This was written as an entry into the GMU Economics Department’s Hayek Essay Contest for 2018.
In Economical Writing, Deirdre McCloskey advises economists to explain their concepts in the concrete before the abstract. It is much easier to describe the process of buying less expensive fruit than to walk through the mathematical steps in deriving a demand curve. Classical liberalism suffers from a lack of concreteness. Our terms are open-ended, vague, and far from particular. Freedom of speech, property rights, and free markets can mean too many things to count. On the other hand, progressive and conservative terminology is far more tangible. Social welfare programs, military initiatives, regulations on the market, and drug prohibition are clear, identifiable actions from which the government or any populace can evaluate, debate, and conclude upon the best course of action. Why should we feel compelled to give credence to one’s abstract right to property when alternative concrete solutions appear to afford more justice?
The case is made often that we already tried a classical liberal utopia, but when the robber barons, pollution, and racial injustice proved it faulty, we wised up and implemented the proper reforms. Today, we seem to be doing well despite the interventions; both market and military. The modern world stands on the shoulders of unprecedented material enrichment over the past 200 years, but few ask the question of how we reached our current state and whether or not things could turn back. Nazi Germany and the USSR are examples of when the world flirted with such disaster, but those are often dismissed as anomalies, weird events that couldn’t possibly happen to us. It is uncomfortable to consider that the citizens of those countries could not imagine the horrors that awaited them five years in advance, nor did they recognize what kept those horrors at bay for so long.
The liberal case, especially that of Hayek, is a hard pill to swallow. Rather than outlining our problems and prescribing solutions, he analyzes the way that problems get solved and lets people know that they can’t go about solving them that way. To the typical legislative-minded activist he is incredibly frustrating. Every policy that would be proposed to Hayek is shooed away rather than having an argument for why another policy is superior. Politicians, voters, and political thinkers can’t process Hayek because he only gives half a standard argument. He tells someone why they can’t centrally plan, but doesn’t offer a clear preferred policy. His philosophy is seen as hopelessly pessimistic. “We have to try something!” the crowd will lament. “Even if there are problems with central planning, I don’t want to give up all hope!” Peter Boettke describes the economist that views themself as a savior and has Hayek’s epistemic modesty to be a frustrated engineer.1 Most observers think that frustrated engineers are what Hayek wants us to be: engineers of the economy whose hands are tied because we aren’t allowed to make assumptions, or we don’t have enough information. His real point is that the emergent orders that we should not chain up are reliant on not being meddled with to survive. We shouldn’t see ourselves as saviors, but to turn to other forces of change. They are the real locus of progress, and we should treat them as such.
Many people miss the nuances of Hayek’s argument because of their limited view of what passes for methods of societal change. Basic civics classes teach that the democratic process is used to issue legislation to solve problems. We just need to be careful that we write good legislation. Hayek recognizes that the vast majority of meaningful events in history were not big power moves by governments, but the spontaneous and emergent orders that result from human action. These are things like the family, the culture, the church, and the market. Spontaneous order doesn’t fit into the civics class set of possible solutions. If anything it’s seen as the source of problems. Inefficiencies and inequalities come from the uncontrolled, selfish, and non-democratic processes of the market. The benefit of the market is taken for granted as the product of something else like technology or industrial efficiency. Rights are only offered to the market to further private interests, and legislation remains to balance public against public (they are rarely considered mutually beneficial). I believe Hayek’s case would appeal much more to the general population if they were given concrete examples of legislative central planning failing, spontaneous order succeeding as an alternative, and what the classical liberal forward vision looks like.
Political commentators are never hesitant to criticize government programs when they clearly do fail. The recovery effort after Hurricane Katrina, the wars in Iraq and Afghanistan, and the TSA just to name a few. After the standard news reporter does describe what went wrong in a situation, their lament is not that the government overstepped their bounds but that their own favored policy was not implemented instead. The question is rarely about whether the government should be in the business of prescribing solutions to problems.
Hayek does not deny the necessity and relevance of plans and endeavors towards human betterment. “All economic activity is in this sense planning; and in any society in which many people collaborate, this planning, whoever does it, will in some measure have to be based on knowledge which, in the first instance, is not given to the planner but to somebody else, which somehow will have to be conveyed to the planner”. What he does deny is the requirement that these plans be centrally managed as if there was a small group of people who held all the relevant information, economic, technological, and moral.
