A Free-Market Energy Blog

Hayek and a Carbon Tax: Response to Bradley

By Ed Dolan -- May 18, 2017

Editor note: Professor Dolan kindly submitted this rebuttal to Robert Bradley’s post yesterday, “Hayek was not a Malthusian or Global Tariff Advocate (link to a carbon tax peculiar, errant).” Bradley’s post, in turn, was a critique of Dolan’s original piece, “Friedrich Hayek on Carbon Taxes.”


I am happy to comment on the validity of the nine points you raise regarding Hayek and a carbon tax.

  1. Hayek was suspicious of scientific ‘consensus,’ given the consensus of Keynesianism and central planning in his lifetime.

I agree with what you say about Hayek’s attitude toward the Keynesian consensus. However, my reading is that he distinguished between social sciences and natural sciences, and between the ability of people to offer informed judgement on fields in which they have specific expert training compared with fields in which they do not have such training. So, for example, when he says, in “Use of Knowledge,” that “as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available,” I believe he is referring to “hard sciences,” such as climatology, astrophysics, and so on.

I do not think that Hayek would have represented himself as capable of offering expert opinion on issues like the value of equilibrium climate sensitivity. To say that is not inconsistent with his capability of offering expert opinion on Keynesian economics.

2. Hayek would recognize positives, not only negatives, from increasing atmospheric concentrations of CO2. He would not have considered nature ‘optimal’ and thus the human influence as necessarily ‘disequilibrating’.

I partially agree here. As per Item 1, I do not think he would have offered expert opinion here, but as an informed layman, he likely would have found them plausible. So do I, and so do the great majority of climate scientists.

If you read what “skeptical” climate scientists like, say, Judith Curry write, you find that they do not deny the positives, nor do they argue that nature is “optimal.” The case for a carbon tax only requires that the negatives outweigh the positives, not that there are no positives. It also does not require believing that nature is “optimal,” but only the belief that uncontrolled violation of property rights by polluters is nonoptimal.

3. Hayek was not a Malthusian and actually wrote on the subject, questioning conservation for its own sake regarding mineral resource depletion (running out of minerals was the predecessor of running out of livable climate).

I do not see the point of framing the climate change issue as one of “running out of livable climate.” Rather, I think it is better to frame it (and most environmental issues) as one of competing human uses for natural resources, an approach typical of modern Austrian economists, although I don’t recall that particular formulation anywhere in Hayek. The modern Austrians believe that competing human uses for natural resources are best resolved through markets and prices.

4. Hayek would have rejected any particular carbon price as a “pretense of knowledge.”

I do not think that Hayek would ever have maintained that human actors, whether in their private life, in business, or in government, should refrain from all action in the face of uncertainty. For example, Ford does not know in advance the “optimal” price for a new model. It makes an informed guess and then adjusts it depending on how the market reacts to the initial price. Similarly, most serious carbon tax proposals envision some mechanism for adjusting the carbon price in the light of market reactions. They make no “pretense of knowledge” beyond the standard assumptions used in business, finance, and everywhere else regarding decision making under uncertainty.

I do agree, however, that Hayek, like many modern Austrians, might have been more comfortable with a cap-and-trade approach. See this link for a detailed discussion

5. Hayek would have rejected setting ‘border adjustments’ as a “pretense of knowledge.”

I don’t see what border adjustments have to do with it. The case for a carbon tax does not rest on border adjustments, although some writers consider them a useful add-on. In any event, the “pretense of knowledge” argument in the case of border adjustments is the same as for the basic carbon price itself.

6. He would have rejected carbon fee-and-dividend adjustments for income inequality as a “pretense of knowledge.”

Fee-and-dividend is not an inherent part of carbon tax policy. Most conservative and libertarian advocates of carbon taxes would prefer to have revenues used to reduce rates on other taxes that have inherently higher deadweight losses. I agree. I do not see Hayek’s views on inequality as directly relevant to the carbon tax debate.

7. Hayek would have seen government climate planning as a form of central economic planning.

The whole point of Hayek’s essay on “The Use of Knowledge” is that the price system is superior to socialist planning as a mechanism for the use of knowledge in society. The issue here is what to do when the world is so structured that markets for some resources do not exist, and therefore that prices do not emerge. The problem then becomes one of whether to live without prices, or whether to live with prices that are set by some non-market or quasi-market mechanism.

I agree that Hayek would, in every case, prefer prices that emerge spontaneously from markets. I am not sure that Hayek would have agreed that it is better to leave scarce resources unpriced than to use government as a mechanism for introducing prices. Compare, for example, the case of Alaska fisheries, where government intervention to establish tradeable quotas made pricing possible where previous unpriced fishing led to nonoptimal depletion of stocks.

