Fukuyama also argued that the neo-conservative conception of democracy is naïve and inoperable. Supporters of the intervention in Iraq ‘seemed to think democracy was a kind of default condition to which societies reverted once the heavy lifting of coercive régime change occurred, rather than a long-term process of institution-building and reform’. Fukuyama is utterly right to conclude that: ‘The United States does not get to decide when and where democracy comes about. By definition, outsiders can’t “impose” democracy on a country that doesn’t want it; demand for democracy and reform must be domestic.’ Without self-determining agency, there is no democracy. Iraqi ‘democracy’ becomes nothing more than a shallow gesture of subordination to the American global project that will not outlast the occupation. Democratic forms among the Palestinians are welcomed only when the choices are American.

Given the resonance of Fukuyama’s claim in The End of History (1992) for liberal modernity as a universal human condition, an argument that stitched neo-liberals and neo-conservatives more closely together after the fall of the Berlin Wall, and that underpinned American-led trading and cultural globalisation prior to 9/11, this political defection is momentous. It suggests deep tensions in the liberal-conservative political hegemony.

The conservative liberalism that dominates the political mainstream in the West, especially in the Anglo-American nations, was first imagined by the economist and political philosopher F.A. Hayek (1899–1992) at the conference he organised at Mont-Pelerin in Switzerland, in 1947. This was the founding moment of the political movement that later became known as the New Right. What held the New Right together from the start was its opposition to all forms of collectivist politics, from the mild-mannered state-building and social-planning policies inspired by J.M. Keynes in the aftermath of the Great Depression, to the full-blooded socialisation of the economy and the programme of communism. The New Right chipped away at the Keynesian main-stream in the 1950s and 1960s, initially with little success, but secured a policy ascendancy in the aftermath of the 1974 oil price rise and the ‘stagflation’ of the mid-1970s, when inflation was combined with unemployment and governments could no longer spend their way to economic growth. From Margaret Thatcher and Ronald Reagan onwards, the conservative brand of liberalism set the political agenda. The genius of this body of thought is that what we now call neo-liberalism and neo-conservatism, which in other circumstances might be in conflict, tend to support each other. Liberalism sustains a form of individual freedom, and consumer markets drive a continual modernisation that transcends the stultifying effects of conservatism. The conservative social order provides the optimum conditions for economic markets and profitability and modifies libertarian excess.

Though conservative liberalism has not always had its way, it has towered over its opponents. It has installed fast capitalism in place of communism in Eastern Europe as surely as it has routed moderate social democracy in nations such as Australia and the UK. Tony Blair’s Labour and Kim Beazley’s Labor are more neo-lib/neo-con than otherwise. Thus, if Fukuyama is right and American militarism, markets and democracy are no longer pulling together, we find ourselves in a different world; in which the ‘neo’ certainties of the last three decades are dissolving, older alternatives have reappeared, and new possibilities come on the agenda.

However, the problems Fukuyama identifies in American policy in the Middle East – the tension between evolutionism and state intervention, and the inability to grasp the conditions of democratic agency – are not a new departure. They are located at the foundations of conservative-liberal thought. The two problems are related. In The End of History, there was no need for deep digging about political democracy, because, as Fukuyama himself notes in the New York Times, it was assumed that natural evolution would take care of it. At bottom, both problems derive from the limits in Hayek’s conception of freedom.

Since the French Revolution, there has been no single political idea more generative than the idea of freedom, as the spontaneously synchronised events of 1848, 1870, 1917–21, 1936, 1945–48, 1968 and numerous more localised struggles have repeatedly demonstrated. Freedom is more motivating than fear or greed. Not even equality, justice or prosperity have the same power to mobilise us in political activity. Thus, freedom has been annexed to the techniques of government, which are premised on autonomy and self-management as Foucault famously pointed out; and companies and advertisers have pushed freedom and identity still closer together. Though liberation via consumption points us away from politics, personal liberation movements based on ethnicity, gender and sexual preference maintain a political edge. It is not the authoritarian claims of ‘political correctness’ that underlie these movements but the desire for social space in which to explore the personal potentials of freedom. (Hence the liberation movements and their conservative critics are always at cross purposes.) Likewise, in The Road to Serfdom (1944), which prefigured the politics of the New Right, and The Constitution of Liberty (1960), which provided its programme, the central theme of Hayek’s critique of planning and social ownership is the notion of individual freedom. The concept of individual freedom provides conservative-liberal thought with a public language that continually resonates with daily life. For three decades now, whether to justify cuts in public programmes in health and education or to underwrite foreign wars, liberals and conservatives alike have won the argument by gesturing towards freedom. It is a card impossible to trump.

