Thursday, June 28, 2012
Paul Walker posts (27 June) at the Anti-Dismal Blog HERE
“There is always much discussion of what Adam Smith meant or said about this or that. One of the most discussed ideas is the "invisible hand". (Take a look at Gavin Kennedy's blog for extended discussion.) A new working paper looks at The Past and Present of the Invisible-Hand Proposition: From 'Scottish Political Economy' to Axiomatic General Equilibrium Analysis. It is by Arash Molavi Vasséi. The abstract reads,
"The present study raises the following questions: To what extent is axiomatic general equilibrium analysis a rational reconstruction of Scottish Political Economy as defined by the writings of David Hume and Adam Smith? How much is gained and how much lost by the axiomatic transformation of the invisible-hand proposition? What are the implications of negative results like the Sonnenschein-Mantel-Debreu demonstrations for the Scottish point of view? Did it reach deadlock, or is there still hope for the dominant trajectory in the history of economics? In contrast to the rich historical literature on the invisible-hand proposition, the present study does not level any paradigmatic criticism at neo-Walrasian analysis. Rather, by focalizing the most important results against the backdrop of Scottish Political Economy, it provides some flesh to the bones of axiomatic economics and, insofar, may inform theory choice within the neo-Walrasian paradigm. Naturally, the answers to the questions raised are complex and do not fit into an abstract. Instead, the reader is referred to the final section, which lists, interrelates, and discusses the major results of the study."
I'm not sure that Smith would have believed in any invisible-hand proposition so I'm not sure that its even meaningful to ask what is "lost by the axiomatic transformation of the invisible-hand proposition?" In a working paper of my own I write,
"For Smith competitive markets were the most prominent mechanism for coordinating and motivating people to maximise the grains that result from increased specialisation and an expanded division of labour. Well functioning market institutions leave individuals free to pursue self-interested behaviour, but guide their choices by the prices they pay and receive. For economists, the 200 years following Smith involved a search for conditions under which the price system would function well, conditions under which it would not descend into chaos.
The formal (neoclassical) model that arose from this search is one which abstracts completely from any form of centralised control in the economy."
But I add the footnote,
"For Adam Smith this would be an abstraction too far. Smith knew of the importance of institutions to the proper functioning of the market economy. Mark Blaug points out that “[ . . . ] Smith’s faith in the benefits of ‘the invisible hand’ has absolutely nothing whatever to do with allocative efficiency in circumstances where competition is perfect `a la Walras and Pareto; the effort in modern textbooks to enlist Adam Smith in support of what is now known as the ‘fundamental theorems of welfare economics’ is a historical travesty of major proportions. For one thing, Smith’s conception of competition was, as we have seen, a process conception, not an end-state conception. For another society, a decentralised competitive price system was held to be desirable because of its dynamic effects in widening the scope of the market and extending the advantages of the division of labour - in short, because it was a powerful engine for promoting the accumulation of capital and the growth of income”. (Blaug 1996: 60-1).
Thus the question "[t]o what extent is axiomatic general equilibrium analysis a rational reconstruction of Scottish Political Economy as defined by the writings of David Hume and Adam Smith?" would have the answer, very little.”
I have a copy of Arash Molavi Vasséi’s paper on my desk awaiting my reading it with the intention of posting a comment. But Paul’s post arrived making my unfinished response somewhat redundant, hence, I took the liberty of re-posting Paul’s excellent response from Anti-Dismal. I recommend readers bookmark Paul’s Blog for keeping up with most of the economics blogs worth reading, as well as Paul’s regular posts on a wide-range of topics on economics and the history of economic theory.
[Paul's paper, he mentions in his critique above is: “The Past and Present of the Theory of the Firm” by Paul Walker University of Canterbury - Economics and Finance May 21, 2012” HERE http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2000431&download=yes]
Perhaps needless to say, I also agree with Paul’s critique of Arash Molavi Vasséi's “The Past and Present of the Invisible-Hand Proposition: From 'Scottish Political Economy' to Axiomatic General Equilibrium Analysis”.
