F. A. Hayek: Dogmatic Skeptic

...Although the democratic left is unlikely to find his views very palatable, at least one lesson can be learned by contemplating Hayek's life...

...We should allow spontaneous orders to flourish, but within a framework of rules that we modify by political means in the light of our general objectives...

...No one intends that a spontaneous order should emerge, and there is no directing will that gives it its shape...

...Reformist schemes of social justice, or socialist proposals that involve modifying rather than abolishing the market economy, are never to be trusted...

...Rather than committing ourselves dogmatically to a classical liberal framework, the evolutionary perspective suggests opening up the future to as many social experiments as possible...

...We are now in a better position to understand his tactics in The Road to Serfdom...

...Once embarked upon, they lead inexorably to a destination where the state has assumed complete control over social life and individual freedom is at an end...

...Anyone who advocated rolling back the state, deregulating this or that industry, privatizing this or that service, and wanted some solid philosophy to back him up, could turn to the works of Hayek, standing side by side on the shelves, and all telling essentially the same story...

...If you accept this argument, then, as Hayek points out, it may still be logically possible to defend socialism, but no sane person would ever attempt it...

...Neoclassical economics shows how markets can be spontaneous orders, but only if you make certain simplifying assumptions about how they work...

...There are great difficulties with this second train of thought...

...Among these thinkers were Mandeville, Hume, Burke, Adam Smith, Carl Menger, and Ludwig von Mises...

...Hayek think, his view is better grounded...

...Hayek plays cat and mouse with this theory...

...Spontaneous orders need ground rules...

...Hayek argues, in quasi-Darwinian terms, that different social groups will adopt and act upon somewhat different sets of rules, that some of these groups will be more successful than others, and so the rules adopted by the successful groups will come to prevail as these groups expand and the less successful groups shrink...

...Why expect one rather than the other...

...But although ideas of distributive justice do have application within organizations, there is no reason to suppose that this is their only role...

...And for that reason, no compromise with the enemy was possible...

...Friedrich von Hayek, who died in 1992, is widely recognized as the most influential exponent of free-market liberalism in the twentieth century...

...He cared rather little for democracy proper, thinking that legislative authority should be placed in the hands of a tenured body of mature men and women, chosen on the grounds that they had "proved themselves in the ordinary business of life," but that is another matter...

...They are consciously structured in such a way as to best achieve those purposes, and so they must embody a system of authority to coordinate the behavior of all those who belong to them...

...Austrian economics reminds me of those cartoon characters who walk off the edge of a cliff and keeping going straight on until they happen to look down and notice that the ground beneath them has disappeared...

...Havek in place, and could be shown to serve certain human needs, he or she would find nothing to object to in it...

...To begin with, what is the unit of analysis supposed to be...

...Hayek was that odd creature, a dogmatist who announced himself as a skeptic...

...There is nothing in the idea of spontaneous order itself that suggests answers to these questions...

...The only well-developed body of theory supporting the spontaneous-order hypothesis is the neoclassical theory of the market, which explains how rational, profit-maximizing individuals will converge on a competitive equilibrium that is efficient in the minimal sense that no one's position can be further improved without someone else's being worsened...

...Hayek's economics then switches into "Austrian" mode, which very crudely means emphasizing uncertainty and economic change and the gaps this opens up for entrepreneurial leaps into the future...

...L saying this I do not wish to impugn Hayek's political liberalism, his commitment to SUMMER • 1994 • 347 F.A...

...Here then "legislation" would have to mean the formal recognition of rules of behavior that had already been adopted informally by increasing numbers of people...

...To say that Hayek, from his early essays of the 1930s to his last book, The Fatal Conceit: The Errors of Socialism, published in 1988, was in this way a formidably consistent advocate is not to deny that there were some deep tensions in his thinking...

...and the idea that this order has certain desirable properties that could not be obtained by conscious planning...

...Especially at the time when his social philosophy was crystallizing, in the 1930s, the association between socialism and planning was very strong...

...whether Bob or Carol should get the job, whether Tom's salary is a fair one, are not questions that our principles of social justice will answer for us, any more than we can say that it is fair or unfair that Jack should have won a particular race on a particular occasion...