But there are autonomies and autonomies, freedoms and freedoms. Some forms of freedom offer us more open-ended potential, more space for self-determined agency, than do others. Hayekian conservative-liberal freedoms have their limits, as has been manifest spectacularly in Iraq. We need to open up Hayekian freedom to critical scrutiny.

Which brings me to Bruce Caldwell’s book on Hayek’s intellectual evolution. This fine book is highly recommended to anyone interested in the history of the social sciences and of the evolution of public ideas in the twentieth century. Hayek’s Challenge does not range as broadly as Robert Skidelsky’s brilliant three volumes on J.M. Keynes (1986–2000). There is more about ideas and methods, and rather less about the man and his life. Nevertheless, Caldwell benefits from a greater critical distance than Skidelsky was able to achieve; and Hayek’s Challenge is also immensely accessible.

There is verve and humour about the work, especially the early chapters, which draw us into Caldwell’s own fascination with the subject matter. One after another, Caldwell opens for us early twentieth-century Vienna; the German Historical School; Max Weber and Max Schumpeter; Carl Menger and Ludwig von Mises, who were Hayek’s predecessors in the Austrian school of political economy; Fabianism and the beginnings of the London School of Economics (LSE), and Hayek’s arrival at the LSE in 1931, recruited by Lionel Robbins to strengthen Robbins’ campaign against Keynes and his policies of state intervention; the great debates about socialist planning in the 1930s, which did much to shape subsequent developments in Britain, and concurrent arguments about economic methodology; the dithering William Beveridge, who, despite market sentimentalities, was to become author of the 1944 report that launched the postwar welfare state; and the emergence from 1938 of the distinctive ideas about economics and knowledge, liberty and the political, social and cultural order that constituted Hayek’s main contribution after World War II.

Caldwell is an economic historian specialising in the history of economic theories and methodologies. He focuses on Hayek primarily as economist, not as political philosopher. Nevertheless, while Hayek’s contribution to the discipline of economics was recognised by the 1974 Nobel Prize, and while his work on economics and knowledge was important and original, his impact as a pure economist has been limited. Though a marginalist in the tradition of Menger, Hayek’s scepticism about mathematical economics and his increasing rejection of equilibrium theory (effectively traced by Caldwell) took him outside the main currents of economic reasoning. In contrast, in the last half century his impact as a political philosopher has been unequalled. Caldwell himself notes that the chief contribution of the Austrian school to the body of capitalist economic thought has been ideological: the development of the critique of socialism and the case against economic planning in favour of naturalised systems. I think it is proper to probe Caldwell’s account for what it can tell us about Hayek’s philosophy.

Throughout his career, Hayek never overcame his ambivalence about the obligations and limits of state power. The ‘classical liberal solution’ is, as Caldwell notes, ‘to define a private sphere of individual activity, to grant to state a mono-poly on coercion, and then to limit the coercive powers of the state to those instances where it is itself preventing coercion’. Hayek framed the private sphere so as to include the conduct of economic exchange between liberal individuals. He did not include inter-subjective political cooperation. Hayekian freedom is explicitly defined in terms of negative freedom (freedom from constraint) rather than positive freedom (the conditions that enable us to fulfil our will), and this is designed to place limits on the individual’s expectations of government. But it is not so simple. In real life, negative and positive freedoms are interdependent; and there is the question of the conditions necessary to the maintenance of the liberal private sphere. In this, Hayek pursued two different and contrary sets of solutions which drew on heterogeneous philosophical traditions.

