Hayek's Argument Research Articles

Economic planning must be polycentric, not monocentric: Introduction to a symposium on Mises and Hayek on socialism and knowledge

AbstractThe roaring (20‐) 20s are a decade of anniversaries and milestones. 2020 was the 100th anniversary of Ludwig von Mises's seminal article “Economic Calculation in the Socialist Commonwealth” and the 75th anniversary of F.A. Hayek's seminal article “The Use of Knowledge in Society.” 2022 brought a series of significant anniversaries: the 100th anniversary of Mises's Socialism: An Economic and Sociological Analysis as well as the 60th anniversary of James M. Buchanan and Gordon Tullock's The Calculus of Consent: Logical Foundations of Constitutional Democracy, Milton Friedman's Capitalism and Freedom, and Murray Rothbard's Man, Economy, and State. It was also the 20th anniversary of Vernon Smith's Nobel Prize. The works and milestones celebrating anniversaries in 2022 owe much to Mises's and Hayek's pathbreaking contributions. This paper summarizes and contextualizes Mises's and Hayek's arguments about socialism and knowledge and introduces a Southern Economic Journal symposium on the anniversaries of “Economic Calculation in the Socialist Commonwealth” and “The Use of Knowledge in Society.”

Hayekian Knowledge Problems in Organizational Theory

In his seminal 1945 essay Hayek argued that the dispersed nature of much commercially relevant knowledge places strong constraints on the feasibility of centralized allocation and coordination mechanisms, but that there remains a problem of making efficient use of such knowledge (the first Hayekian knowledge problem). He realized that firms, because they make use of authority, are also challenged by dispersed knowledge, and his emphasis on delegation as a response to dispersed knowledge may lead to the prediction that (large) firms shouldn't exist. Yet (large) firms obviously do exist (the second Hayekian knowledge problem). Recently, many management and organizational scholars have echoed Hayek's argument that centralized coordination mechanisms, such as authority, may fail in the presence of dispersed knowledge. We examine these modern arguments and argue that they rest on shaky foundations: dispersed knowledge is a less strong constraint on authority than is often thought. We examine the wider implications of this for knowledge-based arguments in management and organizational theory, and call for more research into the micro-foundations of such arguments.

What would have been Keynes' position in the socialist economic calculation debate and why it matters

The socialist economic calculation debate is an important episode in the history of economic thought. It represents the struggle of socialist economists against the claim made by Mises that socialism is theoretically impossible and Hayek's argument that it is practically unfeasible. Keynes showed little interest in both sides of that debate. But, if he had participated, what would have been his position? The paper proposes some possible answers to this question by arguing that he had a unique perspective on economic planning that did not suit the antagonistic sides of the controversy.

Hayek, Equilibrium, and The Role of Institutions in Economic Order

ABSTRACTIn the 1930s, socialist economists used the assumptions of equilibrium theory to argue that a central planner could coordinate supply and demand from above. This argument led Hayek, over the years, to try to explain the limitations of equilibrium theory and, conversely, to explain how capitalism functioned without the assumptions of equilibrium being met. In a changing world of agents who are ignorant of the future, how is a functioning market “order” possible? One answer can be found in Hayek's argument that evolved rules make people's future behavior more predictable and, more to the point, that they contain previously accumulated knowledge that provides the building blocks for future economic growth. Hayek's evolutionary theory was flawed, however, in failing to explain how people can know which rules are responsible for their success or failure so that they persist in using those rules and pass them forward in time. However, markets provide immediate feedback about success and failure through profits and losses. An evolutionary explanation of the economy would have permitted Hayek to dispense with the metaphor of general equilibrium, which was increasingly irrelevant to his understanding of economic order.

Hayek's Slippery Slope, the Stability of the Mixed Economy and the Dynamics of Rent Seeking

F. A. Hayek's The Road to Serfdom continues to provoke intense scholarly debate focused on the validity of Hayek's central claim that a mixed economy is inherently unstable and economic intervention will inexorably lead to totalitarianism if pursued for a sustained period. This article presents empirical evidence which shows conclusively that it is the mixed economy that has proved remarkably stable, whereas laissez-faire and totalitarian regimes have proved inherently unstable. It is argued that this empirical outcome can be explained by the dynamics of rent seeking and Hayek's failure to anticipate that the state could control more than half of national income without requiring a totalitarian apparatus to control and direct production and consumption. The implications of the failure of Hayek's argument for our conceptualisation of freedom and power in the context of the modern democratic state and our understanding of the relationship between economic and political freedom are considered.

