Essay Classical Liberalism

Part 1

Classical liberalism — or simply liberalism, as it was called until around the turn of the century — is the signature political philosophy of Western civilization. Hints and suggestions of the liberal idea can be found in other great cultures. But it was the distinctive society produced in Europe — and in the outposts of Europe, above all, America — that served as the seedbed of liberalism. In turn, that society was decisively shaped by the liberal movement.

Decentralization and the division of power have been the hallmarks of the history of Europe. After the fall of Rome, no empire was ever able to dominate the continent. Instead, Europe, became a complex mosaic of competing nations, principalities, and city-states. The various rulers found themselves in competition with each other. If one of them indulged in predatory taxation or arbitrary confiscations of property, he might well lose his most productive citizens, who could “exit,” together with their capital. The kings also found powerful rivals in ambitious barons and in religious authorities who were backed by an international Church. Parliaments emerged that limited the taxing power of the king, and free cities arose with special charters that put the merchant elite in charge.

By the Middle Ages, many parts of Europe, especially in the west, had developed a culture friendly to property rights and trade. On the philosophical level, the doctrine of natural law — deriving from the Stoic philosophers of Greece and Rome — taught that the natural order was independent of human design and that rulers were subordinate to the eternal laws of justice. Natural-law doctrine was upheld by the Church and promulgated in the great universities, from Oxford and Salamanca to Prague and Krakow.

As the modern age began, rulers started to shake free of age-old customary constraints on their power. Royal absolutism became the main tendency of the time. The kings of Europe raised a novel claim: they declared that they were appointed by God to be the fountainhead of all life and activity in society. Accordingly, they sought to direct religion, culture, politics, and, especially, the economic life of the people. To support their burgeoning bureaucracies and constant wars, the rulers required ever-increasing quantities of taxes, which they tried to squeeze out of their subjects in ways that were contrary to precedent and custom.

The first people to revolt against this system were the Dutch. After a struggle that lasted for decades, they won their independence from Spain and proceeded to set up a unique polity. The United Provinces, as the radically decentralized state was called, had no king and little power at the federal level. Making money was the passion of these busy manufacturers and traders: they had no time for hunting heretics or suppressing new ideas. Thus, de facto religious toleration and a wide-ranging freedom of the press came to prevail. Devoted to industry and trade, the Dutch established a legal system based solidly on the rule of law and the sanctity of property and contract. Taxes were low, and everyone worked. The Dutch “economic miracle” was the wonder of the age. Thoughtful observers throughout Europe noted the Dutch success with great interest.

A society in many ways similar to Holland had developed across the North Sea. In the 17th century, England, too, was threatened by royal absolutism, in the form of the House of Stuart. The response was revolution, civil war, the beheading of one king and the booting out of another. In the course of this tumultuous century, the first movements and thinkers appeared who can be unequivocally identified as liberal.

With the king gone, a group of middle-class radicals emerged called the Levellers. They protested that not even Parliament had any authority to usurp the natural, God-given rights of the people. Religion, they declared, was a matter of individual conscience: it should have no connection with the state. State-granted monopolies were likewise an infringement of natural liberty. A generation later, John Locke, drawing on the tradition of natural law that had been kept alive and elaborated by the Scholastic theologians, set forth a powerful liberal model of man, society, and state. Every man, he held, is innately endowed with certain natural rights. These consist in his fundamental right to what is his property — that is, his life, liberty, and “estates” (or material goods). Government is formed simply the better to preserve the right to property. When, instead of protecting the natural rights of the people, a government makes war upon them, the people may alter or abolish it. The Lockean philosophy continued to exert influence in England for generations to come. In time, its greatest impact would be in the English-speaking colonies in North America.

The society that emerged in England after the victory over absolutism began to score astonishing successes in economic and cultural life. Thinkers from the continent, especially in France, grew interested. Some, like Voltaire and Montesquieu, came to see for themselves. Just as Holland had acted as a model before, now the example of England began to influence foreign philosophers and statesmen. The decentralization that has always marked Europe allowed the English “experiment” to take place and its success to act as a spur to other nations.

In the 18th century, thinkers were discovering a momentous fact about social life: given a situation where men enjoyed their natural rights, society more or less runs itself. In Scotland, a succession of brilliant writers that included David Hume and Adam Smith outlined the theory of the spontaneous evolution of social institutions. They demonstrated how immensely complex and vitally useful institutions — language. morality, the common law, above all, the market — originate and develop not as the product of the designing minds of social engineers, but as the result of the interactions of all the members of society pursuing their individual goals.

In France, economists were coming to similar conclusions. The greatest of them, Turgot, set forth the rationale for the free market:

“The policy to pursue, therefore, is to follow the course of nature, without pretending to direct it For, in order to direct trade and commerce it would be necessary to be able to have knowledge of all of the variations of needs, interests, and human industry in such detail as is physically impossible to obtain even by the most able, active, and circumstantial government. And even if a government did possess such a multitude of detailed knowledge, the result would be to let things go precisely as they do of themselves, by the sole action of the interests of men prompted by free competition.”

The French economists coined a term for the policy of freedom in economic life: they called it laissez-faire. Meanwhile, starting in the early 17th century, colonists coming mainly from England had established a new society on the eastern shores of North America. Under the influence of the ideas the colonists brought with them and the institutions they developed, a unique way of life came into being. There was no aristocracy and very little government of any kind. Instead of aspiring to political power, the colonists worked to carve out a decent existence for themselves and their families.

Fiercely independent, they were equally committed to the peaceful — and profitable — exchange of goods. A complex network of trade sprang up, and by the mid-18th century, the colonists were already more affluent than any other commoners in the world. Self-help was the guiding star in the realm of spiritual values as well. Churches, colleges, lending-libraries, newspapers, lecture-institutes, and cultural societies flourished through the voluntary cooperation of the citizens.

When events led to a war for independence, the prevailing view of society was that it basically ran itself. As Tom Paine declared:

“Formal government makes but a small part of civilized life. It is to the great and fundamental principles of society and civilization — to the unceasing circulation of interest, which passing through its million channels, invigorates the whole mass of civilized man — it is to these, infinitely more than to anything which even the best instituted government can perform that the safety and prosperity of the individual and the whole depend. In fine, society performs for itself almost everything which is ascribed to government. Government is no further necessary than to supply the few cases to which society and civilization are not conveniently competent.”

In time, the new society formed on the philosophy of natural rights would serve as an even more luminous exemplar of liberalism to the world than had Holland and England before it.

Part 2: Triumphs and Challenges

As the nineteenth century began, classical liberalism — or just liberalism as the philosophy of freedom was then known — was the specter haunting Europe — and the world. In every advanced country the liberal movement was active.

Drawn mainly from the middle classes, it included people from widely contrasting religious and philosophical backgrounds. Christians, Jews, deists, agnostics, utilitarians, believers in natural rights, freethinkers, and traditionalists all found it possible to work towards one fundamental goal: expanding the area of the free functioning of society and diminishing the area of coercion and the state.

Emphases varied with the circumstances of different countries. Sometimes, as in Central and Eastern Europe, the liberals demanded the rollback of the absolutist state and even the residues of feudalism. Accordingly, the struggle centered around full private property rights in land, religious liberty, and the abolition of serfdom. In Western Europe, the liberals often had to fight for free trade, full freedom of the press, and the rule of law as sovereign over state functionaries.

In America, the liberal country par excellence, the chief aim was to fend off incursions of government power pushed by Alexander Hamilton and his centralizing successors, and, eventually, somehow, to deal with the great stain on American freedom — Negro slavery.

From the standpoint of liberalism, the United States was remarkably lucky from the start. Its founding document, the Declaration of Independence, was composed by Thomas Jefferson, one of the leading liberal thinkers of his time. The Declaration radiated the vision of society as consisting of individuals enjoying their natural rights and pursuing their self-determined goals. In the Constitution and the Bill of Rights, the Founders created a system where power would be divided, limited, and hemmed in by multiple constraints, while individuals went about the quest for fulfillment through work, family, friends, self-cultivation, and the dense network of voluntary associations. In this new land, government — as European travelers noted with awe — could hardly be said to exist at all. This was the America that became a model to the world.