As Caldwell reveals, Hayek drew from David Hume and Adam Smith an opposition to ‘rationalist constructivism’ by governments, but he also exhibited a Kantian faith in abstract principles, selectively invoking those principles that support liberal economic markets. He had little hesitation in calling on the rule of law and the policies of government to implement his preferred principles, to the extent of proposing constitutional reforms rather than waiting for evolution to take its course; and deliberately creating economic ex-change even within public institutions of the welfare state that had emerged for reasons other than profit-making. From time to time, Hayek also advocated direct state actions to guarantee a quiescent social and cultural order, a stance bringing him close to traditional conservatism.

Hence the conservative-liberal double standard about state power. The refusal to intervene in private sphere except in the name of market liberal freedom is a Kantian–Hayekian abstraction that in practice is subject to the broadest possible interpretation. The exception can be used to license anything, as shown by Bush’s rhetorical justification for Iraq. At Abu Ghraib and Guantanamo, freedom is invoked to justify absolute unfreedom, the ultimate denial of democratic agency in which, prior to trial and the reasoned consideration of evidence, on the basis of suspicion alone, self-determination is negated by subjection to torture.

Notably, Hayek also placed explicit limits on the potential of democratic political agency. Though Hayekian freedom was universal, it was narrowly based, extending only to the absence of coercion of the individual will within a legally bounded sphere of markets and property. Here, political democracy was a potential threat to freedom, as Hayek defined it. Democracy posed the danger of ‘unlimited government’. One of his proposals, yet to be adopted, was for a restricted franchise: in The Constitution of Liberty (1960), he justified the possibility of such restrictions by arguing that in Switzerland ‘women are still excluded from the vote and apparently with the consent of the majority of them’. For Hayek, Hayekian freedom was necessary to democracy, but not democracy to Hayekian freedom. ‘It is possible that an authoritarian government may act on liberal principles,’ he stated; and this strategic option was later to be exemplified by that most Hayekian of all governments, the Thatcher régime of the 1980s, with its rubric of free market and strong state.

To underline the point, Hayek polemicised against the notion that individual freedom can be equated with self-determination, with the ‘effective power to do what we want’ that he attributed to Dewey. The idea of self-determination, Hayek argued, extended the notion of freedom too far – to the whole range of economic, social and cultural conditions that enable democratic agency to be exercised. As he saw, such an extension of freedom would open the way to his bête noire, socialist planning and an egalitarian redistribution that would violate the abstract principles necessary to the reproduction of liberal markets and the conservative social order; and worse, would interfere with natural human evolution.

Caldwell grounds these arguments for us in their earlier history. Both the German Historical School and its chief opposition, the Austrian political economists, shared a distrust of political democracy; and Hayek took this inherited sensibility into the debates of the 1930s, which were the crucible in which his distinctive approach to both political economy and political philosophy was formed. The public policy atmosphere of the 1930s was very different from today’s. It then seemed to many people, both among its detractors and supporters, that capitalism was on its last legs. It had failed the test of utility because one third of workers were out of work; it had failed the test of morality because it was unjust; and it had conjured up fascism in Italy and Germany as its final roll of the dice. The Communist Party exercised a certain influence at universities such as Chicago and Cambridge; and while the actual number of card-carrying members was small and Hayek and his collaborators tended to overestimate their direct role, there was a much wider public consensus that some kind of transition to social ownership and macro-planning was inevitable.

Hayek threw himself into this fray with every argument that he could muster. His objective was to detonate the case for social control and public planning of the economy. Hayek’s case against the planners was twofold. First, he argued that deliberate planning did not work. Later in his career, this was crystallised in his vision of the economy as millions of dispersed units coordinated by the knowledge system of prices; and still later in his vision of an organic social evolution based on an unthinking adherence to abstract rules of human conduct. Second, he polemicised in favour of the negative freedom to engage in economic relations, as a superior mode of liberation to the socialisation of the means of production. Here, the notion of freedom that was to underpin The Constitution of Liberty was grounded.

