Hayek in the Age of Geoeconomics

By Matthew Parish

Saturday 5 September 2026

Friedrich August von Hayek died in 1992, at almost exactly the wrong moment to appreciate the triumph that appeared to vindicate his life’s work. The Soviet Union had disappeared. Central planning had been discredited. Eastern Europe was embracing markets. China, although still ruled by the Communist Party, had discovered prices, private enterprise and foreign investment. Western governments were privatising industries that earlier generations had assumed must remain permanently within the state sector. A genuinely global economy seemed to be emerging in which capital, goods, technology and eventually information would move across frontiers with progressively diminishing interference.

Had Hayek survived for another thirty-four years, he might initially have been delighted. Then he would have become increasingly alarmed. The contemporary international economy is moving towards something quite different from the liberal economic order that emerged after the Cold War. Governments have rediscovered tariffs, subsidies, export controls, sanctions, investment screening, strategic stockpiles, industrial policy and deliberate manipulation of supply chains. Economic relationships are increasingly evaluated according to national security rather than comparative advantage. Semiconductors, artificial intelligence, rare earths, energy, shipping, telecommunications and financial infrastructure have become objects of geopolitical competition.

The fashionable expression for all this is “geoeconomics”. It describes an international system in which economic instruments are consciously employed to pursue geopolitical objectives. The WTO itself describes contemporary geoeconomics in terms of the instrumentalisation of trade, financial and technological policies by states and corporations for geopolitical purposes. The WTO-IMF Trade Policy Activity Index reached a new high in early 2026, with activity during January to May running almost twice its 2024 level. Security and industrial policy have become increasingly important explanations for government intervention in trade.

Hayek would have recognised the intellectual structure of this phenomenon immediately. He would also have thought much of it profoundly dangerous.

The problem of knowledge

Hayek’s most important contribution to economics was not really the familiar proposition that markets are efficient. It was his explanation of why they perform a task governments cannot readily reproduce.

Economic knowledge does not exist in one place. Nobody knows how many tonnes of copper ought to be produced next year, how many engineers ought to specialise in semiconductor fabrication or whether a particular factory should manufacture batteries rather than refrigerators. The information necessary to answer these questions is scattered amongst millions of people. Some of it is explicit knowledge. Much of it consists of changing preferences, local circumstances, practical experience and opportunities that may never be written down at all.

Prices coordinate these fragments of knowledge. A rising price for copper tells manufacturers to economise upon copper without requiring them to understand why copper has become scarce. It simultaneously tells miners that additional production may be profitable. Entrepreneurs experiment with substitutes. Investors search for new deposits. Consumers alter their behaviour. Nobody commands this process. The resulting order emerges from innumerable decentralised decisions.

This was the core of Hayek’s argument against central planning. The planner’s problem was not principally corruption or incompetence. It was epistemology. The planner could never possess the knowledge necessary to perform the task the planner had assigned himself. Modern scholarship on Hayek continues to emphasise this connection between dispersed knowledge, competition and the political dangers of replacing markets with command systems.

Contemporary geoeconomics recreates this problem on an international scale. Suppose Washington decides that semiconductor supply chains must be reorganised so that strategically important chips are manufactured within the United States or allied countries. The proposition sounds sensible. Semiconductors are indispensable to modern weapons systems and advanced economies. Dependence upon a geopolitical adversary plainly entails risks.

But almost immediately the Hayekian questions begin. Which semiconductors are strategically important? How much redundancy is sufficient? Which stages of production must be domestic? Which may safely remain abroad? Which countries are sufficiently reliable allies? What happens if today’s ally becomes tomorrow’s adversary? How much additional cost should society accept in exchange for resilience? Which technologies will become obsolete before the factories designed to manufacture them have even been completed?

These are not questions to which there are stable answers. They involve knowledge about a future that has not happened.

The planner returns wearing a uniform

The central planner of the twenty-first century looks different from the central planner Hayek criticised in the twentieth. He no longer sits in a Soviet ministry determining how many shoes a factory in Minsk should manufacture. He sits in Washington, Beijing, Brussels or Moscow determining which industries are “strategic”. Yet the epistemological problem is remarkably similar.

Once governments identify strategic industries, political allocation begins. Subsidies must be distributed. Favoured technologies must be selected. Domestic-content requirements must be written. Foreign competitors must be classified according to degrees of geopolitical reliability. Export controls must distinguish harmless commerce from technologies with military applications. Each decision generates another.

A subsidy for domestic batteries may require tariffs against cheaper foreign batteries because otherwise the subsidised industry cannot compete. Tariffs may provoke retaliation. Retaliation may require compensation for exporters. Producers dependent upon imported components may then demand exemptions. Governments discover that an industry protected for reasons of national security relies upon raw materials imported from the country against which protection was originally imposed. Planning proliferates because one intervention changes the information and incentives upon which the next decision depends.