Tuesday, June 26, 2012
A Not So Loony Tune
Times of India: Jagdish Bhagwati, the distinguished international trade economist, saying in affectionate appreciation of Abid Hussain, one of India’s greater economists. Obviously it is meant as a joke:
“He loved the witticism that the problem in India was that Adam Smith's Invisible Hand was nowhere to be seen.”
If it doesn’t make you smile, you should get out more …
Monday, June 25, 2012
Wikipedia Should be Treated With Caution
Linda Garcia PhD writes (18 June) in her Blog HERE
“Old adages die hard. Just consider the longevity of Adam’s Smith characterization of the self-regulating market as an invisible hand in his classic work, The Wealth of Nations. As Smith opined, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
This sentiment, a persistent trope reverberating from one generation to the next, has become a center-piece of the American ethos as well as a mainstay of the Republican party.”
Linda Garcia is an academic with a background in political science.
She does not believe in the modern usage of the “invisible hand” but she accepts the modern attribution of it to Adam Smith, and associates it with core Republican Party values (of which I shall say nothing, as Lost Legacy does not comment on politics except in the country, Scotland, where I vote).
Her prime mistake: Adam Smith never said anything about “the self-regulating market as an invisible hand in his classic work, The Wealth of Nations”, (care of Wikipedia) and nor, for that matter, did he say it anywhere else.
Her second mistake is to quote the well-worn, and much misunderstood sentence on the “Butcher, Brewer, and Baker’s” behaviour when bargaining with customers on the prices of the ingredients for their dinners. [Incidentally there is no reference to an “invisible hand” in that paragraph or chapter.]
Smith discusses his advice on how best to bargain with them. Self-evidently, there is not enough benevolence to go round for everybody who would like their dinners as free gifts from the benevolence of others.
Moreover, Smith advises readers to appeal not to their own self-interests to persuade the 'butcher, brewer, and baker’ to supply them with their dinners, but to “address" the self-interests of the “butcher, brewer, and baker”, even adding that readers should not talk of their own interests, but talk only of those of their potential bargaining partners.
In short, we address our own self-interests best by addressing the self-interests of those with whom we wish to persuade. Two self-interested egoists would never agree to exchange anything.
This is an entirely different slant on Smith’s views on the mediation of self-interests to that presented by modern economists, who invented the modern myth of the so-called invisible hand at the start of the Cold War to emphasise (in my view) the superiority of markets over central planning (see Paul Samuelson’s, Economics: an introductory analysis, p 36, 1948, McGraw-Hill).
From My Notebook no 4
Some years ago I bought a copy of a small booklet by I. C. Lundberg, "Turgot’s Unknown Translator: the Reflexions and Adam Smith", 1964, The Hague, Martinus Nijhoff. It is inscribed “to Margaret McLennan, playwright from the author & her friends”. Lundberg was a sociologist exploring the foundations of Capitalism, which led him to “an exhaustive study of the sources for capital theory”.
Lundberg’s is a detailed account of every edition and separate printing of Turgot's “Reflexions sur La Formation and the Distribution des Riches” from the ‘first edition’ published anonymously in serial form in a radical journal, Ephemerides du Citoyen, 1769-1770. Turgot composed it composed in 1766. It appeared in book form in French, again without an author’s name in 1788 and in English in 1793, as “Reflections on the Formation and Distribution of Wealth” (Smith died in 1790; Turgot died in 1788).
Condorcet, who was well known to Smith, as was Turgot, in his book, “The Life of Turgot”, wrote: “this Essay may be considered as the germ of the Treatise on the Wealth Of Nations, written by the celebrate Smith” (1786). Smith commenced writing what became Wealth Of Nations in 1763 after several years of delivering his Edinburgh Lectures in 1748-1751. This chronology complicates without determining the facts of precedence.
Lundberg details in the next 52 pages, why he believes that Adam Smith was the translator from the original French (1766) into English. In his short booklet, Lundberg displays shows considerable detective work though all the editions of Turgot’s Reflexions and various printings to make his case.
He also provides a convincing case why Turgot sought and maintained his anonymity throughout his extensive writing career and why Smith respected and protected his wishes. Turgot held a senior post in the repressive State of Louis XVI as “The Comptroller General of the Finances of France from 1744 to 1776" (he died in 1781).
I cannot summarise the case here and do justice to Lundberg’s impressive scholarship. I can recommend that you read a copy in any good library that you can access.