One perpetuator of the Jeffersonian tradition in the early 19th century was William Leggett, a New York journalist and antislavery Jacksonian Democrat. Leggett declared:

“All governments are instituted for the protection of person and property; and the people only delegate to their rulers such powers as are indispensable to these objects. The people want no government to regulate their private concerns, or to prescribe the course and mete out the profits of their industry. Protect their persons and property, and all the rest they can do for themselves.”

This laissez-faire philosophy became the bedrock creed of countless Americans of all classes. In the generations to come, it found an echo in the work of liberal writers like R L. Godkin, Albert Jay Nock, H. L. Mencken, Frank Chodorov, and Leonard Read. To the rest of the world, this was the distinctively, characteristically American outlook.

Meanwhile, the economic advance that had been slowly gaining momentum in the Western world burst out in a great leap forward. First in Britain, then in America and Western Europe, the Industrial Revolution transformed the life of man as nothing had since the neolithic age. Now it became possible for the vast majority of mankind to escape the immemorial misery they had grown to accept as their unalterable lot. Now tens of millions who would have perished in the inefficient economy of the old order were able to survive. As the populations of Europe and America swelled to unprecedented levels, the new masses gradually achieved living standards unimaginable for working people before.

The birth of the industrial order was accompanied by economic dislocations. How could it have been otherwise? The free-market economists preached the solution: security of property and hard money to encourage capital formation, free trade to maximize efficiency in production, and a clear field for entrepreneurs eager to innovate. But conservatives, threatened in their age-old status, initiated a literary assault on the new system, giving the Industrial Revolution a bad name from which it never fully recovered. Soon the attack was gleefully taken up by groups of socialist intellectuals that began to emerge.

Still, by mid-century the liberals went from one victory to another. Constitutions with guarantees of basic rights were adopted, legal systems firmly anchoring the rule of law and property rights were put in place, and free trade was spreading, giving birth to a world economy based on the gold standard.

There were advances on the intellectual front as well. After spearheading the campaign to abolish the English Corn Laws, Richard Cobden developed the theory of nonintervention in the affairs of other countries as a foundation for peace. Frederic Bastiat put the case for free trade, non intervention, and peace in a classic form. Liberal historians like Thomas Macaulay and Augustin Thierry uncovered the roots of freedom in the West. Later in the century, the economic theory of the free market was placed on a secure scientific footing with the rise of the Austrian School, inaugurated by Carl Menger.

The relation of liberalism and religion presented a special problem. In continental Europe and Latin America, freethinking liberals sometimes used the state power to curtail the influence of the Catholic Church, while some Catholic leaders clung to obsolete ideas of theocratic control. But liberal thinkers like Benjamin Constant, Alexis de Tocqueville, and Lord Acton saw beyond such futile disputes. They stressed the crucial role that religion, separated from government power, could play in stemming the growth of the centralized state. In this way, they prepared the ground for the reconciliation of liberty and religious faith.

Then, for reasons still unclear, the tide began to turn against the liberals. Part of the reason is surely the rise of the new class of intellectuals that proliferated everywhere. That they owed their very existence to the wealth generated by the capitalist system did not prevent most of them from incessantly gnawing away at capitalism, indicting it for every problem they could point to in modern society.

At the same time, voluntary solutions to these problems were preempted by state functionaries anxious to expand their domain. The rise of democracy may well have contributed to liberalism’s decline by aggravating an age-old feature of politics: the scramble for special privilege. Businesses, labor unions, farmers, bureaucrats, and other interest groups vied for state privileges — and found intellectual demagogues to rationalize their depredations. The area of state control grew, at the expense, as William Graham Sumner pointed out, of “the forgotten man” — the quiet, productive individual who asks no favor of government and, through his work, keeps the whole system going.

By the end of the century, liberalism was being battered on all sides. Nationalists and imperialists condemned it for promoting an insipid peace instead of a virile and bracing belligerency among the nations. Socialists attacked it for upholding the “anarchical” free-market system instead of “scientific” central planning. Even church leaders disparaged liberalism for its alleged egotism and materialism. In America and Britain, social reformers around the dawn of the century conceived a particularly clever gambit. Anywhere else the supporters of state intervention and coercive labor-unionism would have been called “socialists” or “social democrats.” But since the English-speaking peoples appeared for some reason to have an aversion to those labels, they hijacked the term “liberal.”

Though they fought on to the end, a mood of despondency settled on the last of the great authentic liberals. When Herbert Spencer began writing in the 1840s, he had looked forward to an age of universal progress in which the coercive state apparatus would practically disappear. By 1884, Spencer could pen an essay entitled, “The Coming Slavery.” In 1898, William Graham Sumner, American Spencerian, free-trader, and gold-standard advocate, looked with dismay as America started on the road to imperialism and global entanglement in the Spanish-American War: he titled his response to that war, grimly, “The Conquest of the United States by Spain.”

Everywhere in Europe there was a reversion to the policies of the absolutist state, as government bureaucracies expanded. At the same time, jealous rivalries among the Great Powers led to a frenzied arms race and sharpened the threat of war. In 1914, a Serb assassin threw a spark onto the heaped-up animosity and suspicion, and the result was the most destructive war in history to that point. In 1917, an American president keen to create a New World Order led his country into the murderous conflict “War is the health of the state,” warned the radical writer Randolph Bourne. And so it proved to be. By the time the butchery ended, many believed that liberalism in its classical sense was dead.

Part 3: The 20th Century

The First World War was the watershed of the twentieth century. Itself the product of antiliberal ideas and policies, such as militarism and protectionism, the Great War fostered statism in every form. In Europe and America, the trend towards state intervention accelerated, as governments conscripted, censored, inflated, ran up mountains of debts, co-opted business and labor, and seized control of the economy. Everywhere “progressive” intellectuals saw their dreams coming true. Thee old laissez-faire liberalism was dead, they gloated, and the future belonged to collectivism. The only question seemed to be: which kind of collectivism?

In Russia, the chaos of the war permitted a small group of Marxist revolutionaries to grab power and establish a field headquarters for world revolution. In the nineteenth century, Karl Marx had concocted a secular religion with a potent appeal. It held out the promise of the final liberation of man through replacing the complex, often baffling world of the market economy by conscious, “scientific” control. Put into practice by Lenin and Trotsky in Russia, the Marxist economic experiment resulted in catastrophe. For the next seventy years, Red rulers lurched from one patchwork expedient to another. But terror kept them firmly in charge, and the most colossal propaganda effort in history convinced intellectuals both in the West and in the emerging Third World that communism was, indeed, “the radiant future of all mankind.”

The peace treaties cobbled together by President Woodrow Wilson and the other Allied leaders left Europe a seething cauldron of resentment and hate. Seduced by nationalist demagogues and terrified of the Communist threat, millions of Europeans turned to the forms of state worship called Fascism and National Socialism, or Nazism. Though riddled with economic error, these doctrines promised prosperity and national power through integral state control of society, while fomenting more and greater wars.

In the democratic countries, milder forms of statism were the rule. Most insidious of all was the form that had been invented in the 1880s, in Germany. There Otto von Bismarck, the Iron Chancellor, devised a series of old-age, disability, accident, and sickness insurance schemes, run by the state. The German liberals of the time argued that such plans were simply a reversion to the paternalism of the absolutist monarchies. Bismarck won out, and his invention — the welfare state — was eventually copied everywhere in Europe, including the totalitarian countries. With the New Deal, the welfare state came to America.

Still, private property and free exchange continued as the basic organizing principles of Western economies. Competition, the profit motive, the steady accumulation of capital (including human capital), free trade, the perfecting of markets, increased specialization — all worked to promote efficiency and technical progress and with them higher living standards for the people. So powerful and resilient did this capitalist engine of productivity prove to be that widespread state intervention, coercive labor-unionism, even government-generated depressions and wars could not check economic growth in the long run.

The 1920s and ’30s represent the nadir of the classical-liberal movement in this century. Especially after government meddling with the monetary system led to the crash of 1929 and the Great Depression, dominant opinion held that history had closed the books on competitive capitalism, and with it the liberal philosophy.

