January 11, 2004
THE OLD WHIG:
Friedrich the Great: Dismissed by critics as a free-market extremist, economist Friedrich Hayek is gaining new attention as a forerunner of cognitive psychology, information theory, even postmodernism. A reintroduction to one of the most important thinkers you've barely heard of. (Virginia Postrel, 1/11/2004, Boston Globe)
Hayek's most important insight, which he referred to as his "one discovery" in the social sciences, was to define the central economic and social problem as one of organizing dispersed knowledge. Different people have different purposes. They know different things about the world. Much important information is local and transitory, known only to the "man on the spot." Some of that knowledge is objective and quantifiable, but much is tacit and unarticulated. Often we only discover what we truly want as we actually make trade-offs between competing goods."The economic problem of society," Hayek wrote in his 1945 article, "is thus not merely a problem of how to allocate `given' resources -- if `given' is taken to mean given to a single mind which deliberately solves the problem set by these `data.' It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in totality."
The key to a functioning economy -- or society -- is decentralized competition. In a market economy, prices act as a "system of telecommunications," coordinating information far beyond the scope of a single mind. They permit ever-evolving order to emerge from dispersed knowledge.
"What's the single most important thing to learn from an economics course today?" economist Lawrence Summers said in an interview for "The Commanding Heights," Daniel Yergin and Joseph Stanislaw's 1998 study of the resurgence of economic liberalism. "What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy." Summers, who was then deputy treasury secretary and is now president of Harvard, recently reaffirmed those views in an e-mail.
Information technology has strengthened Hayek's legacy. At MIT's Sloan School, Erik Brynjolfsson uses Hayek to remind students that feeding data into centralized computers doesn't necessarily solve a company's information problems. In any complex operation, there is too much relevant information for a single person or small group to absorb and act on.
"As Hayek pointed out, the key thing is to have the decision rights and the information co-located," says Brynjolfsson. "There are at least two ways of achieving that. One is to move information to decision maker. The other is to move decision rights to where the information is."
This analysis, which applies as much to culture as to economics, informs Hayek's best-known work, "The Road to Serfdom," which he wrote as a wartime warning to a popular audience. Published in 1944 and dedicated "to the socialists of all parties," the book argued that the logic of socialist central planning implied the erosion of personal freedoms. Britain's well-intended socialists were headed down the same path as the National Socialists whose rise Hayek had witnessed in Austria.
The book was shocking enough in Britain, where it was respectfully, though critically, received. But in the United States, where Reader's Digest published a condensed version, "The Road to Serfdom" was a bestseller and a political lightning rod. It rallied supporters of traditional free enterprise and enraged the intelligentsia to whom it was addressed. How dare this mustachioed Austrian suggest that the ambitions of the New Deal might have anything in common with Hitler or Stalin!
Even today, the book's thesis is often misstated as what Caldwell calls "the inevitability thesis -- that if you start down the road to intervention in the economy, you're automatically going to end up in a totalitarian state." But Hayek spent much of his career arguing against the then-popular idea of historical laws. Nor did he oppose an economic safety net; a wealthy society, he believed, could provide a basic income for the poor.
Rather, he argued that to fully control the economy meant to control all aspects of life. Economic decisions are not separate from individual values or purposes. They reflect those purposes."We want money for many different things, and those things are not always, or even rarely, just to have money for its own sake," explains Jerry Z. Muller, a historian at Catholic University and author of "The Mind and the Market: Capitalism in Modern European Thought" (2002). "We want money for our spouses or our children or to do something in terms of the transformation of ourselves -- for everything from plastic surgery to reading intellectual history or building a church. These are all noneconomic goals that we express through the common means of money."
Hayek argued that only in a competitive market, in which prices signal the relative values placed on different goods, can people with very different values live together peacefully. And only in such a market can they figure out how best to meet their needs and wants -- or even what those needs and wants are.
No one who cares about liberty will argue with Hayek's greatness nor the importance of The Road to Serfdom, but problems arise when libertarians try to extend his value-neutralism from mere economic choices within a pre-existing legal scheme to the rest of society generally, or even if one tries to apply them to the creation of the free market itself, rather than applying them only after the freeness of that market has been pretty narrowly defined. This is the case because to be truly value neutral is to deny morality and requires a utopian belief in the essential goodness of human nature in order to be plausible even as just a thought experiment. Hayek himself was not so deluded.
MORE:
-PDF of On Hume’s Is-Ought Thesis (David C. Stove, November 1978, Hume Studies)