Wednesday, May 18, 2011

Hayek on Regulation

Ezra Klein quotes Friedrich Hayek on regulation. That led me to this Wikipedia section on Hayek.
''The Road To Serfdom'' is often cited today for the proposition that government should not intervene at all in free markets. …

Although Hayek believed that government intervention in markets would lead to a loss of freedom, he recognized a limited role for government to perform tasks of which free markets were not capable:
The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life, but it admits of others which sometimes may very considerably assist its work and even requires certain kinds of government action.
While Hayek is opposed to regulations which restrict the freedom to enter a trade, or to buy and sell at any price, or to control quantities, he acknowledges the utility of regulations which restrict allowed methods of production, so long as these are applied equally to everyone and not used as an indirect way of controlling prices or quantities:
To prohibit the use of certain poisonous substances, or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with the preservation of competition.
He notes that there are certain areas, such as the environment, which cannot effectively be regulated solely by the marketplace:
Nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question, or to those who are willing to submit to the damage for an agreed compensation.
The government also has a role in preventing fraud:
Even the most essential prerequisite of its the market's proper functioning, the prevention of fraud and deception (including exploitation of ignorance), provides a great and by no means fully accomplished object of legislative activity.
He concludes:
In no system that could be rationally defended would the state just do nothing.
The extracts are all from
Hayek, Friedrich August (1994). The road to serfdom. University of Chicago Press. ISBN 9780226320618.

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