If a date were to be put on the rebirth of classical liberalism, it would be 1922, the year of the publication of Socialism, by the Austrian economist Ludwig von Mises. One of the most remarkable thinkers of the century, Mises was also a man of unflinching courage. In Socialism, he threw down the gauntlet to the enemies of capitalism. In effect, he said: “You accuse the system of private property of causing all social evils, which only socialism can cure. Fine. But would you now kindly do something you have never deigned to do before: would you explain how a complex economic system will be able to operate in the absence of markets, and hence prices, for capital goods?” Mises demonstrated that economic calculation without private property was impossible, and exposed socialism for the passionate illusion it was.

Mises’s challenge to the prevailing orthodoxy opened the minds of thinkers in Europe and America. F.A. Hayek, Wilhelm Roepke, and Lionel Robbins were among those whom Mises converted to the free market. And, throughout his very long career, Mises elaborated and reformed his economic theory and social philosophy, becoming the acknowledged premier classical-liberal thinker of the twentieth century.

In Europe and particularly in the United States, scattered individuals and groups kept something of the old liberalism alive. At the London School of Economics and the University of Chicago, academics could be found, even in the 1930s and ’40s, who defended at least the basic validity of the free-enterprise idea. In America, an embattled brigade of brilliant writers, mainly journalists, survived. Now known as the “Old Right,” they included Albert Jay Nock, Frank Chodorov, H. L. Mencken, Felix Morley, and John T. Flynn. Spurred to action by the totalitarian implications of Franklin Roosevelt’s New Deal, these writers reiterated the traditional American creed of individual freedom and scornful distrust of government. They were equally opposed to Roosevelt’s policy of global meddling as subversive of the American Republic. Supported by a few courageous publishers and businessmen, the “Old Right” nursed the flame of Jeffersonian ideals through the darkest days of the New Deal and the Second World War.

With the end of that war, what can be called a movement came into being. Small at first, it was fed by multiplying streams. Hayek’s Road to Serfdom, published in 1944, alerted many thousands to the reality that, in pursuing socialist policies, the West was risking the loss of its traditional free civilization. In 1946, Leonard Read established The Foundation for Economic Education, in Irvington, New York, publishing the works of Henry Hazlitt and other champions of the free market. Mises and Hayek, now both in the United States, continued their work. Hayek led in founding the Mont Pelerin Society, a group of classical-liberal scholars, activists, and businessmen from all over the world. Mises, unsurpassed as a teacher, set up a seminar at New York University, attracting such students as Murray Rothbard and Israel Kirzner. Rothbard went on to wed the insights of Austrian economics to the teachings of natural law to produce a powerful synthesis that appealed to many of the young. At the University of Chicago, Milton Friedman, George Stigler, and Aaron Director led a group of classical-liberal economists whose specialty was exposing the defects of government action. The gifted novelist Ayn Rand incorporated emphatically libertarian themes in her well-crafted best-sellers, and even founded a school of philosophy.

The reaction to the renewal of authentic liberalism on the part of the left — “liberal” — more accurately, social-democrat-establishment was predictable, and ferocious. In 1954, for instance, Hayek edited a volume entitled Capitalism and the Historians, a collection of essays by distinguished scholars arguing against the prevailing socialist interpretation of the Industrial Revolution. A scholarly journal permitted Arthur Schlesinger, Jr., Harvard professor and New Deal hack, to savage the book in these terms: “Americans have enough trouble with home-grown McCarthys without importing Viennese professors to add academic luster to the process.” Other works the establishment tried to kill by silence. As late as 1962, not a single prominent magazine or newspaper chose to review Friedman’s Capitalism and Freedom. Still, the writers and activists who led the revival of classical liberalism found a growing resonance among the public. Millions of Americans in all walks of life had all along quietly cherished the values of the free market, and private property. The growing presence of a solid corps of intellectual leaders now gave many of these citizens the heart to stand up for the ideas they had held dear for so long.

In the 1970s and ’80s, with the evident failure of socialist planning and interventionist programs, classical liberalism became a world-wide movement. In Western countries, and then, incredibly, in the nations of the former Warsaw Pact, political leaders even declared themselves disciples of Hayek and Friedman. As the end of the century approached, the old, authentic liberalism was alive and well, stronger than it had been for a hundred years.

And yet, in Western countries, the state keeps on relentlessly expanding, colonizing one area of social life after the other. In America, the Republic is fast becoming a fading memory, as federal bureaucrats and global planners divert more and more power to the center. So the struggle continues, as it must. Two centuries ago, when liberalism was young, Jefferson had already informed us of the price of liberty.

This essay republished courtesy of The Future of Freedom Foundation. You can read the original here in three installments.

Source: This essay first appeared in the journal Literature of Liberty: A Review of Contemporary Liberal Thought , vol. V, no. 4, Winter 1982 published by the Cato Institute (1978-1979) and the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio. It is republished with thanks to the original copyright holders.

The political philosopher John Gray has written on Hayek, Isaiah Berlin, John Stuart Mill, and the liberal tradition.

F.A. Hayek and the Rebirth of Classical Liberalism: A Bibliographical Essay by John Gray

Table of Contents


Introduction: The Revival of Interest in Hayek - A Unified Research Program in Hayek's Writings?

In the recent revival of public and scholarly interest in the values of limited government and the market order, no one has been more centrally significant than Friedrich A. Hayek. His works have figured as a constant point of reference in the discussions both of the libertarian and conservative theories of the market economy; they have also provided a focal point of attack for interventionist and collectivist critics of the market. Hayek's return to such a pivotal position in intellectual life is remarkable when we recall that for several decades his work was subjected to neglect and obscurity. It was not until 1974 at the age of 75 that he was belatedly acknowledged by being awarded the Nobel Memorial Prize in Economic Science. During the three decades after 1945, when certain Keynesian ideas seemed to have been vindicated by the prevailing government policies of economic interventionism, Hayek may have seemed an intransigent and isolated figure, whose chief importance was that of an indefatigable critic of the spirit of the age. It was, however, during these very same years, in which he turned from economic theory to political thought, that Hayek made his greatest contributions thus far to the formulation of a public philosophy, including most notably his Constitution of Liberty (1960), surely the most powerful and profound defense of individual freedom in our time. It is noteworthy that, in the revival of interest in Hayek's work, his contributions to political philosophy have attracted as much interest as have his works in economic theory.

The Unity and Coherence of Hayek's Writings: Conception of Mind & Unity of Knowledge

In all of this revival of scholarly interest, however, Hayek's work has rarely been viewed as a whole. In fact, it has often been suggested that what we find in his writings is a series of unconnected episodes, in which questions are addressed in a variety of disciplines on a number of disparate historical occasions, rather than a coherent research program implemented over the years. Even Hayek's friends have sometimes discerned important tensions and conflicts in his writings, leading them to argue that his work encompasses methodological and political positions which are in the last resort incompatible. Against this view, to which I once subscribed myself, I want now to submit that Hayek's work does indeed disclose a coherent system of ideas. Hayek's system of ideas may not perhaps be wholly stable, but in this system positions covering a range of academic disciplines are in fact informed and unified by a small number of fundamental philosophical conceptions. Identifying these basic philosophical positions, and showing how they infuse his entire work, is the chief aim of this review of Hayek's work. It will not be my argument that Hayek's system lacks difficulties or internal tensions. I will try, however, to show that his work is given a cohesive and unitary character by the claims in theory of knowledge and in theoretical psychology which inform and govern his contributions to many specific debates.

My strategy in this survey of Hayek's work is to seek the unifying wellspring of his thought in his conception of the mind and in his account of the nature and limits of human knowledge. My argument will be that Hayek's general philosophy - a highly distinctive development of post-Kantian critical philosophy - informs and shapes his contributions to a variety of academic disciplines (jurisprudence and social philosophy as much as economic theory and the history of ideas), and Hayek's philosophy does so in ways that have been persistently neglected or misunderstood. In particular, Hayek's account of the structure of the mind, of the nature and limits of human knowledge, and of the use and abuse of reason in human life pervades his writings down to their last details, and gives to his work over the years and across many disciplinary boundaries the character of a coherent system. We can see the structure of Hayek's system of ideas and we can realize its capacity to yield an integrated view of man and society only when we have adequately specified its philosophical foundations. It is only once we have grasped these philosophical foundations of his thought, again, that we may fully appreciate his originality as a thinker and the measure of his achievement as a social theorist.