...Hayek's attempt to jettison the whole idea of social justice by tying distributive justice exclusively to organizations seems pretty unconvincing...

...Or should we be concerned about personal liberty, about the extent to which different frameworks make it possible to pursue alternative plans of life, not necessarily involving the acquisition of economic goods...

...But his thinking in fact remained profoundly alien to that tradition...

...The idea of unintended consequences is relatively com 348 • DISSENT P.A...

...or decentralized communitarian socialism of the kind now favored by a section of the Green movement...

...Hayek inherited traditions...

...Everyone finds it a little quicker to drive to work by car than to take the bus, but when all drive the highway is jammed and everyone ends up taking longer to make their journey...

...Ultimately, then, the question of economic freedom versus planning was a question of knowledge...

...How are we to measure the relative success of groups following different sets of rules...

...but everyone finds it a little cheaper to do their main weekly shopping at the out-of-town supermarket, and so the corner shop goes to the wall...

...In a spontaneous order, the benefits that any particular individual enjoys are the unintended results of a host of uncoordinated decisions made by other individuals, and so their distribution cannot be regarded either as just or as unjust...

...How could one fail to see the integrative functions of the welfare state, the extent to which it had served to channel working-class protest into forms compatible with liberal democracy...

...Hayek had only one tune to play, the virtues of the free-market economy as opposed to central planning, but he played it with panache, could improvise longer or shorter versions as the occasion demanded, and above all never gave up practicing...

...To the Thatcherites and Reaganites of the 1970s and 1980s, he was what Marx had been to the socialists of the 1880s and 1890s...

...There is another problem with Hayek's idea of spontaneous order...

...You may try to direct the economy centrally, as communist leaders did, or to impose some pattern of redistribution, as social democrats have done, but you will certainly fail, and meanwhile everyone, including those who are already worst off, will suffer...

...the idea that the outcome may nonetheless be an order, in the sense that it possesses a certain degree of stability and regularity...

...The message is articulated with a clarity and precision that would put most of his opponents to shame...

...The trick is just not to look down...

...In the case of market economies, there needs to be a structure of legal rights, forms of contract to allow people to buy and sell items, a common currency, and so forth...

...Here, I SUMMER • 1994 • 351 F.A...

...As the last example shows, organizations can exist within spontaneous orders without replacing them...

...The book is dedicated "To the Socialists of All Parties," and Hayek is careful to point out that there is need for a certain kind of planning (primarily legislation to enhance competition) in a market economy...

...Although socialists disagreed among themselves about the form that planning should take, no one disputed that the transition from capitalism to socialism was, at least in part, a transition from market competition to social planning...

...He never appears to have doubted for a moment that the free-market economy could be proved to be the best form of social order...

...Into this camp fell Descartes, Hobbes, Bacon, Bentham and the utilitarians, nineteenth-century positivists such as Comte, Marx, and the whole of the socialist camp...

...The best, and for Hayek the primary, example is a market economy, which displays certain regularities (for instance, the prices charged for any given commodity all tend to converge to the same figure) even though no one intends or decides that these regularities should exist...

...His war-time writings, culminating in The Road to Serfdom (1944), composed in circumstances where belief in the efficacy of (partial) planning was widespread, again display the same conciliatory impulse...

...The second embraced those who subscribed to one or other form of "constructivist rationalism," the view that we can, in principle, fully understand the workings of society as well as of nature, and in consequence can redesign it to fulfill our conscious desires...

...First, if we decide for Hayekian or other reasons that a market economy is one of the orders that we wish to promote, what should its ground rules be...

...Of Dickinson's Economics of Socialism he says that it "provides the rare pleasure of feeling that recent advances of economic theory have not been in vain and have even helped to reduce political differences to points which can be rationally discussed...

...He relies on it when he wants to emphasize the virtues of the free market...

...If attempts are made to make society as such into an organization, this implies that a single scale of values must be imposed on every member by those holding central authority...

