Thursday, September 30, 2010

The Gold Nugget of Econ: Emerging Order
Cafe reader Walt wrote to me the following: "You and Russell named your blog Cafe Hayek. So what do you recommend as the single best summary by Hayek of his philosophy?"
Great question. I'm tempted to say Hayek's 1945 article, first appearing in the American Economic Review, "The Use of Knowledge in Society." But having just re-read (for two different conferences this summer) Hayek's three-volume work Law, Legislation, and Liberty, I will single out the first chapter of the first volume of L,L, and L. That chapter is entitled "Reason and Evolution." Here are some selections:
"This 'rationalist' approach, however, meant in effect a relapse into earlier, anthropomorphic models of thinking. It produced a renewed propensity to ascribe the origin of all institutions of culture to invention or design. Morals, religion and law, language and writing, money and the market, were thought of as having been deliberately constructed by somebody, or at least as owing whatever perfection they possessed to such design. This intentionalist or pragmatic account of history found its fullest expression in the conception of the formation of society by a social contract, first in Hobbes and then in Rousseau, who in many respects was a direct follower of Descartes [p. 10].
"The fact of our irremediable ignorance of most of the particular facts which determine the processes of society is, however, the reason why most social institutions have taken the form they actually have.  [M]ost of the rules of conduct which govern our actions, and most of the institutions which arise out of this regularity, are adaptations to the impossibility of anyone taking conscious account of all the particular facts which enter into the order of society. We shall see [in Vol. 2], in particular, that the possibility of justice rests on this necessary limitation of our factual knowledge, and that insight into the nature of justice is therefore denied to all those constructivists who habitually argue on the assumption of omniscience [p. 13].
"Yet it is the utilization of much more knowledge than anyone can possess, and therefore the fact that each moves within a coherent structure most of whose determinants are unknown to him, that constitutes the distinctive feature of all advanced civilizations.
"In civilized society it is indeed not so much the greater knowledge that the individual can acquire, as the greater benefit he receives from the knowledge possessed by others, which is the cause of his ability to pursue and infinitely wider range of ends than merely the satisfaction of his most pressing physical needs [p. 14].
"We shall find too that such current notions as that society 'acts' or that it 'treats', 'rewards', or 'remunerates' persons, or that it 'values' or 'owns' or 'controls' objects or services, or is 'responsible for' or 'guilty of' something, or that it has a 'will' or 'purpose', can be 'just' or 'unjust', or that the economy 'distributes' or 'allocates' resources, all suggest a false intentionalist or constructivist interpretation of words which might have been used without such connotation, but which almost invariably lead the user to illegitimate conclusions. We shall see that such confusions are at the root of the basic conceptions of highly influential schools of thought which have wholly succumbed to the belief that all rules or laws must have been invented or explicitly agreed upon by somebody. Only when it is wrongly assumed that all rules of just conduct have deliberately been made by somebody do such sophisms become plausible as that all power of making laws must be arbitrary, or that there must always exist an ultimate 'sovereign' source of power from which all law derives [p. 28].
"Reason is merely a discipline, an insight into the limitations of the possibilities of successful action, which often will tell us only what not to do. This discipline is necessary precisely because our intellect is not capable of grasping reality in all its complexity [p. 32]."
My selection of quotations reflects, of course, my own idiosyncracies. Read the entire chapter. In fact, read the entire volume - as well as volume 2. (But you can skip volume 3; it is surprisingly weak.)"

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