Overview of Topics Covered in This Essay

I begin my survey by examining briefly the chief claims Hayek makes in his centrally important but sadly neglected treatise in theoretical psychology, The Sensory Order (1952), where he most systematically and explicitly develops his account of the mind and of human knowledge. Having set out the principal features of Hayek's view of the mind and of the forms of human knowledge, I shall try to show how these conceptions inform his account of a spontaneous order in society, and how they condition his distinction between 'economy' and 'catallaxy,' his elaboration of the argument about economic calculation under socialism, and his distinctive position as to the appropriate theory and methods for economics. I proceed then to examine how Hayek applies his general philosophy to the relations of individual liberty with the rule of law. In the course of this survey I will canvass some of the most important criticisms of Hayek's system, concentrating particularly on the claim that his conception of a spontaneous order in society is unclear, and his use of it objectionable. It is often argued that, when taken in conjunction with its twin idea of cultural evolution by the natural selection of rival social practices, the idea of spontaneous social order has a conservative rather than any liberal or libertarian implication, since it appears to entail blind submission to the result of any unplanned social process. Against this criticism, which expresses the common view that Hayek's political thought is an unstable compound of conservative or traditionalist and liberal or libertarian elements, I will argue that the idea of spontaneous social order in Hayek's work is best seen as a value-free explanatory notion and that invoking this idea illuminates rather than undermines the bases for the commitment to liberty. [1a]

In developing my argument by way of an examination of the criticisms of a number of writers in opposed intellectual traditions - Michael Oakeshott, James Buchanan, and Irving Kristol, for example - I will conclude that Hayek's chief achievement is in his reviving the intellectual tradition of classical liberalism of which varied strands in contemporary conservatism and libertarianism are quarreling offspring. In the course of this survey I will, also, identify three principal achievements of Hayek's social philosophy: (1) his demonstration of the import for social theory of an erroneous Cartesian theory of the mind and the role of this theory in inspiring modern attempts at the rational design of social life; (2) his theory of the liberal order, which is a synthesis of the theories of justice of Immanuel Kant (1724-1804) and David Hume (1711-1776) with a devastating critique of contemporary conceptions of distributive justice; and (3) his proposal for a resolution of a central difficulty of classical liberal theory in the intriguing ideas of a market in traditions.

The upshot of my assessment of Hayek's thought will be that, whereas his critics have identified ambiguities, tensions, and unclarities in some of his formulations, the interest and appeal of his system remains unimpeached. Despite (or even because of) its problematic aspects, Hayek's system of ideas remains a powerful and compelling research program - in my own opinion, the most promising we have at our disposal - for classical liberal social philosophy.

Hayek's General Philosophy - The Kantian Heritage

The entirety of Hayek's work - and, above all, his work in epistemology, psychology, ethics, and the theory of law - is informed by a distinctively Kantian approach. In its most fundamental aspect, Hayek's thought is Kantian in its denial of our capacity to know things as they are or this world as it is. It is in his denial that we can know things as they are, and in his insistence that the order we find in our experiences, including even our sensory experiences, is the product of the creative activity of our minds rather than a reality given to us by the world, that Hayek's Kantianism consists. It follows from this skeptical Kantian standpoint that the task of philosophy cannot be that of uncovering the necessary characters of things. The keynote of critical philosophy, after all, is the impossibility of our attaining any external or transcendental standpoint on human thought from which we could develop a conception of the world that is wholly uncontaminated by human experiences or interest. We find Kant's own writings - above all the Critique of Pure Reason (1781) - a case against the possibility of speculative metaphysics which Hayek himself has always taken to be devastating and conclusive. It is a fundamental conviction of Hayek's, and one that he has in common with all those who stand in the tradition of post-Kantian critical philosophy, that we cannot so step out of our human point of view as to attain a presuppositionless perspective on the world as a whole and as it is in itself. The traditional aspiration of western philosophy - to develop a speculative metaphysics in terms of which human thought may be justified and reformed - must accordingly be abandoned. The task of philosophy, for Hayek as for Kant, is not the construction of any metaphysical system, but the investigation of the limits of reason. It is a reflexive rather than a constructive inquiry, since all criticism - in ethics as much as in science - must in the end be immanent criticism. In philosophy as in life, Hayek avers, we must take much for granted, or else we will never get started.

Hayek's uncompromisingly skeptical Kantianism is strongly evidenced in The Sensory Order (see Hayek bibliography, B-10). There Hayek disavows any concern as to "how things really are in the world," affirming that ". . . a question like 'what is X?' has meaning only within a given order, and . . . within this limit it must always refer to the relation of one particular event to other events belonging to the same order."[1b] Above all, the distinction between appearance and reality, which Hayek sees as best avoided in scientific discourse,[2] is not to be identified with the distinction between the mental or sensory order and the physical or material order. The aim of scientific investigation is not, then, for Hayek, the discovery behind the veil of appearance of the natures or essences of things in themselves, for, with Kant and against Aristotelian essentialism, he stigmatizes the notion of essence or absolute reality as useless or harmful in science and in philosophy. The aim of science can only be the development of a system of categories or principles, in the end organized wholly deductively, which is adequate to the experience it seeks to order.[3]

Hayek as a Skeptical Kantian

Hayek is a Kantian, then, in disavowing in science or in philosophy any Aristotelian method of seeking the essences or natures of things. We cannot know how things are in the world, but only how our mind itself organizes the jumble of its experiences. He is Kantian, again, in repudiating the belief, common to empiricists and positivists such as David Hume and Ernst Mach, that there is available to us a ground of elementary sensory impressions, untainted by conceptual thought, which can serve as the foundation for the house of human knowledge. Against this empiricist dogma, Hayek is emphatic that everything in the sensory order is abstract, conceptual and theory-laden in character: "It will be the central thesis of the theory to be outlined that it is not merely a part but the whole of sensory qualities which is . . . an 'interpretation' based on the experience of the individual or the race. The conception of an original pure core of sensation which is merely modified by experience is an entirely unnecessary fiction."[4] Again, he tells us that "the elimination of the hypothetical 'pure' or 'primary' core of sensation, supposed not to be due to earlier experience, but either to involve some direct communication of properties of the external objects, or to constitute irreducible mental atoms or elements, disposes of various philosophical puzzles which arise from the lack of meaning of these hypotheses."[5] The map or model we form of the world, in Hayek's view, is in no important respect grounded in a basis of sheer sense-data, themselves supposed to be incorrigible. Rather, the picture we form of the world emerges straight from our interaction with the world, and it is always abstract in selecting some among the infinite aspects which the world contains, most of which we are bound to pass by as without interest to us.

Three Influences on Hayek's Skeptical Kantianism: Mach, Popper, and Wittgenstein

Hayek's theory of knowledge is Kantian, we have seen, in affirming that the order we find in the world is given to it by the organizing structure of our own mind and in claiming that even sensory experiences are suffused with the ordering concepts of the human mind. His view of the mind, then, is Kantian in that it accords a very great measure of creative power to the mind, which is neither a receptacle for the passive absorption of fugitive sensations, nor yet a mirror in which the world's necessities are reflected.

1. Ernst Mach and Metaphysical Neutrality

There are a number of influences on Hayek, however, which give his Kantianism a profoundly distinctive and original aspect. The first of these influences is the work of Ernst Mach (1838-1916), the positivist philosopher whose ideas dominated much of Austro-German intellectual life in the decades of Hayek's youth. Hayek's debts to Mach are not so much in the theory of knowledge, as in the attitude both take to certain traditional metaphysical questions. I have observed already that Hayek dissented radically from the Humean and Machian belief that human knowledge could be reconstructed on the basis of elementary sensory impressions, and throughout his writings Hayek has always repudiated as incoherent or unworkable the reductionist projects of phenomenalism in the theory of perception and behaviorism in the philosophy of mind. In these areas of philosophy, then, Hayek's work has been strongly antipathetic to distinctively positivistic ambitions for a unified science. At the same time, while never endorsing the dogma of the Vienna Circle that metaphysical utterances are literally nonsensical, Hayek has often voiced the view that many traditional metaphysical questions express "phantom-problems."