This is recognisably Hayekian territory. The danger is not necessarily that politicians are foolish. It is that they have assumed responsibility for decisions whose informational complexity exceeds the capacities of political institutions.

Yet Hayek would not have been naïve

There is nevertheless an important qualification. It would be too easy to imagine Hayek arriving in 2026, observing tariffs and industrial subsidies and simply demanding unilateral free trade.

Hayek was not an anarchist and his conception of liberalism was more sophisticated than the caricature sometimes attributed to him. He accepted that markets require legal institutions. Competition depends upon property rights, contract, predictable rules and limitations upon arbitrary government power. Scholarship examining his relationship with ordoliberalism (Ordnungspolitik) has emphasised precisely this point: Hayek distinguished between establishing a general framework within which competition takes place and governmental direction of the economic process itself.

International markets likewise presuppose political order. And here contemporary geopolitics creates a genuine difficulty for Hayekian liberalism. Markets can generate dependence upon hostile powers.

Europe’s dependence upon Russian hydrocarbons before the full-scale invasion of Ukraine is the obvious example. A transaction may be economically rational to every private participant while creating collectively dangerous strategic exposure. A German industrial company buying cheap Russian gas had no commercial reason to price into its calculations the possibility that Moscow might use Europe’s aggregate dependence as geopolitical leverage.

The same problem appears with Chinese rare earths, Taiwanese semiconductors, undersea communications cables, satellite networks, pharmaceutical precursors and innumerable other components of modern civilisation.

The IMF describes precisely this dilemma: contemporary governments increasingly worry about strategic foreign dependencies and the possibility that export restrictions imposed for geopolitical reasons may interrupt essential inputs. Hayek would therefore have faced a problem that pure market liberalism cannot easily dismiss. National security is a public good. Markets cannot be expected automatically to optimise for the survival of the state.

Resilience has a price

The strongest Hayekian criticism of contemporary geoeconomics would therefore probably not be that governments must never intervene. It would be that exceptional interventions have an extraordinary tendency to become permanent systems of economic management.

There is a legitimate distinction between resilience and autarky.

A country may rationally decide that it requires several independent suppliers of ammunition, energy or telecommunications infrastructure. It does not follow that the government should determine where shirts, automobiles, steel, software and refrigerators are manufactured.

Yet the category of “national security” expands with astonishing ease. Food becomes national security. Energy becomes national security. Data become national security. Steel becomes national security. Shipping becomes national security. Artificial intelligence becomes national security. Batteries become national security. Pharmaceuticals become national security. Banking becomes national security. Eventually almost everything is strategic.

And once everything is strategic, almost everything becomes potentially subject to political direction. This would have troubled Hayek enormously because the transformation alters not merely economic efficiency but political institutions. Companies increasingly prosper through proximity to government. Lobbying becomes an alternative to innovation. Executives learn that obtaining classification as a strategically important industry may be more profitable than reducing costs. Capitalism slowly mutates into corporatism. That is much closer to Hayek’s deepest fear than merely paying higher prices for imported goods.

The great powers rediscover mercantilism

China presents the most obvious challenge because her economic system deliberately blurs the distinction between commerce and state power. Industrial subsidies, state-owned enterprises, controlled finance and strategic technological policy form part of a political-economic system in which national economic capacity and national power are consciously intertwined. But Western governments increasingly respond by imitating aspects of the system they are attempting to resist.

America subsidises semiconductor manufacturing. Europe develops strategic industrial policies. Governments screen inward investment. Export controls restrict advanced technologies. Tariffs protect politically significant industries. Supply chains are reorganised around alliances. The justification is understandable: liberal states cannot compete against state capitalism while pretending that economic relations exist independently of geopolitics.

Yet there is a trap. If every state concludes that security requires greater economic control, then the international economy fragments into competing political blocs. That process is already measurable. The IMF describes growing geopolitical divisions as producing trade and capital restrictions, regional trading blocs, friend-shoring and renewed industrial policy, with potentially significant costs through higher prices and diminished access to goods, services, capital and technology. The WTO has warned that division of the global economy into two geopolitical trading blocs could impose very substantial long-term losses in world output.

Hayek would have regarded these losses as important. But he would have worried still more about what fragmentation does to politics.

Commerce as an instrument of peace

Hayek understood that liberal economics had an international dimension. In The Road to Serfdom, his discussion of the prospects for international order contemplated a European federation whose powers would be limited precisely because economic planning across politically diverse societies would generate intolerable conflicts. Later analysis of Hayek’s international thought has similarly emphasised how spontaneous coordination, competitive emulation and common rules might sustain a liberal international economic order.

This insight deserves renewed attention. International commerce creates relationships that governments do not completely control. A Polish manufacturer buys Korean machinery using financing from a Dutch bank to produce components for a German company selling products in Canada. Nobody designed this network. It emerges because thousands of people discover mutually advantageous transactions.

