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Hayek and Economic Policy (The Austrian Road to the Third Way)

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  • Enrico Colombatto

Abstract

By examining Hayek’s approach to economic policy, this paper tries to show that his understanding of a free-market society was ambiguous, if not contradictory. Hayek was indeed following the Austrian tradition by rejecting technocratic views of policy-making. Nevertheless, he advocated a constitutional approach ultimately based on the rule of law created behind a veil of ignorance. Regulation and a fairly extensive welfare state are not ruled out either, and are subject to evaluation through a mix of rule of law (what that means), public opinion, common sense. After close inspection of the Road to Serfdom, the Constitution of Liberty, Law, Legislation and Liberty this contribution concludes that not only does Hayek fail to provide clear answers to the fundamental questions of economic policy. He also advocates a Third Way characterised by enlightened social engineering. In particular, the state has the duty to provide a suitable framework for the individual to develop his action, and to meet those social needs that the market fails to satisfy.

Suggested Citation

  • Enrico Colombatto, 2004. "Hayek and Economic Policy (The Austrian Road to the Third Way)," ICER Working Papers 18-2004, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:18-2004
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    1. Nelson, Robert H, 1987. "The Economics Profession and the Making of Public Policy," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 49-91, March.
    2. Denzau, Arthur T & North, Douglass C, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31.
    3. William D. Grampp, 2000. "What Did Smith Mean by the Invisible Hand?," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 441-465, June.
    4. de Jasay, Anthony, 1996. "Hayek: Some Missing Pieces," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 9(1), pages 107-118.
    5. Philippe Fontaine, 1996. "The French Economists and Politics, 1750-1850: The Science and Art of Political Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 29(2), pages 379-393, May.
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