Hayek, Buchanan and the justification of the market

Abstract

This paper discusses the work of two twentieth‐century liberal economists, Friedrich Hayek and James Buchanan, who have made lasting contributions to our understanding of the role of the market in a free society. I argue that they offer significantly different but complementary visions of the value of the market as a system of individual freedom. Hayek's vision is of the price system as a marvel of spontaneous order which solves a fundamental economic problem – that of making efficient use of a totality of knowledge that is divided between individuals. Buchanan's vision is of the market as a space in which individuals are free to make voluntary exchanges. In his words, ‘this is all that there is to it’: the market is not a solution to any collective problem. These visions have a common blind spot. Both writers recognise the need for programmes of social insurance and consider how they should structured so as to be as compatible as possible with the workings of a market economy and a liberal democracy. But, I argue, neither sees the full importance of social insurance in a justification of the market system.