We know that Smith’s literary French was good enough from his translation of Rousseau’s, Discourse on Inequality, 1755 that he published in 1756 in a letter to the Edinburgh Review (see Adam Smith’s “Essays in Philosophical Subjects”  1975, pp 229-256, edited by Andrew Skinner and Thomas Wilson, Oxford University Press.
[Note: I should add that anecdotes about the opinions of high-status French ladies in Parisian Salons may be unreliable given Smith rural Scottish accent and his lack of contact with spoken French throughout is life. He read and spoke fluent Latin and Greek, and he also read Italian.]
Adam Smith Was Innocent ....
Benjamin Mitra-Kahn writes 24 June HERE
"Division of labour was common knowledge by the 1770s"
“I always think of Adam Smith when I hear the term 'division of labour' - but I'm being cured of this by reading a bit more about Britains late 18th century in Jenny Uglow's The Lunar Men. A very good read on industrialists and doctors, it remarks on Matthew Boulton's (think steam engine / manufacturing) explanation to Lord Warwick (in 1773) that it is ithe seperation of processes which allow British manufacturers to compete with continental Europe. So Adam Smith's comments were not so much brilliant discovery, but rather explanation of well established fact.”
Adam Smith never claimed nor implied that he discovered the division of labour. In his chapter on the division of labour in Wealth of Nations he states of pin manufacturing:
Adam Smith never claimed nor implied that he discovered the division of labour. In his chapter on the division of labour in Wealth of Nations he states of pin manufacturing:
“a very trifling manufacture; but one in which the division of labour has been very often taken notice of”. He also draws attention to the fact that the idea of the division of labour was of long vintage before Wealth Of Nations, and before he lectured on it to his Lectures on Jurisprudence classes from 1751-63. As were its consequences where he notes early hunter-gatherers exchanging arrows for a share of the kill.
In fact, Diderot’s French Encyclopedie (1755) contains the exact same arithmetical demonstration of a pin factory as Smith detailed in WN. Also, the English "Cyclopedia" from Chambers in 1741 had a similar entry under pin-making with details of the division of Labour was widely available In short: The "Division of labour was common knowledge by the 1740s", as Smith noted. Adam Smith is innocent of this imputation.
The popular modern notion that Smith “discovered” the division of labour was initiated by later authors, and spread by their readers, and not by him.
This Could be Interesting ...
The 44th History of Economics Conference at Keele, University, England
3-5 September 2012
3-5 September 2012
On the Agenda:
11:15 "The Myth of the Invisible Hand: a view from the trenches"
Gavin Kennedy (Heriot-Watt University Edinburgh, Scotland)
12:15 "New support for the invisible hand: Lessons from Chicago and Vienna"
Bert Tieben (SEO Economic Research Amsterdam The Netherlands).
Promises to be an interesting session …
Saturday, June 23, 2012
Loony Tunes no. 58
For Diablo III HERE on the PC, a GameFAQs message board topic titled "The invisible hand never lies!".
“Well the invisible hand actually appeared to me and asked me to preach his ways!”
"If the invisible hand touched your naughty parts, how would you prove it?"
"The invisible hand never lies because it never speaks.
It does, however, use its middle finger from time to time, and it has been known to *****slap people now and then.
I think Blizzard is staring at the middle finger of the invisible hand at the moment."
“Does the invisible hand work similarly in the political world as it does in the economic world? Why or why not?”
Friday, June 22, 2012
Loony Tunes no. 57
New Scientist Helen Thomson HERE
“EVER wanted to know what an invisible hand looks like? Well, it is slightly wider than a real hand, and it has shorter fingers too.”
Stuff.co.nz KATHLEEN LEE-JOE HERE
“The moment the email drops, my fingers get into gear - n-e-t-a-p-o-r-t-e-r-dot-c-o-m. The Invisible Hand takes hold, forcing me to load item after item into my cart.”
Popular Mechanics Kevin A. Wilson HERE
“The invisible hand that may do the most to distinguish this from other Terrains is the dual-flow damper used in the front suspension.”