...Finally, this Social Darwinian approach seems to lead to a counsel of passivity, in defiance of Hayek's own passionate defense of free-market liberalism...

...As a result, when his moment finally did arrive sometime in the mid-1970s, everything was ready and in place...

...Welfare states, at least those founded on ideas of social justice, and going beyond the provision of a minimal safety net, were wrong in principle...

...SUMMER • 1994 • 353...

...We don't try to specify how any particular individual should fare...

...He could reconcile this with his Social Darwinism only by assuming that the free market had, in fact, triumphed historically in competition with other social orders...

...He does not believe that we can find general principles that everyone could endorse that would allow us to answer the questions I have just posed...

...Since Social Darwinism serves Hayek's purposes so badly, let us return to his earlier conviction that a society's constitution may be deliberately improved by reflection on the consequences of adopting different ground rules...

...Given a proposed change in the ground rules—say a proposal to limit the inheritance of wealth, or to require employers not to discriminate on grounds of race or sex, or to entitle everyone to a basic income independent of their economic performance, we ask how the aims of the proposal match up to our standards of justice, whether these be principles of desert, or need, or equality, or priority for the worst-off, or whatever...

...That, together with the sheer intellectual stamina that I commented upon at the beginning of this essay, may help us understand Hayek's success in influencing the political thinking of our time...

...Roughly speaking, under this model wages and the prices of consumer goods would be set by the market, the planning board would fix the prices of capital goods by trial and error, and industry managers (who would be public employees) would be instructed to produce in such a way as to equate marginal cost with price...

...This throws considerable doubt on the suggestion that the key to Hayek's thinking is to be found in his opposition to totalitarian political doctrines...

...The question arises, how is this framework to be instituted...

...Perhaps these proposals are no more than pipe dreams: but this needs to be demonstrated empirically, not simply preempted by identifying socialism with the centrally planned economy...

...Hayek has a number of criticisms to make of this model, the most powerful of which is perhaps that it creates no incentives for entrepreneurship and would therefore in all probability discourage technical innovation, but he by no means dismisses it out of hand, and indeed anticipates "fruitful further discussion" with socialists in this camp...

...It is curious, then, that in his later years Hayek should have failed to consider versions of market socialism, and other alternative socialist models, that reduced the role of the planning authorities yet further...

...He shows us what can sometimes be achieved by sticking doggedly to your guns, ignoring intellectual fashion, and waiting until your moment comes...

...Full-scale planning would be economically disastrous, but trying to compromise between the market and planning, using government agencies to direct investment while relying on market pricing of consumer goods, for instance, would be worse still...

...His skepticism was applied exclusively to the arguments of the other side...

...There are no references to natural rights or inviolable spheres of liberty or imaginary social contracts...

...What, now, about socialism...

...Behind this lay his view that the two political systems were the embodiments of two opposed philosophies, both with deep roots in European culture...

...We can only make sense of this by returning to Hayek's Manichaean worldview, which, as I remarked earlier, appears to have become still more pronounced with advancing age...

...Dogmatists in skeptics' clothing are hard to deal with, because they may go to considerable lengths to conceal the challengeable assumptions and principles that ground their views of the world...

...There are no such impulses in his later books, where his critique of socialism is extended to cover all ideas of social justice, and where socialism itself is finally denounced, in his last book, as a recipe for mass starvation...

...Hayek's view of the world was Manichaean...

...Yet again, how far should we be guided by considerations of equality in choosing a framework: ought we as far as possible to give people equal chances to pursue their goals, or should we allow inequalities that we expect to work to everyone's advantage...

...They may generate regularities of a more complex kind, but they need some common conventions to start with, so that people can interact with one another to mutual advantage...

...Does it arise by conscious design, or might we regard the framework itself as a kind of second-level spontaneous order, something that emerges as the unintended consequence of individual actions...

...Only by returning to the principles of Cobden and Bright could the country avoid a slow drift into totalitarianism...

...Hayek personal freedoms of speech, movement, association, and the like...

...Second, what values should guide us in answering the questions in the first list...

...It is classical liberalism, defended in the way that gives the fewest possible hostages to fortune...