Hayek’s case so far is a negative case against government planning, but this doesn’t offer alternatives. Typical commentators would still be looking for a policy to fix the problem. As I stated earlier, the market is both seen as a source of problems and the benefits of the market process are taken for granted. Frederic Bastiat famously inquired how the entire city of Paris was fed? Through a seemingly impossible task, the market process was able to coordinate goods and services to the right people at the right time. The policy analyst might admit that the market process was able to feed Paris, but they still see a market economy that produces inequalities and inefficiencies and claim that there must be better states of affair.
In this sense, they treat the market like a policy itself. The supposed outcomes of the policy are only the things that we’ve seen the market produce in the past. Does adding a marginal unit of “market” increase or decrease social welfare? Even free market advocates sometimes only are such because they believe that the market is the best policy. The truth of what makes the market successful is not its policy design or the incentives it creates, but the process that unfolds in the absence of intervention. Hayek’s positive argument for the market was that the price system does a lot of the work that a central planner cannot. It relayed information about scarcity and desire in a way impossible for any central authority to understand.
To describe this process, I want to turn to the work of Israel Kirzner. Kirzner’s book Competition and Entrepreneurship sees the economy, not as a set of equilibrium states shifted by exogenous change, but as a process spearheaded by the entrepreneur. A Kirznerian approach (or an Austrian one for that matter), treats the economy as if it is not at a final resting point that can only be shifted by shocks such as public policy. Instead of in equilibrium, the economy is in various states of disequilibrium. There are yet unexploited opportunities that entrepreneurs can realize and exploit. Does this mean that the ideas of entrepreneurs are always good? Certainly not. But allowing the attempt is a necessary prerequisite to not just making a profit, but gaining knowledge about the world at all.
Philosopher and psychologist William James made the claim that “a rule of thinking which would absolutely prevent me from acknowledging certain kinds of truth if those kinds of truth were really there, would be an irrational rule.” Applied to the theory of entrepreneurship, intervention in the economy might be this sort of irrational rule. It prevents entrepreneurs from discovering the truths that are underlying the proper kinds of action we want to find in the world. The pursuit of truth is then not at all separate from the pursuit of morality; our ises and our oughts. Not all entrepreneurial discoveries are the right ones to make, but we trust in other institutions and the self-interest of the entrepreneur to guide us closer to the truth through action. Perhaps the role of the government comes in here, but that is not the point I want to make.
Establishing the prerequisites for discovery is the classical liberal policy I’ve been alluding to. Our forward-looking policy is the endeavors of the entrepreneur, whatever those may be. The market is the non-policy of getting out of the way of the real solution, the ideas of entrepreneurs. This generation has begun to see entrepreneurs as the way forward through individuals like Elon Musk. He is attempting a trip to Mars because he has realized it as a profitable venture, not because it is politically expedient. The market let him know what the most efficient routes of obtaining his goal were. He remained aware and seized the best opportunity when it came.
The vagueness of the liberal policy is hard to communicate but necessary to its accuracy. The not-knowing aspect is intended to reflect the inherent lack of ability in humans to truly understand the conditions that create the world around them. It’s not intended to breed pessimism. Its purpose is to establish the real kind of responsibility to the truth that those who want to change the world have to undergo. If humanism is the idea that humans can change the world for the better, then Hayek advocates having humility before we can even try humanism. It would be like trying to absolve humans of sin by pretending we never left the garden of Eden. The entrepreneur is a kind of figure who takes into account the responsibility of following truths because they are motivated by the need for concrete success not hopeful idealism. Those who want to change the world for the better have to realize all of the personal moral responsibility and humility that comes with doing it right.
Works Cited:
- Boettke, Peter J. Living Economics: Yesterday, Today, and Tomorrow. The Independent Institute, 2012., 331
- Hayek, F.A. “The Use of Knowledge in Society.” In Individualism and Economic Order, 77-91. Auburn, Ala: Ludwig von Mises Institute. 2009
- Bastiat, Frédéric. “There Are No Absolute Principles” in Economic Sophisms- First Series in The Bastiat Collection (Auburn, Ala: Ludwig von Mises Institute, 2007,) 271-274
- Kirzner, Israel M., Peter J. Boettke, and Frédéric Sautet. Competition and Entrepreneurship. Indianapolis: Liberty Fund, 2013.
- James, William. “The Will to Believe.” New World, June 1896.
Image from http://www.altarandthrone.com/category/market/economics/spontaneous-order/