It's All Fun And Games Until Your Front Lawn Catches Fire
“Won't the invisible hand descend from the heavens and swat the flames (assuming there's a profit in it, of course)? ... Well, let's just say Adam Smith's invisible hand readily helps those that help themselves, but ruthlessly bitch slaps the rest.”
Thursday, June 21, 2012
Listening to Deirdre McCloskey in Debate
I recommend that you read through a Symposium hosted on Bleeding Heart Libertarians Blog (‘free markets and social justice’), 20 August, HERE
I strongly recommend that you read through “Factual Free-market Fairness” by DEIRDRE MCCLOSKEY and follow up by reading a large number of comments on her piece, plus her lively responses as she debates with some of them in her inimitable relaxed scholarly style.
Scroll down to her contribution and after that read through the exchange of comments. It is about as close as you can get without actually listening in the room to high-level readable scholarship.
I know very little about Bleeding Heart Libertarians, but what I have read, I tend to be comfortable with, which is more than I am with the expressed views of some libertarians, who confuse being Libertarian with an equivalent to absolute licensing of the individual to all and any acts of self-interest, a singular mistake, I believe, of Ayn Rand and her disciples.
Wednesday, June 20, 2012
Instant Answers Spread Instant Rubbish
One of Many Lazy Student"s Answer Services
“What wast(sic) the invisible hand theory proposed by Adam Smith?”
Answer1: “the economy will automatically adjust to the needs of buyers and sellers.”
Answer 2: “Adam Smith's invisible hand refers to the self correcting features of a free market. Prices respond to the combined influences of supply and demand, and no regulatory agency or deliberate guidance is... “
Answer 3: “Adam's Smith's Invisible Hand of the Marketplace is the theory that economic imbalances are self-correcting, not requiring intervention by government so long as the equal rights of the individual are...”.
Answer 4: “The greatest benefit to a society is brought about by individuals acting freely in a competitive marketplace in the pursuit of their own self-interest.“
What has Answer 1 got to do with anything Adam Smith wrote?
Answer 2 reveals its nonsense in its own sentence: If prices respond to supply and demand, what role does the “invisible hand” play in this process? Surely visible price adjustments are enough?
Answer 3: what besides price changes are required for economic imbalances to be “self-correcting”. It cannot be a universal benign self-interest because we know that individual self-interests can conflict: a self-interested domestic trader lobbies for tariffs to keep out competition to maintain or raise prices; a consumer prefers access to foreign-sourced imports to lower prices. Adam Smith identifies malign self-interested actions over 70 times in Wealth Of Nations.
Answer 4: But suppose that individuals acting in their self-interest are also inclined to pollute, dilute quality, or dispose of waste from dangerous processes into the nearest fresh-water river to avoid the costs of clean-up to increase their profits, How does that “benefit society?”
The whole alibi of an invented “invisible hand”, attributed to Adam Smith, is a regrettable feature of modern economics. It discredits economic analysis (and the history of economic thought) and sends people running to the feeble protection of government (also a major polluter) and helps justify the often bloated regulatory costs of compliance with meddling anti-market initiatives, while discrediting those regulatory costs that are necessary.
None of these contradictory assertions were proposed by Adam Smith. He did not have a theory of "an invisible-hand" guiding markets.
Tuesday, June 19, 2012
Bankers and Farmers
“The Invisible Hand Will Do Its Magic”
Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC
He writes (14 May) in “Jim Roger’s Blog” HERE
"We don't need more bankers. What we need are more farmers. The invisible hand will do its magic." - in CBS Market Watch”
If “The invisible hand” exists – a Big “if” – then it already has done what it can with its “magic”. As it hasn’t achieved much to produce more farmers, we can expect more bankers than farmers, unless more banks fail and some ex-bankers run off to live on farms, possibly re-possessed when they were bankers. The statement is empty of predictive value, irrespective of Jim’s preferences for farmers, which, of course, is the kind of empty rhetoric heard from people chatting at smart people’s dinner parties.
However, the statement also reveals that Jim knows little about the empty content of the myth of the invisible hand that was invented at 1940s dinner parties while chatting about the awesome Soviet propaganda against markets at the start of the Cold War. No doubt some smart international investor declaimed his brilliance with what he considered to be a knowing remark about invisible hands that he had picked up in a boring lecture years ago at College.