...I do not intend in this essay to recommend any particular standard...

...Hayek introduces a basic distinction between two modes of human association, which he calls "spontaneous orders" and "organizations...

...In his essays on socialism from the 1930s, he writes respectfully of those (such as Oskar Lange) who acknowledge the defects of the older models and attempt to incorporate elements of competition and market pricing into their economic framework...

...When forced to offer a criterion by which we might judge the worth of a system of social rules, he suggests that the system should provide "the best chance for any member selected at random successfully to use his knowledge for his purposes...

...And this criterion is no more and no less contentious than any other yardstick that we might use to judge the comparative worth of different economic systems...

...Since they are implicitly totalitarian they can be dismissed without further ado...

...perhaps different standards apply in different social spheres...

...Is it whole political communities, or groups of people within such communities...

...Those who advocate replacing the market with central planning suppose that the planners could possess knowledge of a kind that they can never in fact possess...

...Hayek we aim for an order that fosters the highest rate of economic growth...

...So there is no need to investigate such proposals on their own merits...

...If you see the world as a battleground between two antagonistic philosophies, expressing themselves in two diametrically opposed visions of social order, then anything that appears to stand in the middle must turn out, on closer inspection, to be a fifth column...

...But why should we suppose that the ensuing outcome should be orderly and benign...

...second, spontaneous orders can accommodate individual diversity—people can pursue a whole range of different basic goals within the framework that a spontaneous order provides—whereas an organization must be guided by a single purpose, such as military success or profit maximization...

...The first of these embraced those who emphasized the limits and fallibilities of the human intellect, drawing from this the conclusion that in social affairs we must proceed cautiously and pragmatically, using trial and error and relying to a large extent on 346 • DISSENT F.A...

...Ideas of social justice, Hayek claims, only make sense if you think of society as a giant organization within which the benefits people receive are centrally determined...

...Austrian economics is in certain respects more realistic than neoclassical economics, but the price you pay for this realism is that it gives you no reason to think that market economies will tend toward a stable equilibrium...

...The collapse of communism might give us reason to think that particular form had been proved less successful than capitalism, but there are several third alternatives that have not yet been tried, and we cannot say in advance that these will not turn out to be better still...

...Hayek seems never to have acknowledged that there might be forms of socialism in which central planning would play little or no part: for instance, a libertarian variant of market socialism in which, starting from an equal division of resources, individuals are left free to exchange and contract with one another as they wish...

...Although he believes that these proposals are misguided, he appears to sympathize with the motives that led Lange and others to make them...

...Hayek's position on this question is curious, because in his essays of the 1930s he considered with a degree of sympathy the original "market socialism" of Lange, Taylor, Dickinson and other economists of the period...

...all that it requires is that having set the ground rules, we should allow individuals freely to pursue their own aims and objectives, thereby (we hope) generating for each person a stable set of expectations about the behavior of others...

...This appears immediately to raise two sets of questions...

...Confronted with an intellectual climate in which wartime experience seemed to demonstrate the virtues of government planning, but in which Fascism was almost universally execrated, the most effective way to attack planning was to link it with Fascism, to suggest that the origins of Nazism lay in the German intelligentsia's longstanding fascination with socialist ideas...

...Having established a general vantage point from which to view Hayek's writings, I will now look more critically at his arguments against socialist policies of every kind...

...he is quick to distance himself from it whenever he confronts an advocate of economic planning who suggests that planners might be able to simulate the workings of markets for certain purposes...

...If economic decisions are made by entrepreneurs acting on "local knowledge" and facing conditions of uncertainty where no one fully grasps the global environment in which they are acting, why not expect sudden lurches into this or that line of production followed by equally sudden switches into something else—precisely the "anarchy of the market" for which traditional socialists have always berated it...

...and other cases where the results are predictable enough, but obviously bad for all concerned (we might call these "spontaneous disorders...

...It is easy enough to think of cases where the results of many individuals acting independently and without coordination are simply chaotic...