Defending the open society: Foucault, Hayek, and the problem of biopolitical order

The aim of this paper is to throw new light on a previously neglected aspect of Hayek's political theory. In order to show the significance of Hayek's evolutionary argument, the paper draws on Foucault's thesis about the relationship between political order, life and war. Focusing on Hayek's conception of the open society and, in particular, on the evolutionary ontology that grounds it, the paper shows how his liberalism reflects the problematic that Foucault began to elucidate in his 1976 lecture course Society must be defended. The paper concludes by showing how the biopolitical dimension of Hayek's liberalism might affect our understanding of his political project.

BEFORE (AND AFTER) NEOLIBERALISM: Tacit Knowledge, Secrets of the Trade, and the Public Sector in Egypt

For anthropologists, the term neoliberal often becomes a shorthand for indicating all that is wrong with the present. But such usage of the term can foreclose our ability to imagine different futures. In this article, I go back to a time before neoliberalism, when economists and philosophers were engaged in debates about the rationality of economic planning within market economies, and in which the concept of “tacit knowledge” was pivotal. These 1920s and 1930s thinkers, especially Hayek and von Mises, were convinced that collectivism and planning would not work, and their work is cited still today as having established the basis for laissez-faire (neoliberal) capitalism. I critically juxtapose their findings with a historical analysis of the public sector in Egypt, with a short excursis into management theory (and research on tacit knowledge), and with my own ethnography. Looking at the case of a successful public sector banker I worked with in Cairo, I show how he relied on tacit knowledge as a collective inheritance that was embodied in collective subjects and “secrets of the trade.” My findings thus call into question Hayek's argument about the irrationality of collectivism and economic planning. They also point to the importance of tacit knowledge practices as collective and public goods in our economic imaginary of the future.

Philosophizing social justice in rural palliative care: Hayek's moral stone?

Increasingly, palliative care is being referred to as an essential programme and in some cases as a human right. Once it is recognized as such, it becomes part of the lexicon of social justice in that it can be argued that all members of society should have access to such care. However, this begs the question of how that care should be enacted, particularly in rural and remote areas. This question illustrates some of Friedrich Hayek's critiques of social justice. Hayek has likened social justice to a 'moral stone' arguing that social justice is meaningless to the extent that society is impersonal and as such cannot be just, only those individuals who make up that society can be just. When responsibility for justice is assigned to an impersonal society, ideas of social justice can become a clarion call for whom no one is directly accountable. This opens the door for questionable macro-level political agendas that have no capacity to enact the ideal, and worse, may suppress individual moral acts towards the desired end. Further, acts of interference at the macro level with the ideal of equal opportunity run the risk of disadvantaging other members of society. Instead, he has argued that a better approach lies in finding ways to induce and support individual moral acts that promote the human good. Hayek's arguments are particularly compelling for rural palliative care. In this paper we draw upon data from an ethnographic study in rural palliative care to illustrate the potential misfit between the ethical ideal of palliative care as expressed by rural participants and the narratives of social justice.

Hayek, Gödel, and the case for methodological dualism

On a few occasions F.A. Hayek made reference to the famous Gödel theorems in mathematical logic in the context of expounding his cognitive and social theory. The exact meaning of the supposed relationship between Gödel's theorems and the essential proposition of Hayek's theory of mind remains subject to interpretation, however. The author of this article argues that the relationship between Hayek's thesis that the human brain can never fully explain itself and the essential insight provided by Gödel's theorems in mathematical logic has the character of an analogy, or a metaphor. Furthermore the anti-mechanistic interpretation of Hayek's theory of mind is revealed as highly questionable. Implications for the Socialist Calculation Debate are highlighted. It is in particular concluded that Hayek's arguments for methodological dualism, when compared with those of Ludwig von Mises, actually amount to a strengthening of the case for methodological dualism.

Conceptualizing the Economic Role of the State: Laissez-Faire, Technocracy, and the Democratic Alternative

This article contrasts three visions of political economy that appear in the writings of Keynes, Hayek, and Polanyi, and discusses their relevance to current debates over economic policy in the United States. Keynes proposed optimizing market practices through technocratic governance. In recent decades, this influential approach has proven vulnerable to the revival of Hayek's laissez-faire arguments. Polanyi, by contrast, introduced a framework that criticizes both laissez-faire conceptions and the technocratic approach pioneered by Keynes. Because of its emphasis on democratic participation, Polanyi's reasoning provides the building blocks for a new type of contemporary progressive politics.