In both The Sensory Order and later in The Constitution of Liberty, Hayek affirms that the age-old controversy about the freedom of the will embodies such a phantom-problem.[6] Hayek's 'compatibilist' standpoint in respect of freedom of the will - his belief that the casual determination of human actions is fully compatible with ascribing responsibility to human agents for what they do - is analogous with his stance on the mind-body question. In both controversies Hayek is concerned to deny any ultimate dualism in metaphysics or ontology, while at the same time insisting that a dualism in our practical thought and in scientific method is unavoidable for us. Thus he says of the relations of the mental and the physical domains that "While our theory leads us to deny any ultimate dualism of the forces governing the realms of the mind and that of the physical world respectively, it forces us at the same time to recognize that for practical purposes we shall always have to adopt a dualistic view."[7] And Hayek concludes his study of the foundations of theoretical psychology in The Sensory Order with the claim that "to us mind must remain forever a realm of its own, which we can know only through directly experiencing it, but which we shall never be able to fully explain or to 'reduce' to something else."[8]

Hayek's thought has a Machian positivist aspect, then, not in the theories of mind or perception, but in its attitude to traditional metaphysical questions, which is dissolutionist and deflationary. There is yet another link with positivism. Notwithstanding Hayek's opposition to any sort of reductionism, whether sensationalist or physicalist, he seems to be a monist in ontology, averring that "mind is thus the order prevailing in a particular part of the physical universe - that part of it which is ourselves."[9] Hayek may seem here to be qualifying or withdrawing from that stance of metaphysical neutrality which in Machian spirit he commends, but this appearance may be delusive. There is much to suggest that, when Hayek denies any ultimate dualism in the nature of things, he is not lapsing into an idiom of essences or natural kinds, but simply observing - much in the fashion of the American pragmatist philosopher, W. V. Quine - that nothing in our experience compels us to adopt ideas of mental or physical substance.[10] Though Hayek has not to my knowledge ever pronounced explicitly on the question, the whole tenor of his thought inclines to a Quinean pragmatist view of ontological commitments. In his skeptical and pragmatist attitude to ultimate questions in metaphysics and ontology, Hayek lines up with many positivists rather than with Kantian critical philosophy - though positivists themselves sometimes claim, with some justification, to be treading a Kantian path.

2. Karl Popper: The Growth of Knowledge

A second influence on Hayek's general philosophy which gives it a distinctive temper is the thought of his friend, Karl Popper (b. 1902). I mean here, not Popper's hypothetico-deductive account of scientific method, which there is evidence that Hayek held prior to his meeting with Popper,[11] nor yet Popper's proposal (which Hayek was soon to accept) that falsifiability rather than verifiability should be adopted as a criterion of demarcation between the scientific and the non-scientific. Again, Hayek has under Popper's influence come to make an important distinction between types of rationalism,[12] such that "critical rationalism" is commended and "constructivistic rationalism" condemned. But this is not what I have in mind. I refer rather to certain striking affinities between Hayek's view of the growth of knowledge and that adumbrated in Popper's later writings on "evolutionary epistemology." As early as the manuscript which later became The Sensory Order (published in 1952, but composed in the twenties), Hayek made it clear that the principles of classification embodied in the nervous system were not for him fixed data; experience constantly forced reclassification on us. In his later writings, Hayek is explicit that the human mind is itself an evolutionary product and that its structure is therefore variable and not constant. The structural principles or fundamental categories which our minds contain ought not, then, to be interpreted in Cartesian fashion as universal and necessary axioms, reflecting the natural necessities of the world, but rather as constituting evolutionary adaptations of the human organism to the world that it inhabits.

The striking similarity between Popper's later views, and those expounded by Hayek in The Sensory Order, is shown by Popper's own application of the evolutionist standpoint in epistemology to the theory of perception:

... if we start from a critical commonsense realism ... then we shall take man as one of the animals, and human knowledge as essentially almost as fallible as animal knowledge. We shall suppose the animal senses to have evolved from primitive beginnings; and we shall look therefore on our own senses, essentially, as part of a decoding mechanism - a mechanism which decodes, more or less successfully, the encoded information about the world which manages to reach us by sensory means. [13]

J.W.N. Watkins' comment on this view is as apposite in the respect of Hayek as it is of Popper:

Kant saw very clearly that the empiricist account of sense experience creates and cannot solve the problem of how the manifold and very various data which reach a man's mind from his various senses get unified into a coherent experience.

Kant's solution consisted, essentially, in leaving the old quasimechanistic account of sense-organs intact, and endowing the mind with a powerful set of organizing categories - free, universal and necessary - which unify and structure what would otherwise be a mad jumble.

Popper's evolutionist view modifies Kant's view at both ends: interpretative principles lose their fixed and necessary character, and sense organs lose their merely causal and mechanistic character.[14]

Hayek's account of sense perception anticipates Popper's later views in a most striking fashion, because in both sensation is conceived as a decoding mechanism, which transmits to us in a highly abstract fashion information about our external environment. Again, both Hayek and Popper share the skeptical Kantian view that the order we find in the world is given to it by the creative activity of our own minds: as Hayek himself puts it uncompromisingly in The Sensory Order, "The fact that the world which we know seems wholly an orderly world may thus be merely a result of the method by which we perceive it."[15] One difference between Hayek and Popper is in the fact that, at any rate in his published work to date, Hayek has not followed Popper in his ontological speculations about a world of abstract or virtual entities or intelligibles.[16a]

3. Wittgenstein & Hayek

A third influence on Hayek's thought which gives his view of knowledge and the mind a very distinctive character is that of his relative, Ludwig Wittgenstein (1899-1951).[16b] This influence runs deep, and is seen not only in the style and presentation of The Sensory Order, which parallels in an obvious way that of Wittgenstein's Tractatus, but in many areas of Hayek's system of ideas. It is shown, for example, in Hayek's recurrent interest in the way in which the language in which we speak shapes our thoughts and forms our picture of the world. In fact, Hayek's interest in language, and in a critique of language, predates Wittgenstein's work, inasmuch as he had an early preoccupation with the work of Fritz Mauthner, the now almost forgotten philosopher of radical nominalism whom Wittgenstein mentions (somewhat dismissively) in the Tractatus.[17] There are, however, many evidences that Wittgenstein's work reinforced Hayek's conviction that the study of language is a necessary precondition of the study of human thought, and an indispensable prophylactic to the principal disorders of the intellect. Examples which may be adduced are Hayek's studies of the confusion of language in political thought[18] and, most obviously, perhaps, of his emphasis on the role of social rules in the transmission of practical knowledge.

It is on this last point that one of the most distinctive features of Hayek's Kantianism, its pragmatist aspect, is clearest.[19a] Of course there is a recognition in Kant himself that knowledge requires judgment, a special faculty, the Urteilskraft, which cannot be given any complete or adequate specification in propositional terms, and whose exercise is necessary for the application of any rule. In the sense that we must exercise this faculty of judgment even before we can apply a rule, it is action which is at the root of our very knowledge itself. Hayek's concern is not with this ultimate dependency of rule following upon judgment - which the later Wittgenstein, perhaps following Kant, emphasizes - but rather with the way that knowledge of all sorts, but especially social knowledge, is embodied in rules. Our perceptual processes, indeed all our processes of thought, are governed by rules which we do not normally articulate, which in some cases are necessarily beyond articulation by us, but which we rely upon for the efficiency of all our action in the world. Indeed, it is not too much to say that, for Hayek (notwithstanding his stress on the abstract or conceptual character of our sensory knowledge) all our knowledge is at bottom practical or tacit knowledge: it consists, not in propositions or theories, but in habits and dispositions to act in a rule-governed fashion. There is here an interesting parallel with Popper's view, which sees even our sense organs as being themselves embodied theories.[19b]

There is much in Hayek's writings to suggest that he takes what Gilbert Ryle calls "knowing how,"[20] what Michael Polanyi calls tacit knowing,[21] what Michael Oakeshott[22] calls the traditional knowledge, to be the wellspring of all our knowledge. It is in this sense - in holding the stuff of knowledge to be at bottom practical - that Hayek may be said to subscribe to a thesis of the primacy of practice in the constitution of human knowledge. It is not indeed that Hayek disparages the enterprise of theory-building, but he sees the theoretical reconstruction of our practical knowledge as necessarily incomplete in its achievements.