Geoeconomics reverses the presumption. It asks governments to decide which economic relationships are politically desirable. Trade ceases to be merely commerce and becomes alignment. The world consequently begins dividing into economic-security ecosystems: an American-centred network, a Chinese-centred network and an assortment of states attempting to maintain relationships with both.

The paradox is that attempts to make countries safer economically may make the international system more dangerous politically. If economic relations between adversaries collapse, the opportunity cost of military conflict declines.

Ukraine and the limits of Hayek

Ukraine nevertheless illustrates why an absolute Hayekian prohibition upon geoeconomics would be impossible. No serious Ukrainian government could respond to Russian aggression by announcing that markets alone should determine the country’s economic relationship with Russia. Nor could Ukraine reasonably permit Russian ownership of strategically essential infrastructure merely because a Russian investor offered the highest price.

War reveals something economists sometimes forget: the market exists inside a political order whose continued existence cannot be assumed. A Ukrainian drone manufacturer is not simply another producer. Ammunition is not merely another commodity. Electricity infrastructure within missile range of an enemy is not merely another collection of capital assets. Hayek’s philosophy therefore requires adaptation rather than mechanical application.

The liberal state must sometimes defend the conditions under which liberal markets can exist. The difficult question is where defence ends and planning begins.

A Hayekian geoeconomics

What might Hayek recommend? Probably something more subtle than either contemporary protectionism or nineteenth-century laissez-faire. Governments should identify genuinely existential vulnerabilities narrowly. They should prefer general rules to discretionary subsidies. Where resilience is required, competition between multiple suppliers should normally be preferred to creating national champions. Strategic stockpiles may be preferable to permanent protection. Diversification may be preferable to reshoring. Allied supply networks may be preferable to national self-sufficiency.

Above all, governments should distinguish resilience from prediction. The state may reasonably say that a country should not depend upon a single hostile supplier for an indispensable commodity. It is far more dangerous for the state to claim that it knows which companies or technologies will dominate an industry twenty years hence. The first proposition establishes a rule. The second attempts to plan the future. That distinction is thoroughly Hayekian.

The artificial intelligence complication

There is one final irony Hayek could scarcely have anticipated. Artificial intelligence appears to weaken his knowledge argument. If sufficiently powerful computers can ingest prices, inventories, consumer behaviour, satellite imagery, shipping movements, production statistics and billions of other data points in real time, perhaps the central planner can finally know enough.

The socialist calculation debate has consequently acquired an unexpected twenty-first-century afterlife. Recent commentary has explicitly asked whether AI might overcome some of the informational limitations that Hayek identified in central planning.

Hayek would probably have remained sceptical. Knowledge is not merely data. The entrepreneur who suspects that consumers might want something that does not yet exist possesses no dataset demonstrating future demand. Innovation frequently consists precisely in contradicting the accumulated evidence. Markets do not merely process existing information. They create experiments through which new information is discovered. An AI planning ministry trained upon yesterday’s economy might become the most sophisticated machine ever invented for predicting yesterday. And the political problem would remain even if the computational problem disappeared. Who specifies the objective function?

Economic planning ultimately requires choices between incompatible human purposes. More defence or more consumption? More equality or more growth? More environmental protection or cheaper energy? More resilience or lower prices? No computer can transform political values into neutral facts.

The warning

Hayek would therefore look upon contemporary geoeconomics with sympathy for its origins and profound suspicion about its trajectory. He would understand why Europe no longer wishes to depend upon Russian energy. He would understand why the United States worries about Chinese dominance of critical technologies. He would understand why Ukraine treats industrial capacity as an instrument of national survival.

But he would insist that necessity is the oldest justification for expanding state power. The central economic struggle of the twenty-first century may therefore not be between capitalism and socialism. That argument largely belongs to the twentieth. It may instead be between two varieties of capitalism.

One treats markets as discovery mechanisms operating within general rules, accepting governmental intervention where genuinely necessary to preserve the political and institutional conditions upon which markets depend. The other treats markets increasingly as instruments of national strategy, directing investment, technology, trade and capital towards objectives selected by governments. The second system may prove formidable. China has demonstrated as much. Liberal democracies may occasionally need to borrow some of its instruments to defend themselves against it.

But Hayek would issue a warning from the middle of the twentieth century that sounds unexpectedly contemporary. Be careful what you borrow from your adversary. A civilisation defending itself against authoritarian state capitalism must ensure that, in constructing the machinery necessary to defeat it, it does not gradually construct authoritarian state capitalism of its own.

That is the Hayekian dilemma of geoeconomics. The state must sometimes intervene to preserve the free society. Yet every such intervention should carry within it an awareness of how little the state knows, how rapidly exceptional powers become ordinary ones and how easily economic security becomes economic control. Hayek’s answer would not be that geopolitics is unreal. It would be that scarcity is real, war is real and national power is real — but dispersed knowledge is real as well. And no ministry, however patriotic, technologically sophisticated or strategically determined, knows enough to abolish that fact.