From a reputation for brilliance, investors made fortunes, certainly more than they could ever earn from farming. In time we ended up with more bankers, financial analysts, investment advisors, and witty-sounding, dinner party guests. We also ended up with fewer farmers.
Monday, June 18, 2012
Liberty and/or Democracy?
Below is an Exchange of Correspondence on Comments about Liberty and Democracy, which may interest readers who do not follow exchanges on the Blog comments contributions. I refer to the numerous comments that followed my post last Friday: “Hayek and Liberty”.
I write from an Adam Smith perspective. He never had a vote under the existing franchise in 18-century Scotland; he never showed his allegiance to either of the two existing political parties operating in the governance of Britain, Whig or Tory, and he gave advice to both of them when they were in office (at their request). His writings on the long struggle for Liberty are best seen in his “Lectures on Jurisprudence” [1762-63], which are summarised in my book: “Adam Smith: a moral philosopher and his political economy (Palgrave Macmillan, 2ND edition, 2010), from which I take my stance that Liberty is more important than democracy, though I prefer both when they operate together, and I consider governance without Liberty a fig-leaf to tyrants who adopt “democratic” forms.
“Why the Worst Get on Top”. That is the title of one of Hayek's books, as mention above. An appropriate title for the day considering that tomorrow is the 40th anniversary of "Watergate". That dastardly deed was perpetrated by some of the worst that got to the top.
I completely agree. It was also an utterly futile exercise in power mania. Nixon had the votes for a sweeping victory but just couldn't resist to illegally use executive power to bug the office of the busted flush of the Democratic Party. That is why Liberty is more important than democracy or any other alternative to it (most of them worse, I must say).
The irony or question is how can you maintain liberty without democracy
It appears the worst have stayed on top. Watergate seems trivial compared to now (warrantless wiretaps, indefinite detention, 30,000 spy drones, etc.) the only difference is back then people seemed to care about the law unlike now our investigative media is almost non existant and people just banter back and forth oblivious to real issues, (at least that’s the way it seems for me) A great tribute to Hayek and his insights into political science.
I have not space to make the full case for Liberty being more important than democracy, but the road to Liberty, as enshrined in the history of England, was one of gradual adoption of the instruments of Liberty from Magna Carta (a small step to shackling the power of Kings: judgement by peers, and later Habeas Corpus (ending arbitrary arrest), the King sharing governance with parliaments of peers and commoners, later, after Cromwell, parliament deciding on legislation of money bills, trial by Jury, Judges appointed for life and good behaviour, no standing armies (annual money bills through parliament), and later still, freedom of speech and assembly. Many countries have 'democracy', without Liberty, too numerous to list. Only justice can maintain liberty.
SM Yes, little has changed. The perpetrators of illegal wiretaps were a minority. The anti-liberty people generally are a minority; no more numerous, I suspect than previously. Both ends of the political spectrum have their practitioners of the 'dark arts'. We know more about the problem and ideas people - like Hayek and Smith - set out the alternative morality. Pessimism is the default mode of Libertarianism.
I thought the Magna Carta was the start of democracy, not just liberty. Liberty seems to be for some, whereas democracy is for all. I guess, though, if you are going to have democracy for all some are going to think they have lost their liberty. Justice, if meant as the rule of law, does maintain liberty. But it also maintains democracy.
Of course most would agree that democracy with a justice system is better than liberty without democracy. The problem is that democracy without liberty is prevalent throughout the world, followed by governance without either mode; which was once the predominant form of governance across all human societies throughout history and pre-history. Liberty, or rather steps towards liberty, were the first crucial steps towards democracy (hence , Magna Carta in recent history), but democracy was itself a long process, not a single event. Universal suffrage only arrived in Britain in the 20th century, through various steps, not all at once (franchise restricted to property qualifications; they had the money the King wanted to access; gradual lowering of property qualifications to enfranchise more male payers; then all adult males (only whites in the US, until late 19th century - in practice until 1960s); spread of franchise to adult women. So the outcome is not a free choice. The process is complicated. Hence, I support the clear benefits of liberty over the easy pretence of democracy as used by tyrannical leaders across the world (Zimbabwe, North Korea, Cuba, China, Syria, and the rest).