...For if the framework of rules that makes social and economic life possible is itself to be regarded as a spontaneous order, evolving in ways that we neither intend nor foresee, then presumably it is wrong to intervene deliberately, whether in defense of a liberal framework or of some alternative...

...Only within such an organization do criteria of distribution such as merit and need have any concrete meaning...

...Indeed, it strongly suggests the reverse...

...Should 350 • DISSENT F.A...

...Hayek's concept of spontaneous order combines three ingredients: the idea that human actions, taken in the aggregate, have consequences that are neither intended nor foreseen...

...So, to come back to the question I asked above, why expect "spontaneous order" rather than "spontaneous disorder" in all these areas...

...As we have seen, he found his intellectual ancestors among the skeptical empiricists and especially those in the British tradition...

...But what he cared most deeply about was economic freedom, the freedom of the entrepreneur especially...

...Hayek say that a liberal order depends upon a well-designed framework, and that there is plenty of room for government "planning" in the sense of seeking to improve the regime of property rights, to regulate monopolies and cartels, and so forth, so as to improve the efficiency of the market economy...

...A Humean might be skeptical in advance of a proposed change, say about the prospect of a welfare state, but once it was 352 • DISSENT F.A...

...Sometimes those assumptions are indeed approximately true, and then we can applaud, Adam Smith-style, the virtues of markets in getting our bread baked and our meat delivered...

...On the other hand, there is an increasing tendency in his later work to argue that the framework emerges spontaneously over time...

...In how many areas of social life do we find spontaneous order, and how many areas do we find spontaneous disorder...

...What rights of property are people to have in goods of different kinds...

...Price convergence occurs as a result of many separate individuals haggling with one another over the cost of particular items...

...So "social justice" is, for Hayek, an oxymoron: "justice" requires a distributing agent, but "society," to the extent that it retains the characteristics of a spontaneous order, cannot be such an agent...

...For suppose your concern, say in about 1960, was to safeguard liberal democracy against the ideological threat of Soviet communism...

...It was essential to his argument that there should be no halfway houses...

...Once we see that a market economy, or indeed any kind of spontaneous order, can be guided by different sets of ground rules, and that the choice of these rules unavoidably raises ethical questions, we are ready to assess Hayek's assaults on social justice and socialism...

...Hayek monplace...

...Should incomes be taxed, and if so in accordance with what principles...

...Evidence to support this suggestion might be found in The Road to Serfdom, where Hayek lays a good deal of stress on the socialist origins of Nazism, and argues that the adoption of socialist policies elsewhere might be expected to culminate in a form of Fascism...

...He relapsed into a crude identification of socialism with Soviet-style central planning, even though, in the West at any rate, there were very few actual socialists who continued to accept that equation...

...On one side stood liberty, limited government, and the market economy...

...How are resources going to be allocated to people at the outset...

...Spontaneous orders are patterns of interaction that emerge as the unintended consequences of human behavior...

...On the one hand, particularly in his earlier writings, he wants to SUMMER • 1994 • 349 F.A...

...Furthermore there is an obvious fallacy involved in moving from the proposition that an individual's or a subgroup's chances can be improved by adopting a certain rule to the proposition that everyone will be better off if they adopt that same rule...

...Among these virtues, Hayek stresses the following two: first—this is his epistemological argument—spontaneous orders are able to make use of all the limited and local knowledge that is dispersed among their constituent members, whereas organizations can only use the knowledge that is capable of being collected by their directing center...

...For such ideas can also be used to judge the ground rules of spontaneous orders such as the market...

...What, positively, is being said in favor of such a system...

...Those who advocated the latter were not simply making an empirical error, they were supposing that the human mind was capable of acquiring a kind of knowledge that, according to Hayek, was categorically unobtainable...

...But against this must be set the fact that in his earliest essays socialism is attacked straightforwardly on economic grounds, without reference to totalitarianism, and also the fact that it is difficult to make sense of his later work from the anti-totalitarian perspective...

...But although at first sight this might appear to sidestep the ethical question, by judging success in terms of how far each individual is able to pursue his goals whatever these might be, in fact a criterion is being applied, namely a version of utilitarianism with "purposefulfillment" standing in for happiness...