Why is this? Hayek argues that, not only human social life, but the life of the mind itself is governed by rules, some of which cannot be specified at all. Note that Hayek does not contend merely that we cannot in fact specify all the rules which govern both social and intellectual life: he argues that there must of necessity be an insuperable limit beyond which we are unable to specify the rules by which our lives are governed. As he puts it:

So far our argument has rested solely on the uncontestable assumption that we are not in fact able to specify all the rules which govern our perceptions and actions. We still have to consider the question whether it is conceivable that we should ever be in a position discursively to describe all (or at least any one we like) of these rules, or whether mental activity must always be guided by some rules which we are in principle not able to specify.

If it should turn out that it is basically impossible to state or communicate all the rules which govern our actions, including our communications and explicit statements, this would imply an inherent limitation of our possible explicit knowledge and, in particular, the impossibility of ever fully explaining a mind of the complexity of our own.

Hayek goes on to observe of the inability of the human mind reflexively to grasp the most basic rules which govern its operations that "this would follow from what I understand to Georg Cantor's theorem in the theory of sets according to which in any system of classification there are always more classes than things to be classified, which presumably implies that no system of classes can contain itself." Again, he remarks that "it would thus appear that Gödel's theorem is but a special case of a more general principle applying to all conscious and particularly all rational processes, namely the principle that among their determinants there must always be some rules which cannot be stated or even be conscious." Hayek concludes this development of themes first explored in his Sensory Order with the fascinating suggestion that conscious thought must be presumed to be governed by "rules which cannot in turn be conscious - by a "supraconscious mechanism," or, as Hayek prefers sometimes to call it, a "meta-conscious mechanism" - "which operates on the contents of consciousness but which cannot itself be conscious."[23]

The third source of influence on Hayek's skeptical Kantianism, which I have ascribed primarily to the work of his relative Wittgenstein, plainly comprehends other influences as well. Hayek cites Ryle in support of his observations that "'know how' consists in the capacity to act according to rules which we may be able to discover but which we need not be able to state in order to obey them," and glosses the point with reference to Michael Polanyi.[24] Here the insight is that all articulated or propositional knowledge arises out of tacit or practical knowledge, the knowledge of how to do things, which must be taken as fundamental. Nothing is said in Ryle or Polanyi thus far about rule-governedness as a distinctive mark of human (and, it may well be, not only human but also animal) intelligent behavior.

It is for the insight that practical knowledge is transmitted mimetically through the absorption of social rules that we need to turn to Wittgenstein, from whom Hayek may have taken it. (There are, to be sure, contrasts between Hayek's view of rule-governed behavior and Wittgenstein's, particularly in regard to the skepticism about rule-following expressed in Wittgenstein's On Certainty and the dependency of social rules upon forms of life, stressed in Wittgenstein but not discussed by Hayek; but these contrasts need not concern us here.) What is original and novel in Hayek's account, and (so far as I know) is nowhere to be found in Wittgenstein, is his account, firstly, of the hierarchy of rules in perception and action, with the most fundamental rules being meta-conscious rules beyond the possibility of identification and articulation; and, secondly, Hayek's systematic exploration of the selection of these rules in a process of evolutionary adaptation.[25] According to Hayek, in other words, the rules of action and of perception by which both intellectual and social life are governed are in the first place stratified or ordered in a hierarchy, with the most fundamental rules (which shape the basic categories of our understanding) always eluding conscious articulation. But secondly, all of these rules, including even the most fundamental of them are products of a process of evolutionary selection, by which they may be further altered or eliminated. Systems of rules conferring successful behavior are adopted by others without conscious reflection. It is this disposition to emulate or copy successful behaviors which explains the cultural evolution of which Hayek speaks, and which (though he recognizes its primitive beginnings in the social lives of animals) Hayek regards as the distinguishing mark of human life.

Hayek on Knowledge and Mind: Implications for Social Theory

Hayek's Kantian Philosophy of Mind

I began by noting the striking Kantian attributes of Hayek's epistemology and philosophy of mind - aspects which Hayek himself does not stress, perhaps because he conceives the formative influence of Kantian philosophy on his thought to be self-evident. As he puts it himself in a footnote to his discussion in a recent volume of the government of conscious intellectual life by super-conscious abstract rules: "I did not mention . . . the obvious relation of all this to Kant's conception of the categories that govern our thinking - which I took rather for granted."[26]

Hayek's Kantianism is seen, first in his repudiation of the empiricist view that knowledge may be constructed from a basis of raw sensory data and, second, in his uncompromising assertion of the view that the order we find in the world is a product of the creative activity of the human mind (rather than a recognition of natural necessity). His Kantian view is distinctive in that it anticipates Popper in affirming that our mental frameworks by which we categorize the world are neither universal nor invariant, but alterable in an evolutionary fashion; his Kantian view also follows Wittgenstein in grasping the role of social rules in the transmission of practical knowledge. Hayek's Kantian view is original, finally, in recognizing a hierarchy in the rules that govern our perceptions and actions, and in insisting that the most fundamental of these rules are "super-conscious" and beyond any possibility of specification or articulation.

Hayek's Philosophy of Mind & His Social Theory: Beyond Kantianism

Hayek himself is emphatic that these insights in the theories of mind and knowledge have the largest consequences for social theory. The inaccessability to reflexive inquiry of the rules that govern conscious thought entails the bankruptcy of the Cartesian rationalist project and implies that the human mind can never fully understand itself, still less can it ever be governed by any process of conscious thought. The considerations adduced earlier, then, establish the autonomy of the mind, without ever endorsing any mentalistic thesis of mind's independence of the material order. Where Hayek deviates from Descartes' conception of mind, however, is not primarily in his denying ontological independence to mind, but in his demonstration that complete intellectual self-understanding is an impossibility.

Hayek's conception of mind is a notion whose implications for social theory are even more radical than are those of Hayek's Kantianism. It is the chief burden of the latter, let us recall, that no external or transcendental standpoint on human thought is achievable, in terms of which it may be supported or reformed. In social theory, this Kantian perspective implies the impossibility of any Archimedean point from which a synoptic view can be gained of society as a whole and in terms of which social life may be understood and, it may be, redesigned. As Hayek puts it trenchantly: "Particular aspects of a culture can be critically examined only within the context of that culture. We can never reduce a system of rules or all values as a whole to a purposive construction, but must always stop with our criticism of something that has no better grounds for existence than that it is the accepted basis of the particular tradition."[27] This is a useful statement, since it brings out the Kantian implication for social theory: that all criticism of social life must be immanent criticism, just as in all philosophy inquiry can only be reflexive and never transcendental.

Hayek goes beyond Kantianism, however, in his recognition that, just as in the theory of mind we must break off when we come to the region of unknowable ultimate rules, so in social theory we come to a stop with the basic constitutive traditions of social life. These latter, like Wittgenstein's forms of life, cannot be the objects of further criticism, since they are at the terminus of criticism and justification: they are simply given to us, and must be accepted by us. But this is not to say that these traditions are unchanging, nor that we cannot understand how it is that they do change.

In social theory, Hayek's devastating critique of Cartesian rationalism entails that, whatever else it might be, social order cannot be the product of a directing intelligence. It is not just that too many concrete details of social life would always escape such an intelligence, which could never, therefore, know enough. Nor (though we are nearer the nub of the matter here) is it that society is not a static object of knowledge which could survive unchanged the investigations of such an intelligence. No, the impossibility of total social planning does not rest for Hayek on such Popperian considerations,[28] or, at any rate, not primarily on them.

Such an impossibility of central social planning rests, firstly, on the primordially practical character of most of the knowledge on which social life depends. Such knowledge cannot be concentrated in a single brain, natural or mechanical, not because it is very complicated, but rather because it is embodied in habits and dispositions and governs our conduct via rules which are often inarticulable. But, secondly, the impossibility of total social planning arises from the fact that, since we are all of us governed by rules of which we have no knowledge, even the directing intelligence itself would be subject to such government. It is naive and almost incoherent[29] to suppose that a society could lift itself up by its bootstraps and reconstruct itself, in part at least because the idea that any individual mind - or any collectivity of selected minds - could do that, is no less absurd.