"Hence, I support the clear benefits of liberty over the easy pretence of democracy as used by tyrannical leaders across the world (Zimbabwe, North Korea, Cuba, China, Syria, and the rest)." I am sorry but you are confused. Those countries you listed have nothing to do with democracy. Democracy is not just about casting a vote, if that is what you mean. It is about a system that honors and protects your vote. It is also cultural and a way of life that gives us, without making a big deal about it, choices, freedoms, mobility and, yes, liberty. We don't think about it. Democracy is also about a built-in separation of powers. Those countries you listed have no separation of powers and therefore no democracy and certainly no liberty.
What you are describing is democracy supported by liberty, which, of course, is the optimal centre of demoractic parties, moral philosophers, left-of-centre democratic parties, social democratic parties, and such like who participate in democratic processes in societies where Liberty is practised. Openly tyrannical regimes dispense with both, but some tyrannical regimes try to clothe their tyranny with the trappings of democracy, including election results with 98% majorities, making oppositions illegal, censorship, etc.. You try to restrict the definition of democracy to the democracy in liberty (the optimum combination), while excluding those behaviours that you (and I) disapprove of. We should approach these issues as social philosophers, not with prejudices about what is or is not democracy. Hence, I argue: Liberty is more important than democracy. You cannot dispute the nature of Liberty, as defined, among others by Adam Smith. Where Liberty exists - the rule of law - democracy can flourish; without Liberty it most likely does not.
Conservative love the idea of liberty. For them " liberty also implies that government won't stand in the way of individuals gaining as much economic power as they can as long as it doesn't involve criminal behavior." What is criminal behavior? Under the definition of liberty it's probably not a landlord being able to over charge tenets for rent in a building that is in disrepair, or discriminating against people because he doesn't like them. If a landlord - he thinks, couldn't do those things it would infringe on his liberty. After all, it is his building. Democracy is what brings justice to the situation, limiting the liberty of landlords so that they don't abuse their position and run roughshod over the less empowered. In essence democracy empowers the less liberated. Democracy is a governing system. Liberty is not.
We are closer to an understanding of the relationship between Liberty and Democracy. Liberty is the central principle of justice and its protective role in the rights of individuals. It preceded democracy as we understand it from the late 19th century to its entrenchment from the by mid-20th century in some (few) countries. Both Liberty and Democracy were preceded by many millennia of history and all pre-history by tyranny in its many varied forms. You seem hooked on the idea that democracy, which has wide range of alternative forms, is an antidote to tyranny, because it brings justice to the "situation". Liberty is the rule of law, applicable to all. Your examples of 'landlords' and the 'less empowered' miss the point. Liberty is not unbridled freedom. It is freedom under the law, enforced by justice. No owner of a building can do whatever she likes (commit murder, store flammable chemicals, radiation sources, hold slaves, commit offenses against children or a spouse, plot the violent overthrow of the government, and so on). If the law infringes other people's rights, then it can be changed. Democracy is a process not a one off event.
Gradually the rights of the Barons against arbitrary rule by the King were extended to other prominent groups, and eventually to all citizens a few hundred years later in some countries. Parliament, Congress, or National Assemblies can pass laws to rectify unjust laws that no longer serve their purpose. That is a role for democracy under Liberty. The law struck Nixon down, eventually.
"Democracy is a governing system", so is the rule of law under Liberty. The Founders of the US understood that principle of governance. So did the British parliament, eventually. In my view, given the unfinished process of democracy in most human societies, Liberty is more important than democracy because it is Liberty that initiates what followed and guaranteed the rule of law that empowered the individual against injustice. That you have concerns about some current power imbalances in your society is your right. These can be changed should you persuade others, while recognising that others can persuade competitively against your proposals in due democratic processes, under the protection of Liberty for all of you.
Friday, June 15, 2012
Hayek and Liberty
Sheldon Richman posts (15 June) and edits The Freeman HERE
“F. A. Hayek’s essay “Individualism: True and False” (pdf; chapter one of Individualism and Economic Order) overflows with insights that belong in any brief on behalf of the free society. As the title suggests, Hayek wished to distinguish two markedly different philosophies associated with the label individualism: one that rejected rationalism and one that embraced it
“One might even say,” Hayek explained, “that the former is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”
Thus for Hayek the crucial difference is over whether societies (institutions) are largely spontaneous, emergent, and organic – or designed. His great concern was that rationalistic individualism, in awe of the mind’s ability to engineer solutions, too readily leads to the centralization of power and totalitarianism.
