Frameworks and Formal Rules for Corporations and Other Collectives

Hayek is aware that formal rules of property may be biased: “But little intellectual effort has been directed to the question in what way this legal framework should be modified to make competition more effective.” In what ways it could even be corrected, improved, for social as well as economic reasons and in social as well as economic ways? Hayek argues, correctly I would argue, that this is of particular importance with respect to laws for corporations.8

As discussed in Chapter “The Individualist Subjectivism of Austrian Economics,” Austrians argue that the individual must be treated in isolation, not as any group or collective—despite Hayek’s group-selection form of evolutionary process theory. Austrians warn against giving groups rights and argue for protection of the individual against groups (cite): “It seems to me that, in general, the freedom of the individual by no means need be extended to give all these freedoms to organized groups of individuals, and even that it may on occasion be the duty of government to protect the individual against organized groups.” However, what about the right of individuals to act in groups, such as housing collectives, workers’ collectives, or theater collectives? Hayek seems to be more concerned about the negative effects of organized labor than he is with corporations even though he concedes that they have a great advantage.

This may be because the corporation is voluntarily organized as a profitmaking entity, and hence with profit-loss incentives; whereas the labor union is organized, often by a political leader, in order to demand rights, including (sticky) homogeneous wage levels, instead of individual contracts, and thus appears to have a less free market rationale. Hayek writes (1948:116): “There may be valid arguments for so designing corporation law as to impede the indefinite growth of individual corporations” but he is more concerned about trade unions’ rights (see Buczak, cite). However, even Hayek is aware that trade unions are not inherently coercive by virtue of their collective action, but only when granted excessive rights of coercion: “Historically liberalism, first, far too long maintained an unjustified opposition against trade-unions as such, only to collapse completely at the beginning of this century and to grant to trade unions in many respects exemption from the ordinary law and even, to all intents and purposes, to legalize violence, coercion, and intimidation” (Hayek, 117). On the other side, he frequently glosses over the problems found in corporations.9 We are all a product of our time and exist within a context; had Hayek been impressed with the accomplishments of certain trade unions, or personal experience with a poorly run corporation, his emphasis might have differed and his analysis gone in new directions.

Just as Austrians argue that socialism—or, rather, communism,10—in fact “cannot exist,” it can also be argued, and is even by Hayek, that the ideal system of Austrian theory, complete laissez-faire, is a fiction: “A legal system which leaves the kind of contractual obligations on which the order of society rests entirely to the ever new decision of the contracting parties,” that is, a system in which each market exchange is private, voluntary, and unaffected by culture or inherited past social constructs—such a system “has never existed and probably cannot exist” (Hayek 1949: 115). This is important—Hayek does not dispute the importance of this effect— markets do not exist in isolation and are therefore not perfectly equitable nor act on merit alone, even if the rules would make such an outcome ideally possible. As Hayek says:

The extent to which the development of civil law, as much where it is judge-

made law as where it is amended by legislation, can determine the developments away from or toward a competitive system, and how much this change

in civil law is determined by the dominant ideas of what would be a desirable social order is well illustrated by the development, during the last fifty years, of legislation and jurisdiction on cartels, monopoly, and the restraint of trade generally. It seems to me that no doubt is possible that this development even where• it fully maintained the principle of “freedom of contract,” and partly because it did so, has greatly contributed to the decline of competition. (Hayek 1949: 115-116, emphasis added)

Yet, for competition, and therefore all the benefits of the system, to function even adequately, the idealized attributes are essential.11 “Here, as much as in the realm of property, the precise content of the permanent legal framework, the rules of civil law, are of the greatest importance for the way in which a competitive market will operate,” Hayek (1949: 115) continues. Hence there is an evolving (informal) social order, which must match the evolving (formal) legal-economic order. The effect of the social on the economic, whether we admit it or not, whether we choose it or not, whether we influence it on purpose or pretend there is no such force, will have a major impact on the operation of our markets. We can try to limit its effect, but we may be better off influencing it, or gently ushering it in a better direction (as political correctness attempts to do in the areas of language and ideology, and enlightenment ideas in the areas of ideology and law), rather than a worse one. We must at least concede the existence of social orders; we may not want to control them, as this may be a type of planning, but we should know what we are dealing with and help it to have a good effect not a problematic one.

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