The Idea of a Spontaneous Social Order

If the order we discover in society is in no important respect the product of a directing intelligence, and if the human mind itself is a product of cultural evolution, then it follows that social order cannot be the product of anything resembling conscious control or rational design. As Hayek puts it:

The errors of constructivist rationalism are closely connected with Cartesian dualism, that is, with the conception of an independently existing mind substance which stands outside the cosmos of nature and which enabled man, endowed with such a mind from the beginning, to design the institutions of society and culture among which he lives ... The conception of an already fully developed mind designing the institutions which made life possible is contrary to all we know about the evolution of man.[30]

The master error of Cartesian rationalism[31] lies in its anthropomorphic transposition of mentalist categories to social processes. But a Cartesian rationalist view of mind cannot explain even the order of mind itself. Hayek himself makes this point when he remarks on "the difference between an order which is brought about by the direction of a central organ such as the brain, and the formation of an order determined by the regularity of the actions towards each other of the elements of a structure." He goes on:

Michael Polanyi has usefully described this distinction as that between a monocentric and a polycentric order. The first point which it is in this connection important to note is that the brain of an organism which acts as the directing centre for the organism is in turn a polycentric order, that is, that its actions are determined by the relation and mutual adjustment to each other of the elements of which it consists.[32]

Hayek states his conception of social theory, and of the central importance in it of undesigned or spontaneous orders, programmatically and with unsurpassable lucidity:

It is evident that this interplay of the rules of conduct of the individuals with the actions of other individuals and the external circumstances in producing an overall order may be a highly complex affair. The whole task of social theory consists in little else but an effort to reconstruct the overall orders which are thus formed . . . It will also be clear that such a distinct theory of social structures can provide only an explanation of certain general and highly abstract features of the different types of structures . . . Of theories of this type economic theory, the theory of the market order of free human societies, is so far the only one which has been developed over a long period . . . [33]

Because it is undesigned and not the product of conscious reflection, the spontaneous order that emerges of itself in social life can cope with the radical ignorance we all share of the countless facts on knowledge of which society depends. This is to say, to begin with, that a spontaneous social order can utilize fragmented knowledge, knowledge dispersed among millions of people, in a way a holistically planned order (if such there could be) cannot. "This structure of human activities" as Hayek puts it "consistently adapts itself, and functions through adapting itself, to millions of facts which in their entirety are not known to everybody. The significance of this process is most obvious and was at first stressed in the economic field."[34] It is to say, also, that a spontaneous social order can use the practical knowledge preserved in men's habits and dispositions and that society always depends on such practical knowledge and cannot do without it.

Examples abound in Hayek's writings of spontaneous orders apart from the market order. The thesis of spontaneous order is stated at its broadest when Hayek says of Bernard Mandeville (1670-1733) that "for the first time [he] developed all the classical paradigmata of the spontaneous growth of orderly social structures: of law and morals, of language, the market and money, and also the growth of technological knowledge."[35] Note that whereas Hayek acknowledges that spontaneous order emerges in natural processes - it may be observed, he tells us, not only in the population biology of animal species, but in the formation of crystals and even galaxies[36] - it is the role of spontaneous order in human society that Hayek is most concerned to stress. For applying what Hayek illuminatingly terms "the twin ideas of evolution and of the spontaneous formation of an order"[37] to the study of human society enables us to transcend the view, inherited from Greek, and, above all, from Sophist philosophy, that all social phenomena can be comprehended within the crude dichotomy of the natural (physis) and the conventional (nomos). Hayek wishes to focus attention on the third domain of social phenomena and objects, neither instinctual in origin nor yet the result of conscious contrivance or purposive construction, the domain of evolved and self-regulating social structures. It is the emergence of such self-regulating structures in society via the natural selection of rules of action and perception that is systematically neglected in much current sociology (though not, it may be noted, in the writings of Herbert Spencer,[38] one of sociology's founding fathers). It is because he thinks that the sociobiologists view social order as being a mixture of instinctive behavior and conscious control, and so neglect the cultural selection of systems of rules, that Hayek has subjected this recent strain of speculation to a sharp criticism.[39] It may be noted, finally, that Hayek's repudiation of the Sophistic nature-convention dichotomy sets him in opposition to Popper and his talk of the critical dualism of facts and decisions and brings him close to the Wittgensteinian philosopher, Peter Winch, for whom the distinction is essentially misconceived.[40]

The Application of Spontaneous Order in Economic Life: The Catallaxy

The central claim of Hayek's philosophy, as we have expounded it so far, is that knowledge is, at its base, at once practical and abstract. It is abstract inasmuch as even sensory perception gives us a model of our environment which is highly selective and picks out only certain classes of events, and it is practical inasmuch as most knowledge is irretrievably stored or embodied in rules of action and perception. These rules, in turn, are in Hayek's conception the subject of continuing natural selection in cultural competition. The mechanism of this selection, best described in Hayek's fascinating "Notes on the Evolution of Systems of Rules of Conduct,"[41] is in the emulation by others of rules which secure successful behavior. It is by a mimetic contagion that rules conferring success - where success means, in the last resort, the growth of human numbers[42] - come to supplant those rules which are maladapted to the environment. Finally, the convergence of many rule-following creatures on a single system of rules creates those social objects - language, money, markets, the law - which are the paradigms of spontaneous social order.

It is a general implication of this conception that, since social order is not a purposive construction, it will not in general serve any specific purpose. Social order facilitates the achievement of human purposes: taken in itself, it must be seen as having no purpose. Just as human actions acquire their meaning by occurring in a framework that can itself have no meaning,[43] so social order will allow for the achievement of human purposes only to the extent that it is itself purposeless. Nowhere has this general implication of Hayek's conception been so neglected as in economic life. In the history and theory of science, to be sure, where the idea of spontaneous order was (as Hayek acknowledges) put to work by Michael Polanyi, false conceptions were spawned by the erroneous notion that scientific progress could be planned, whereas, on the contrary, any limitation of scientific inquiry to the contents of explicit or theoretical knowledge would inevitably stifle further progress.[44] In economics, however, the canard that order is the result of conscious control had more fateful consequences. It supported the illusion that the whole realm of human exchange was to be understood after the fashion of a household or an hierarchical organization, with limited and commensurable purposes ranked in order of agreed importance.

This confusion of a genuine hierarchical 'economy' - such as that of an army, a school or a business corporation - with the whole realm of social exchange, the catallaxy, informs many aspects of welfare economics and motivates its interventionist projects via the fiction of a total social product. This confusion between 'catallaxy' and 'economy' is, at bottom, the result of an inability to acknowledge that the order which is the product of conscious direction - the order of a management hierarchy in a business corporation, for example - itself always depends upon a larger spontaneous order. The demand that the domain of human exchange taken as a whole should be subject to purposive planning is therefore, the demand that social life be reconstructed in the character of a factory, an army, or a business corporation - in the character, in other words, of an authoritarian organization. Apart from the fateful consequences for individual liberty that implementing such a demand inexorably entails, it springs in great measure from an inability or unwillingness to grasp how in the market process itself there is a constant tendency to self-regulation by spontaneous order. When it is unhampered, the process of exchange between competitive firms itself yields a coordination of men's activities more intricate and balanced than any that could be enforced (or even conceived) by a central planner.

The Catallactic Order, Practical Knowledge, and the Calculation Debate

The relevance of these considerations to Hayek's contributions to the question of the allocation of resources in a socialist economic order is central, but often neglected. It is, of course, widely recognized[45] that one of Hayek's principal contributions in economic theory is the refinement of the thesis of his teacher, Ludwig von Mises (1881-1973), that the attempt to supplant market relations by public planning cannot avoid yielding calculational chaos. Hayek's account of the mechanism whereby this occurs has, however, some entirely distinctive and original features. For Hayek is at great pains to point out that the dispersed knowledge which brings about a tendency to equilibrium in economic life and so facilitates an integration of different plans of life, is precisely not theoretical or technical knowledge, but practical knowledge of concrete situations - "knowledge of people, of local conditions, and of special circumstances." As Hayek puts it: "The skipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices - are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others." Hayek goes to comment: "It is a curious fact that this sort of knowledge should today be regarded with a kind of contempt and that anyone who by such knowledge gains an advantage over somebody better equipped with theoretical or technical knowledge is thought to have acted almost disreputably."[46] The "problem of the division of knowledge," which Hayek describes as "the really central problem of economics as a social science,"[47] is therefore not just a problem of specific data, articulable in explicit terms, being dispersed in millions of heads: it is the far more fundamental problem of the practical knowledge on which economic life depends being embodied in skills and habits, which change as society changes and which are rarely expressible in theoretical or technical terms.

