You Have Nothing to Lose but Your Chains? Re-examining the Hayek-Friedman Hypothesis on the Relationship Between Capitalism and Political Freedom

37 Pages Posted: 10 Jan 2023 Last revised: 11 Feb 2024

See all articles by Gabriel Benzecry

Gabriel Benzecry

Northwood University

Nicholas Reinarts

Jones College of Business / Political Economy Research Institute at MTSU

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance; Middle Tennessee State University - Jennings A. Jones College of Business

Date Written: January 5, 2023

Abstract

Is capitalism a necessary condition for political freedom? Friedrich Hayek and Milton Friedman argued that capitalism is necessary for political freedom in what is now known as the Hayek-Friedman Hypothesis. While previous empirical work using economic freedom as a proxy for capitalism has somewhat confirmed the hypothesis, these results are sensitive to the definitions of capitalism and political freedom. We argue that while Milton Friedman claimed that political freedom could not exist without economic freedom, Hayek argued that political freedom could not exist without private control of the means of production, a distinction that could affect the results. We test the Hayek Hypothesis using V-Dem’s measurement of state ownership of the economy and its political civil liberties index, which provides annual data going back to789. Our primary results find only one robust instance where a country with heavy to complete state control of the economy temporarily maintained political freedom: Belarus during the fall of the Soviet Union in 1991, a temporary transition that does not violate the Hayek Hypothesis. We argue that explaining the connection between private property and democratic freedoms requires a humanomics appreciation for these consensus-based institutions. The emergence and exercise of private property rights fosters the individual responsibility, sociality, and tolerance often required to effectively maintain democracy.

Keywords: Economic freedom; Political freedom; Civil liberties; F.A. Hayek; Milton Friedman; V-Dem; Polity Project; Freedom House

JEL Classification: P5; O5

Suggested Citation

Benzecry, Gabriel and Reinarts, Nicholas and Smith, Daniel J., You Have Nothing to Lose but Your Chains? Re-examining the Hayek-Friedman Hypothesis on the Relationship Between Capitalism and Political Freedom (January 5, 2023). Available at SSRN: https://ssrn.com/abstract=4318664 or http://dx.doi.org/10.2139/ssrn.4318664

Gabriel Benzecry

Northwood University ( email )

4000 Whiting Dr
Midland, MI 48640
United States

Nicholas Reinarts

Jones College of Business / Political Economy Research Institute at MTSU ( email )

1827 MTSU BLVD
Murfreesboro, TN 37129
United States

Daniel J. Smith (Contact Author)

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 190
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

Middle Tennessee State University - Jennings A. Jones College of Business ( email )

TN
United States

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