This essay has not been without controversy even among fans of Hayek. He has been criticized for drawing too sharp a distinction between the liberal rationalists and liberal empiricists and for being arbitrarily pro-British and anti-French in dividing the true from the false individualists. I happily duck those controversies here and focus instead on points that are both less controversial among liberals and, in my view, indispensable to the full case for freedom. (In his book Classical Liberalism and the Austrian School, the great intellectual historian Ralph Raico criticizes [pdf] Hayek’s derogation of the French liberals. “Some might uncharitably suspect Hayek of a terminal Anglophilia which tended to blind him to some obvious facts,” Raico writes.)
The first point I draw attention to comes in Hayek’s discussion of Adam Smith’s view of mankind. Smith’s “chief concern,” Hayek wrote, was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. Their aim was a system under which it should be possible to grant freedom to all, instead of restricting it . . . to “the good and the wise.”
Keep this in mind the next time someone proclaims that a muscular State, unconstrained by strict rules, is needed to prevent flawed human beings from harming others. Then ask: What will keep the flawed–and privileged–human beings who have access to the violent power of the State from harming others? Those who are familiar with Hayek’s The Road to Serfdom, and especially his chapter “Why the Worst Get on Top,” will know what Hayek is getting at."
I’d love to quote it all but do not wish to trespass on The Freeman’s copyright; an example of refraining from doing harm either because I might get away with it at the risk of harm to the people at The Freeman, or because I recognise that laws protect all from the harm that might be caused by others and therefore should be obeyed, and, where necessary, only changed by due process not willful defiance.
[Follow the link above provided by The Freeman and read it for yourself.]
I think Sheldon Richman gives an account of the central tenets of a non-threatening libertarianism that I can go along with that is both persuasive and compelling. A lot of anarchists and libertarians that I know (not always the same people I find) would do well from considering what Hayek’s had to say on these subjects, which is close to Adam Smith’s philosophy. Hayek puts the state in its place within a libertarian society and protects it from the excesses of those who see States as the enemy, and from the other lot who see the State as an instrument for their particular proposals to ‘design’ a society in their image.
Sheldon puts in their proper place and perspective the ‘rational’ ‘maximisers’ of utility’ theorists that abound in modern economics and who design brilliant images of an economy that does not exist, in which Homo economicus is alive and well.
“What the economists understood for the first time,” Hayek wrote, “was that the market as it had grown up was an effective way of making man take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’.”
No individual, group of individuals be they ever so brilliant (and well meaning), or any collective of Government Ministers, know or can know enough about and economy to run such a complex social structure. Those who think they can are deluded. So are those who vote for them in the belief that they can acquire and apply such knowledge, are those who engage in civil disorder and violence in the belief that the outcome will improve the world.
The world changed from the long 200,000 years of permanent subsistence for the many and better than subsistence for rulers (for as long as they held onto power) up to the great revolution in the gradual spread of markets from the 17th- 18th century from North Western Europe (especially Holland and England) without anybody noticing, without imperial decrees, without Devine guidance, without a single manifesto, without a single prophet, or Great Leader, or a mass movement of proselytisers, and not even a visionary founder.
That part of the world that quietly adopted what had begun, amidst all the hustle and bustle of High Society vanity and place, who wasted millions on wars and people in genocides across the globe, which adoptees slowly and gradually discovered the power of individual drive, innovation, and enterprise, that changed the old, subsistence dependence in favour of rising per capita incomes for masses of people, into what we call development through discovering economic growth, technology, division of labour, and personal liberties. Those societies (China, particularly, but also many others) than discovered so much technology in anticipation of what was to follow, failed to carry their early start from the absence of liberty.
[I recommend to readers of Lost Legacy that they read Deirdre McCloksey’s “Bourgeois Dignity: why economics cannot explain the modern world”, Chicago, 2011, as well the rest of Sheldon Richman’s post in The Freeman HERE