Caldwell describes the clash of ideas vividly, but in one respect he misses the full significance of Hayek’s arguments in this period. Remarkably, Hayekian liberalism came to mirror certain of the defects of its Stalinist opponent. Hayek shared with Stalinism an economic reading of identity and freedom, so that control of the economy was seen as much the most important question of the day, and prior to and determining of the potential for democratic politics. Though the context is very different, the consequences of this 1930s economism are still with us, in the mantras of neo-liberalism. It can also be argued plausibly that the Hayekian New Right also shares with Stalinism a cynicism about state intervention, so that, in the last analysis, state power in support of the given economic order is always acceptable; the too-ready conflation of democracy with the machinery of state, so that the first is subsumed in the second; and indifference to the claims of democratic agency as an end in itself.

It is ironic to find that Stalinism and Hayekism, each of which regarded the other as its opposite, in crucial respects differed in degree rather than in kind. Stalin and the Soviet leaders were immeasurably more brutal, destroying not just democratic forms but human lives to further their control over the ‘evolution’ to socialism, that utopian time when a range of human freedoms would finally come into view. Yet Hayekism shares the economism, the evolutionism and the selective tolerance of arbitrary power. Ironically also, conservative liberalism is still living off its anti-communist legacy. The essential claim of conservative-liberalism is that it offers more freedom than Stalinism. This was the point Hayek made in the 1930s and in The Road to Serfdom. But it does not set the bar of achievement very high.

As time passes, the body of conservative-liberal thought derived from Hayek becomes less equipped to deal with current political problems. It is indifferent to the accumulated malaise of mainstream democracy, whereby elections are reduced to epiphenomena of advertising and entertainment, and the debating agenda is controlled by oligopolistic media; the participatory base of political parties is emptied out as the grass roots are cut adrift; and in two-party systems, where one party shadows the other, there is no longer any necessary linkage between choices of party and the policies that people want. Nor can Hayekian thought comprehend the mutations of market socialism in China and Vietnam, where the dynamic of the economy is unquestionable, private ownership flourishes, but political and cultural expression do not.

It is impossible to remove the defects of the Hayekian conservative-liberalism that still dominates mainstream political thinking from within that body of thought itself. This suggests that to overcome the limitations of Hayekian thought it is essential to move beyond it.

This takes us back to the core question of freedom. What might be the salient features of a post-Hayekian politics of freedom that offers a more generous range of human possibilities?

In his 1984 Dewey Lectures, Amartya Sen, another Nobel Prize-winning economist and political philosopher, notes that the perspectives of ‘well-being’ and ‘agency’ yield distinct notions of freedom. The notion of well-being suggests a choice-making individual, but does not necessarily imply an active or interactive individual. In contrast, the agency notion suggests an intrinsically active and proactive human will. (Arguably, Hayek conflates the two while subordinating agency to wellbeing.) Further, there is an internal plurality in the idea of freedom between notions of power and control. (The Hayekian notion of negative freedom emphasises control over the process of choice, rather than the power to achieve choices.) Sen focuses on the notion of freedom as power, and couples this with agency freedom. This is a crucial move that opens up a larger and more generous space for self-determination. Firstly, it allows us to account for the fact that materially deprived persons have less means to achieve their choices and hence less freedom, a fact that is rendered invisible in the Hayekian framework. Second, it points to the central role of agency itself in securing greater freedoms.

Likewise in Development As Freedom (1999), Sen argues against the economist mantra of development theory that the capacity for democratic agency can only emerge from a sustained period of economic growth, the all-too-familiar Hayekian–Stalinist formulation of ‘first economics, then politics’. To the contrary, by releasing the creative force of individual and collective agency, whether inside or outside the state, democratic freedoms can provide more favourable conditions for economic, social and cultural development in all their forms. It is far from the current agenda, but one suspects that once this stone starts to roll it will become an avalanche. Any political movement that makes as its central argument the opening of political freedoms, both as an end in themselves and as a means to other ends, creates its own life force.