Tuesday, August 4, 2015

Hayek, right and wrong

Writing in the New Statesman, John Gray on what Friedrich Hayek got right and what he got wrong:
.... Having abandoned his youthful socialism under the influence of the doctrinaire market economist Ludwig von Mises (1881-1973), Hayek came to believe that a process of social evolution would impel humankind in the direction of the values he favoured. His legacy to liberal thinking has been a type of scientism – the mistaken attempt to apply the methods of the natural sciences when examining the human world. It’s an ironical outcome, given that he was a forceful critic of scientism in economics. In his speech on receiving the Nobel Prize in 1974, Hayek described the efforts of economists to mimic the methods of the natural sciences as having produced a “pretence of knowledge”. ....

Hayek was most original when he ­argued that the market is a means of discovering and transmitting information that is dispersed throughout society. It was this insight into the knowledge-creating function of markets that enabled him to formulate a decisive argument against central economic planning. Generations of socialists have maintained that the failings of the Soviet economy were because of historical causes extraneous to the planning system: a lack of democracy rooted in tsarist traditions of despotism, the underdevelopment of the Russian economy when the Soviet system came into being, and Stalin’s deformation of Lenin’s supposedly more benign inheritance.

As Hayek perceived, none of these factors can account for the universal failings of planned economies, which have followed a similar pattern in countries as different as Czechoslovakia and Mongolia, East Germany and Cuba. The fundamental reason for the failures of central economic planning is that economic knowledge cannot be centralised. More than the love of power or the inevitability of corruption, it is the limitations of human knowledge that make socialist planning an impossible dream. Here Hayek’s argument was unanswerable. ....

Underpinning his defence of the free market was a belief in what he called “spontaneous order in society” – the idea that, if only human beings were not subject to oppressive governments, they would evolve in ways that allowed them to live together in peace and freedom. This was not a view held by Hayek’s friend and LSE (London School of Economics) colleague Karl Popper, who gently demolished it when I talked with him, or by the conservative philosopher Michael Oakeshott, also a colleague at the LSE, who dismissed it – accurately – as “rubbish”. A type of unplanned order may well emerge in society but there is no reason why it should respect liberal values. There is nothing particularly liberal about the Mafia. ....

Hayek’s belief that vital freedoms can be enshrined in law and thereby taken out of politics is ultimately delusive. But it is not an aberration peculiar to the brand of right-wing liberalism that he professed. An anti-political liberalism is the ruling illusion of the current generation of progressive thinkers. Philosophers such as John Rawls and Ronald Dworkin had views of justice very different from Hayek’s. Whereas Hayek rejected any redistribution of income beyond that required by a minimum level of subsistence, Rawls and Dworkin demanded different versions of egalitarianism. What all these thinkers had in common was the idea that reasonable people will converge on a shared conception of what justice requires. In this view, politics isn’t a rough-and-tumble in which rival interests and ideals contend with one another unceasingly, but a collective process of deliberation that leads to a common set of values. ....

Hayek may have shown the unreality of left-liberal visions of egalitarian capitalism, but it was Keynes who understood fully the vanity of liberal rationalism. In “My Early Beliefs” (1938), a talk later published as a memoir, Keynes mocked the philosophy held by himself and his friends before the First World War: “We were not aware that civilisation was a thin and precarious crust...only maintained by rules and conventions skilfully put across and guilefully preserved.”

Hayek watched the interwar collapse with horror, as Keynes did, and shared many of Keynes’s liberal values. What he failed to understand is that these values cannot be renewed by applying any formula or doctrine, or by trying to construct an ideal liberal regime in which freedom is insulated from the contingencies of politics. [more]