LAND REFORM AS SOCIAL JUSTICE: THE CASE OF SOUTH AFRICA

Hayek argues that when governments violate people's rights by imposing discriminatory laws it may be necessary to do something to correct the situation. He suggests limiting corrective actions in two ways: only address harms that occurred in the relatively recent past, and impose no new discrimination. As a result of a very long history of discriminatory legislation, black South Africans suffered substantial harms at the hands of past governments. Following the political transition in 1994, the new government implemented land reform policies designed, in part, to satisfy calls for social justice. This paper examines these policies in the context of Hayek's arguments.

Hayek's Ricardo Effect: A Second Look

I Introduction In this article we review a long-standing controversy in twentieth-century economic thought: the debate over Hayek's Ricardo effect. Hayek developed his interpretation of the Ricardo effect in the context of his theory of business cycles primarily in the late 1930s and early 1940s. At that Hayek's use of the familiar proposition was held up to close scrutiny by many talented critics, including Nicholas Kaldor, H. D. Dickinson, and R. G. Hawtry, all of whom, according to Hayek, failed to understand what he was saying. (1) In each case Hayek countered their criticism with a restatement of his proposition which in turn failed to satisfy the critics. (2) Indeed, this apparent miscommunication was still taking place as late as 1969 when Hayek wrote his last piece on the Ricardo effect in answer to a criticism leveled by Sir John Hicks. The purpose of our article is to discover whether in this debate it was Hayek who was out of step with the profession or the profession that was out of step with Hayek. We shall argue that the reason that Hayek's argument seemed so elusive to his contemporary colleagues (and some later critics) was that his method of analysis was foreign to their way of thinking. While English economists in the 1930s (especially after Keynes published the General theory) were concerned primarily with the static problem of balancing income and expenditure flows at acceptable levels of employment, Hayek was attempting to develop a dynamic theory of business cycles that involved tracing out the path of adjustment of the capital stock of an economy from one equilibrium state to another. This problem of describing the transitional process became the subject of serious professional attention long after the debate over the Ricardo effect was concluded. (3) In the course of our exposition, we will demonstrate that Hayek's Ricardo effect was not, in Blaug's words, only another instance of the vice of neoclassical economics: the hasty application of static theorems to the real world. (4) Indeed, we shall argue that this is the last accusation one could logically hurl at Hayek's analysis. The very reason why Hayek encountered so much difficulty in communicating his message was precisely that he was not presenting an exercise in comparative statics but was rather hypothesizing a particular adjustment process where the final equilibrium state depended upon the particular path of adjustment followed in the economy. In recent years the founders of the 'new classical economics' have praised the broad outlines of Hayek's approach to the business cycle. Robert Lucas pointed out that as early as 1929 Hayek articulated what remains today the single most important theoretical question in business cycle research. Hayek asked, How can cyclical phenomena be incorporated the system of economic equilibrium theory? (5) Lucas goes on to regret the unfortunate of research effort from a thoroughgoing theory of the business cycle to what, in Lucas's words, is the simpler question of the determination of output at a point in time (6) It is well known that Hayek also regretted the unfortunate Keynesian diversion and resisted the redirection of research away from what he considered to be one of the most important macroeconomic questions: how production structures adjust to the underlying demand conditions and savings patterns of the community. It was this concern that made him wary of an economic theory that made it appear possible to push an economy into a perpetual state of boom. (7) He feared that instead of perpetual boom, inflationist policies would result in short-term, illusory gains followed by a collapse with all of its undesirable macroeconomic effects. Hayck's approach (much like the modern approach of Lucas and others) was to derive macroeconomic consequences from an analysis of the self-interested behavior of market participants. …

ハイエクの民主政治論における懐疑と失望

ハイエクの民主政治論における懐疑と失望

Planning and Know-how: The Relationship between Knowledge and Calculation in Hayek's Case for Markets

Ludwig von Mises' calculation argument against socialism is of fundamental importance to the modern-day case for the market. Yet it is to Hayek that some Austrian-influenced theorists turn when responding to the computational models for non-market price fixing proposed by some socialists. Their reading of Hayek's epistemological argument for markets as distinct from Mises' calculation argument needs to be questioned. Hayek's emphasis upon the dispersal of knowledge across space and time is consistent with Mises' position. In spite of his philosophical critique of rationalist constructivism and his treatment of tacit knowledge, Hayek's case for the market ultimately relies upon the Misean calculation argument. Hayek's work is therefore best understood as a shift in emphasis rather than as a philosophical departure from Mises' position.