8. Hayek would be suspicious of one-world government in the quest to effectively regulate carbon emissions.

Of course he would. So would I. What does that have to do with carbon taxes? One can agree that we should have laws that protect property owners against trespass, without maintaining that those laws would best be enforced by a one-world government. Ditto for administration of carbon prices.

9. Hayek would have applied Public Choice arguments to see “government failure” in the quest to correct “market failure.”

Yes, very likely Hayek would have endorsed much of modern public choice theory, even though it was only just emerging during his lifetime. Today, conservative, libertarian, and classical liberal proponents of carbon taxes explicitly take public choice arguments into account in discussions of carbon taxes.

However, public choice theory only cautions us to weigh the shortcomings of government against those of markets, not to reject government in every case—especially not in cases where the alternative is not a market, but one of no market, no property rights, no prices.

Thank you for the opportunity to respond.


  1. Jon Boone  

    Breezy exchange, gentlemen, light and airy and a bit refreshing, if not enlightening. Justifying any policy with words summoned from the dead, as Rob does here, invokes a characteristically slippery slope, given the mercurial nature of language, meaning, and epistemic/cultural context. On the other hand, I find it impossible to believe Hayek would, in the final analysis, have supported something as ridiculous as a carbon tax, given the factors at play in any consideration of the idea.

    It’s highly likely Hayek’s “knowledge” about the role of carbon dioxide and “climate change” would be informed by the findings of the likes of Judith Curry, whose conclusions suggest natural variability has more to do with any longterm climate”endangerment” than human activity does–or probably will. Any reasonable person, and Hayek was at least this, would conclude that “excess” levels of CO2 do not present an immediate or even middle range (50 to 100 years) concern, let alone a threat, since much of that “excess” is beyond human control. Hence, the opportunity costs of a carbon tax alone should be enough to give him pause.

    Beyond this, I believe Hayek would have discovered, as I and many others have, that a carbon tax (indeed, even a cap-and-trade policy widget) could do nothing to reduce humanity’s reliance upon carbon and its consequent byproducts (emissions). Carbon is not just ubiquitous in our biology and the complex machine culture that undergirds and enables modern society; it’s omnipresent, much as air and water must be. A policy that begins with taxing only the largest, most obvious “emitters” would quickly and relentlessly find ways to tax other “violators” as well. There would be no end to the possibilities for “revenue enhancement.” Imagine a “rain tax” times 10,000. A carbon tax would become a public casino on steroids. But with all that revenue, emissions would still continue to increase. A nation could juggle its fossil fuel use, as the US has done in the electricity sector by using more natural gas and less coal, in the process temporarily lowering its emissions output. Nonetheless, in the long run, emissions would continue to rise, assuming the economy doesn’t collapse (as many almost did during the Great Recession).

    As Hayek would no doubt have discerned, the purpose of the tax would ostensively be to wean society away from technology that produces carbon emissions (by making it more expensive to use and operate) while in part using the revenues (1) to invest in alternate, equally viable technologies that either don’t emit CO2 or emit much less of it and (2) to mitigate and reparate damages incurred by a “changed” climate. In reality, a carbon tax is yet another kind of sin tax. However, unlike cigarettes and alcohol, CO2 is omnipresent. And the only technology capable of putting a dent in the machine use of carbon is nuclear. Hayek in my view would have taken the nuclear option off the table in any consideration, as most people do today–not because it wouldn’t do the job but rather because the political concensus remains too censorious, rationality and Public Choice economics be damned.

    Given all these considerations, Hayek would have concluded that a carbon tax was onerous and unjustifiable because it could not accomplish the desired policy goals. It would not lead to a reduction in the amount, rate, and extent of CO2 emissions (indeed, humanity will increase them substantially in the coming years, as it has in many countries despite their deployment of carbon taxation and cap and trade schemes). It would not lead to viable alternative technologies because the only machines capable of nourishing modernity, absent nuclear, are–and will be–run on fossil fuel, something Germany and China are coming to realize very well. There is nothing else remotely on the time horizon of anyone alive, except wishful thinking.

    Finally, the prospect of political economists establishing a price on carbon based upon a nebulous politicized sense of cost is risible. And its accounting, doubtless done by sinkholes of bureaucracy, would be beyond any pale of accountability. Surely Hayek would have deduced this, choosing instead to deride the idea.


  2. (Short) Response to Dolan on Hayek and a Carbon Tax - Master Resource  

    […] note: This responds to Professor Dolan post yesterday, “Hayek and a Carbon Tax: Response to Bradley, which answered Bradley’s post two days ago, “Hayek was not a Malthusian or Global Tariff […]


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