...The fact that the tide of opinion had begun to flow in his favor does not seem to have produced in Hayek any wish to seek the middle ground, but, on the contrary, to have evoked ever sterner denunciations of those who wish in any way to depart from classical liberal orthodoxy...

...This last idea is really nothing more than an echo of Adam Smith's claim that the public interest is promoted better by everyone pursuing their own interests in the marketplace than by direct attempts to further it...

...In land...

...Is the yardstick to be an economic one, or are we to use some more basic criterion still, such as population size...

...Experimentation over time will lead to steady improvement in the framework of the market...

...Indeed this seems to me precisely how ideas of social justice are applied most often in practice...

...Armies, bureaucracies, and firms are all examples of organizations in Hayek's sense...

...So the idea of spontaneous order is in bad trouble...

...The only plausible way to explain Hayek's position is to impute to him a lifelong ideological commitment to certain economic doctrines, a commitment derived mainly from the work of his fellow Austrians Menger and Von Mises...

...Instead the argument turns on the impossibility of organizing a complex economy in any way other than through a free market...

...In both cases we want the ground rules to be just, and we want them to be applied consistently, but our principles are not finetoothed enough to allow us to make judgments about individuals...

...But even in markets the assumptions don't always hold, as the corner shop example shows, and besides there are large tracts of social life that no one, barring a few Chicago economists, has ever suggested trying to explain in quasi-market terms...

...Many rules are "successful" precisely because the groups who follow them benefit parasitically from others who behave differently (businesses who pay their bills late profit at the expense of more responsible firms, and so forth...

...Britain in 1944, Hayek suggested, bore many of the hallmarks of Germany twenty or thirty years previously...

...Here we come across one of the deep tensions in Hayek's thinking...

...once the pattern has emerged, people can use it to guide their behavior, knowing roughly what they may expect to pay for a certain commodity...

...He had none of that genuine skepticism that can be found, for example, in David Hume, which issued in political moderation, an attachment to tradition coupled with an openness to changes that could be shown to work empirically...

...Where he can be faulted is for adhering rigidly to his interpretation in the face of mounting evidence to the contrary...

...Hayek shies away from asking basic ethical questions of this kind, mainly I think because he is an ethical subjectivist...

...Would it make sense to do so by denouncing the social democratic reforms that had taken place in the postwar years and insisting upon a return to the principles of classical economics...

...I shall discuss this later...

...Organizations, by contrast, are set up by individuals with deliberate aims in mind...

...Plainly he belonged to that generation of European liberals who had to confront the combined impact of Soviet communism and Fascism, and it is tempting to suppose that Hayek's attacks on planning and socialism are motivated by a wish to protect liberal democracies from totalitarian infection...

...on the other stood coercion, authoritarian government, and planning...

...But these tensions are not obvious to anyone coming to his writings looking for a political message...

...It is not like that with Hayek...

...We should simply sit back and wait to see which of the many possible frameworks is most "successful" (however success is to be measured...

...Should we allow inheritance of wealth, or should we try to achieve an equal starting point by providing everyone with a capital grant on reaching the age of majority...

...Hayek's political attitudes hardened as he grew older...

...Everyone enjoys the convenience of shopping at the corner shop and would like it to continue...

...Population seems to be Hayek's final resting place in The Fatal Conceit, but it is an exceedingly strange way to measure "success...

...Reduced to its essentials, the argument is that economic planning cannot even be attempted in a parliamentary democracy, so power must gravitate into the hands of a small group of officials, and eventually into those of a single dictator...

...But the central error of socialism, according to Hayek, is that it seeks to replace spontaneous order by organization—in its most extreme version to make the whole of society into a single organization with one directing will—thereby abandoning all of the distinctive virtues that spontaneous orders possess...

...A broader historical view would suggest a different picture, but Hayek cannot be blamed for entering the debate on the terms set by his socialist contemporaries...

...Ought we to regard the socialist project as essentially one of replacing spontaneous order by organization, as Hayek suggests...

...It is crucial to his argument that both of these projects should involve replacing the spontaneous order of the market by organization...