Ecological economics and the politics of knowledge: the debate between Hayek and Neurath

Hayek's epistemic arguments against planning were aimed not just against socialism but also the tradition of ecological economics. The concern with the physical preconditions of economic activity and defence of non-monetary measures in economic choice were expressions of the same rationalist illusion about the scope of human knowledge that underpinned the socialist project. Neurath's commitment to physicalism, in natura calculation and planning typified these errors. Neurath responded to these criticisms in unpublished notes and correspondence with Hayek. These highlighted the epistemological premises his work shared with Hayek's, representing a response to Hayek from Hayek's own assumptions. This paper examines the cogency and continuing relevance of the arguments in this debate.

29 Hayek: “Almost Persuaded”

It was a lay enthusiasm for Henry George which led me to economics. So wrote Friedrich August yon Hayek in a letter to Peter K. Minton in 1962. (1) Elsewhere, he explained that this enthusiasm came about as the result of his having been exposed to a group of single-taxers as a first-year law student the University of Vienna just after World War I. (2) In time, however, Hayek came to reject the Georgist model because of an objection he set forth in his magnum opus, The Constitution of Liberty. This objection constitutes a superficially formidable argument that the defenders of Georgism seem almost wholly to have neglected. The reason for this neglect is probably threefold: First, the argument is readily overlooked, occupying, as it does, a single paragraph in a book of more than 500 pages. Second, it is easily confused with a different argument--one that has been widely, and to the satisfaction of probably all Georgists, conclusively, refuted. Third, it is expressed following a technically inaccurate definition on Hayek's part of the model to which his objection is directed. However, the validity of his objection does not depend upon the accuracy of his definition, and his argument calls for a scholarly rejoinder, not merely in view of its author's towering prestige, but due to the fact that, once disentangled from its flawed context and correctly understood, it seems first blush compelling on its merits. The Issue of Separability Hayek's argument is important because, although presented in a discussion having to do with practical difficulties of town planning, it attacks the moral basis of Georgist theory. That basis is expressed by Nicolaus Tideman, who distinguishes three different sources of the rent of land: (1) the value attributable to nature; (2) the value attributable to public services; and (3) the value attributable to activities. By private activities, he means aggregate improvements and other nongovernmental operations that positively impact a neighborhood. With respect to the last of these sources, Tideman asserts that [t]hese increments of rent are not due to the actions of the landholders, so landholders cannot justly complain if the increments are collected publicly. (3) While this claim may be very largely true, since such increments usually accrue to owners who have done little (or even nothing all) to earn them, there are instances in which such increments of land value on a given site are the result of improvements by the owner of that site, either to it or to adjacent ones he also owns. A perceptive Australian writer, Philip Day, notes that at least in some circumstances, some parts of increased land value can be attributed to the of development constructed by individual landholders, rather than being wholly attributable to public planning decisions or to population growth and general community development. (4) An obvious example would be Disney World, (5) although in this instance, as in many others, quality should be understood to embrace more than architectural superiority. One might properly claim that it is in the Disney Corporation's capacity as developer and not as owner that the improvements have been made, and cite numerous examples to show that the incentive to improve a site need not depend on owning it. (6) However, this would not address the problem that Hayek regarded as insuperable--that of separating the increments of value created by the owner (or his predecessors in title) from those created by natural advantages, public services, or the activities of others. Let us now, therefore, examine the passage in which he made this point: There still exist some organized groups who contend that all these difficulties could be solved by the adoption of the single-tax plan, that is, by transferring the ownership of all land to the community and merely leasing it rents determined by the market to developers. …

Socialism, associations and the market

Hayek's epistemic arguments against central planning and in defence of market economies have recently been redeployed by some market-socialists against more decentralized models of non-market socialism. This paper considers the cogency of these arguments through an examination of an unpublished exchange in the socialist calculation debates between Hayek and a proponent of non-market associational models of socialism, Otto Neurath. Contrary to the standard view of the debates, Neurath shared many of the assumptions of Hayek's epistemic arguments and similarly criticized technocratic models of planning. The paper outlines Neurath's defence of associational socialism from his early role in the Bavarian revolution through his engagement in the post-war housing movements in Vienna and the unity of science movement. While Neurath's response to Hayek is not entirely successful, his proposals for associational models of socialism point to problems not just in Hayek's criticisms of non-market socialism, but also those of more recent market-socialists.

