Freedom, Knowledge, Preferences – A Public Choice Take on Unregulated Markets

Biagio Rosso, King’s College London

Knowledge problems, Hayek argues, make regulation and statism suboptimal mechanisms of allocation. Unregulated markets, on the other hand, best accommodate knowledge problems through the price mechanism and uphold individual freedom. The thesis is controversial. Still, an analytical gap plagues scholarship: critiques to Hayek largely mobilise ethical, historicist, or teleological readings. In other cases, externality-analysis operates somewhat inorganically, accepting as premises the effectiveness of the price mechanism in knowledge transmission. A new take on Hayek’s evergreen should stress-test his argument and concept of the price mechanism on the basis of the very methodological individualism and rational choice analysis that underpin them. Reformulating markets as social choice mechanisms, and reviewing the concept of freedom, I contested Hayek’s thesis: the price mechanism is not a sufficient standard for economic decision-making, and unregulated free markets may result in illiberal individuals. In the first section, I paid close attention to the concept of liberty, and negotiated its meaning and implications in relation to the dominant positivist and negativist camps. In the second section, with the help of formal political theory, and rational choice, I tested and rejected Hayek’s price mechanism and markets accordingly, and the form regulation should justifiably assume.

Keywords: Liberty, Markets, Public Choice, Hayek, Knowledge Problems

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