Busted: Stories of the Financial Crisis

Joshua Clover in The Nation:

For all the fame surrounding Milton Friedman, Ayn Rand and Alan Greenspan, their contributions to a political economy of modern capitalism are minor in relation to those of Friedrich von Hayek, a founder of the Mont Pelerin Society and prophet of the “price signal.” A striking and original intellect, Hayek argued that something's market price is not simply what it would cost you but a kind of information used to allocate goods and services most efficiently within the social matrix. Because centrally planned economies lack a mechanism to price commodities correctly, they are unable to put things where they need to go. Individuals wouldn't get what they desired; the larger economy would be unable to balance production and consumption, supply and demand. Shortages would appear cheek by jowl with surpluses. This would have disastrous and eventually fatal consequences, not only for the market but for the lives of its subjects.

The free market, contrarily, able to revalue every object with supple velocity according not to some ideological program but the aggregate will of the people—not just the invisible hand but the invisible spirit, as it were—was more suited not simply to survival but to individual freedom. Hayek's case, best known from The Road to Serfdom (1944), remains the most rigorously persuasive brief for twentieth-century capitalism in its long, acrimonious and cordite-scented war against every other form of life. At the time, the 1989 collapse of the Soviet bloc, and the discrediting of its economic hypotheses, seemed to confer on Hayek's insight the aura of truth.

And yet, having triumphed more or less absolutely, the American model of capitalism has proved itself to be catastrophically lacking in the very balance that Hayek suggested was its singular virtue.