determine the ‘just’ position of everybody and allocates to each what it thinks he deserves.” The latter task requires a level of knowledge on the part of government that Hayek believed was impossible to obtain, and a level of discriminatory power that he believed was incompatible with a free society. The former, in contrast, could be administered by precisely the sort of general, impartial rules that Hayek believed were essential to a genuinely liberal order.

Stopping short of a UBI

Still, despite all this, it would be misleading to claim that Hayek supported a Universal Basic Income (which I view as more or less equivalent to a negative income tax). One of the defining features of a UBI is the idea of unconditionality, meaning that eligibility is not limited to those who are working, or who are willing to work. And this is an idea that Hayek explicitly and repeatedly rejected.

“I do not question any individual’s right voluntarily to withdraw from civilisation. But what  ‘entitlements’ do such persons have? Are we to subsidise their hermitages? There cannot be any entitlement to be exempted from the rules on which civilisation rests. We may be able to assist the weak and disabled, the very young and old, but only if the sane and adult submit to the impersonal discipline which gives us means to do so.”

Still, just because Hayek rejected a UBI does not mean that Hayekians must do so. Indeed, as I argue in more detail elsewhere, Hayek’s own fundamental principles provide one of the best arguments for rejecting the kind of “work requirement” that Hayek himself endorses. In particular, Hayek’s own insights into the radically dispersed nature of “knowledge of the particular circumstances of time and place” pose a serious obstacle to conditional schemes such as those he favored.

The problem is this: Hayek’s support of a work requirement appears to be based on a kind of reciprocity principle according to which those who seek to benefit from the productive activities of society have a moral obligation to make some reciprocal contribution to society. But it would clearly be a mistake to assume that paid labor is the only way to make such a contribution. Artists, parents, and caregivers, for instance, all make (or are capable of making) an important contribution to society, even if none of them are engaged in the sort of “work” that would qualify them for benefits under something like the Earned Income Tax Credit.

Furthermore, even if the reciprocity principle is true, presumably some accommodation will have to be made for those who are genuinely incapable of making a reciprocal contribution. Those who are physically or mentally unable to work, for instance, presumably should not be excluded from receiving benefits even if one thinks that those who are able but unwilling to work should not be eligible.

So, in order to correctly apply Hayek’s principle, governments would have to know both (a) what sorts of activity count as a legitimate reciprocal contribution and which do not, and (b) which particular individuals are genuinely incapable (as opposed to just unwilling) to make such a contribution. But how could we expect governments to accurately arrive at this information? What standard should they apply to distinguish between legitimate and illegitimate contributions to social welfare? What sort of intrusive powers will they require to distinguish between a genuine inability to find work and mere shiftlessness? The Hayekian case for an unconditional benefit is that it economizes on government’s scarce knowledge, and that it errs on the side of protecting individuals who truly are in danger of subjugation due to their economic vulnerability, even if that means erring on the side of supporting some individuals who do not truly need it.

Principle and policy

Hayek’s republicanism provides an attractive way for reconciling a commitment to free markets and limited government with support for a social safety net. Moreover, Hayek’s particular emphasis on the significance of dispersed knowledge pushes in favor of that safety net taking the form of a UBI.

This principled case for a UBI leaves many concerns of a more practical nature unanswered. Wouldn’t the UBI cost too much? Wouldn’t it discourage work? Wouldn’t it turn the United States into a welfare magnet or, on the flip side, lead voters to push for even tighter restrictions on immigration?

But these concerns are not really objections to a UBI as such. Rather, they are objections to particular ways in which a UBI might – or might not – be set up. It is probably best to think of the UBI not as a single policy but as a family of policies, all of which involve cash transfers, but which vary according to the size of those transfers, whether or not they are means-tested, what sort of citizenship and residency requirement are attached to them, and so on. My co-author Miranda Fleischer and I discuss the costs and benefits of many of these alternatives in our recent book, Universal Basic Income: What Everyone Needs to Know.

The important point is that pragmatic concerns about the UBI can largely if not entirely be addressed at the level of policy design. If the Hayekian argument I have presented here is correct, and there really is a good case to be made for a UBI on grounds of a republican conception of individual freedom, then we should not let such concerns stand in the way of making progress toward a basic income for all.

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Matt Zwolinski is Professor of Philosophy at the University of San Diego, a senior fellow at the Niskanen Center, and co-author, most recently, of The Individualists: Radicals, Reactionaries, and the Struggle for the Soul of Libertarianism (Princeton, 2023) and Universal Basic Income: What Everyone Needs to Know (Oxford, 2023). He tweets at @Mattzwolinski. This essay was adapted from “Hayek, Republican Freedom, and the Universal Basic Income.”

Image credit: CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=9473860.