Profit Expectations and Confidence: Some unresolved issues in the Austrian/Post-Keynesian debate

Austrian and Post-Keynesian economists both continue to make important contributions to subjectivism in economics. Yet, as the ongoing debate between members of the two schools demonstrates, Austrians and Post-Keynesians have very different views about the possibility of intertemporal coordination in a market economy. This paper returns to the debate between Hayek and Keynes in order to respond to a contemporary Austrian critique of Keynes's theory of expectations. The paper shows that the fundamental difference between the two schools ultimately boils down to the nature of conventional expectations and the question of confidence. If the conventional expectation holds to assume the future will look enough like the present to give investors confidence in their decisions, Hayek's arguments about the possibility of intertemporal coordination merit attention. If, however, this convention does not hold, as Keynes thought was sometimes likely, the self-regulating potential of a market economy is called into question.

Hayek: A Commemorative Album

Hayek: A Commemorative Album By John Raybould. London: Adam Smith Institute, 1998. Pp. 120. $25 (paperback). For most economists, interest in their work peaks during their productive middle years and trails off relentlessly once they retire from academic life. For Friedrich Hayek, however, professional recognition has followed a very different path. He was first a star during his early career at the London School of Economics (LSE); then he was relatively neglected during what should have been the peak of his career. Interest in his work picked up after he received the Nobel prize in 1974 at age 75 and has continued to gather a momentum that shows no signs of abating even now, eight years after his death. Indeed, the last decade has been marked by a growing tide of scholarly assessments, critiques, and analyses of his work. During this time, at least two dozen books and over 100 articles have appeared, all overtly concerned with what is increasingly recognized as the deeply complex ideas that Hayek produced over the seven decades of his active professional life. He was once scorned as a dinosaur among economists (p. 78), but his work has now given rise to a mini-industry of Hayek scholarship. Even more remarkable, he is also enjoying an unprecedented amount of favorable attention in more popular publications, such as the New Yorker magazine (Cassidy 2000) and the Times Literary Supplement (Miogue 2000). Why all this belated attention to Hayek now, in the 10th decade after his birth? One likely answer is that the recent failure of central planning has caused academic economists to take another look at Hayek's earlier criticisms of the economics of socialism, many of which seem to have been vindicated by actual events. Additionally, Hayek's political argument that market economies and democracy are inextricably linked resonates more in the postcommunist world than it did in the days of enthusiasm for government as the solution rather than as the problem. One might also point out that Hayek's psychology and social dynamics are increasingly being recognized as prescient harbingers of recent developments in such areas as cognitive psychology, complexity theory, or the new institutional economics. These reasons surely help explain why so many people went out of their way last year to celebrate Hayek's 100th birthday with conferences, articles, and volumes dedicated to his thought. Hayek: A Commemorative Album in some respects is both a symptom of the rising tide of interest in Friedrich Hayek, and, although officially released in 1998, a part of last year's birthday festivities. Hayek: A Commemorative' Album is not the kind of book one normally would review for a scholarly journal. As its name implies, it is really more a compilation of photographs and documents supplemented by well-written narrative about the man and his work than a serious biography. Nevertheless, the book warrants attention for two reasons. First, there is no other biography to which a Hayek scholar can turn for a comprehensive chronology of his life. Hayek on Hayek, a series of taped interviews with Hayek published by the University of Chicago Press (Hayek 1994) is the closest thing to a biography currently available, but the unsystematic reflections that one might expect in a set of published interviews makes its use as a research tool problematic. Although the Album is not a suitable tool for serious research-nor does it claim to be-the clarity of the text, its organized presentation, and the scope of its subject matter make it a useful volume until a real biography comes along. The second reason for reading this book is more direct: It is simply a delightful book to read after dinner with, in deference to Hayek's Austrian birth and British citizenship, perhaps a cup of coffee and a glass of port for company. Since the volume is labeled an album, the photographs, rather than the text, are clearly meant to be the central focus. …

From The Sensory Order to the Liberal Order: Hayek's Non-rationalist Liberalism ⁄

Hayek's arguments for a constitutionally constrainted government are consistent with, and to some extent rest upon, his work in theoretical psychology. By exploring his view of the mind in The Sensory Order, we can see the psychological and epistemological underpinnings of Hayek's belief in the mind's limits and the indispensibility of spontaneously emergent social institutions. The Austrian view of microeconomic coordination is a logical outgrowth of Hayek's theory of mind. Constraints on government are necessary not because self-interest leads rational government actors into temptation, but because even altruistically-motivated actors are epistemically unable to intervene effectively in spontaneously emergent institutions.