One way of putting Hayek's point, a way we owe to Israel Kirzner rather than to Hayek himself but which is wholly compatible with all that Hayek has said on these questions, is to remark as follows: if men's economic activities really do show a tendency to coordinate with one another, this is due in large part to the activity of entrepreneurship. The neglect of the entrepreneur in much standard economic theorizing, the inability to grasp his functions in the market process, may be accounted for in part by reference to Hayek's description above of the sort of knowledge used by the entrepreneur. As Kirzner puts it, "Ultimately, then, the kind of 'knowledge' required for entrepreneurship is 'knowing' where to look for 'knowledge' rather than knowledge of substantive market information."[48] It is hard to avoid the impression that the entrepreneurial knowledge of which Kirzner speaks here is precisely that practical or dispositional knowledge which Hayek describes.

It is the neglect of how all economic life depends on this practical knowledge which allowed the brilliant but, in this respect, fatally misguided Joseph Schumpeter (1883-1950) to put a whole generation of economists on the wrong track, when he stated in his Capitalism, Socialism and Democracy (1942) that the problem of calculation under socialism was essentially solved.[49] It is the neglect of the same truth that Hayek expounded which explains the inevitable failure in Soviet-style economies of attempts to simulate market processes in computer modeling. All such efforts are bound to fail, if only because the practical knowledge of which Hayek speaks cannot be programmed into a mechanical device. They are bound to fail, also, because they neglect the knowledge-gathering role of market pricing. Here we must recall that, according to Hayek, knowledge is dispersed throughout society and, further, it is embodied in habits and dispositions of countless men and women. The knowledge yielded by market pricing is knowledge which all men can use, but which none of them would possess in the absence of the market process; in a sense, the knowledge embodied or expressed in the market price is systemic or holistic knowledge, knowledge unknown and unknowable to any of the elements of the market system, but given to them all by the operation of the system itself. No sort of market simulation or shadow pricing can rival the operation of the market order itself in producing this knowledge, because only the actual operation of the market itself can draw on the fund of practical knowledge which market participants exploit in their activities.

Hayek's Refinements of the Misesian Calculation Debate

Three further points may be worth noting in respect of Hayek's refinements of the Misesian calculation debate. First, when Hayek speaks of economic calculations under socialism as a practical impossibility, he is not identifying specific obstacles in the way of the socialist enterprise which might someday be removed. Socialist planning could supplant market processes only if practical knowledge could be replaced by theoretical or technical knowledge at the level of society as a whole - and that is a supposition which is barely conceivable. The kind of omniscience demanded of a socialist planner could be possessed only by a single mind, entirely self-aware, existing in an unchanging environment - a supposition so bizarre that we realize we have moved from any imaginable social world to a metaphysical fantasy in which men and women have disappeared altogether, and all that remain are Leibnizian monads, featureless and unhistorical ciphers.

Fortunately, such a transformation is possible, if at all, only as a thought-experiment. In practice, all supposedly socialist economies depend upon precisely that practical knowledge of which Hayek speaks, and which though dispersed through society is transmitted via the price mechanism. It is widely acknowledged that socialist economies depend crucially in their planning policies on price data gleaned from historic and world markets. Less often recognized, and dealt with in detail only, so far as I know, in Paul Craig Roberts' important Alienation in the Soviet Economy,[50] is that planning policies in socialist economies are only shadows cast by market processes distorted by episodes of authoritarian intervention. The consequence of the Hayekian and Polanyian critiques of socialist planning is not inefficiency of such planning but rather its impossibility: we cannot analyze the "socialist" economies of the world properly, unless we penetrate the ideological veil they secrete themselves behind, and examine the mixture of market processes with command structures which is all that can ever exist in such a complex society.

The third and final implication of Hayek's contribution to the calculation question is his clear statement of the truth that the impossibility of socialism is an epistemological impossibility. It is not a question of motivation or volition, of the egoism or limited sympathies of men and women, but of the inability of any social order in which the market is suppressed or distorted to utilize effectively the practical knowledge possessed by its citizens. Calculational chaos would ensue, and a barbarization of social life result, from the attempt to socialize production, even if men possessed only altruistic and conformist motives. For, in the absence of the signals transmitted via the price mechanism, they would be at a loss how to direct their activities for the social good, and the common stock of practical knowledge would begin to decay. Only the inventiveness of human beings as expressed in the emergence of black and gray markets could then prevent a speedy regression to the subsistence economy. The impossibility of socialism, then, derives from its neglect of the epistemological functions of market institutions and processes. Hayek's argument here is the most important application of his fundamental insight into the epistemological role of social institutions - an insight I will need to take up again in the context of certain similarities between Hayek's conception of liberty under law and Robert Nozick's meta-utopian framework.

Theory and Method in Economic Science

Prediction vs. 'Complex Phenomena'

Hayek's conception of knowledge, when taken in conjunction with the idea of a spontaneous social order, has important implications for the proper method for the practice of social science. To begin with, Hayek's affirmation of "the primacy of the abstract" in all human knowledge means that social science is always a theory-laden activity and can never aspire to an exhaustive description of concrete social facts. More, the predictive aspirations of social science must be qualified: not even the most developed of the social sciences, economics, can ever do more than predict the occurrence of general classes of events. Indeed, in his strong emphasis on the primacy of the abstract, Hayek goes so far as to question the adequacy of the nomothetic or nomological model of science (i.e. exact prediction through 'laws'), including social science. At least in respect of complex phenomena, all science can aim at is an "explanation of the principle," or the recognition of a pattern - "the explanation not of the individual events but merely of the appearance of certain patterns or orders. Whether we call these mere explanations of the principle or mere pattern predictions or higher level theories does not matter."[51] Such recognitions of orders or pattern predictions are, Hayek observes, fully theoretical claims, testable and falsifiable: but they correspond badly with the usual cause-effect structure of nomothetic or law-governed explanation.

In his most important later statement on these questions, "The Theory of Complex Phenomena," [bibliography, A-109], Hayek tells us that, because social life is made up of complex phenomena, "economic theory is confined to describing kinds of patterns which will appear if certain general conditions are satisfied, but can rarely if ever derive from this knowledge any predictions of specific phenomena."[52] If we ask why it is that social phenomena are complex phenomena, part of the reason at any rate lies in what Hayek earlier characterized[53] as the subjectivity of the data of the social sciences: social objects are not like natural objects whose properties are highly invariant relatively to our beliefs and perceptions; rather, social objects are in large measure actually constituted by our beliefs and judgments. Social phenomena are non-physical, and Hayek has stated that "Non-physical phenomena are more complex because we call physical phenomena what can be described by relatively simple formulae."[54] And, because of the subjectivity of its data, social life always eludes such simple formulae.

Hayek's Opposition to Apriori Science

A number of points may be made briefly about Hayek's conception of method in social and economic theory. First, whereas he follows his great teachers in the Austrian tradition in emphasizing the subjective aspects of social phenomena, Hayek's methodology of social and economic science does not belong to that Austrian tradition in which social theory is conceived as an enterprise yielding apodictic truths. Specifically - contrary to T. W. Hutchinson, who periodizes Hayek's work into an Austrian praxeological and a post-Austrian Popperian period, and also contrary to Norman P. Barry who sees both trends running right through Hayek's writings - Hayek never accepted the Misesian conception of a praxeological science of human action which would take as its point of departure a few axioms about the distinctive features of purposeful behavior over time. In the Introduction to Collectivist Economic Planning [E-5, 1935] and elsewhere in his early writings, Hayek had (as Hutchinson notes) insisted that economics yields "'general laws,' that is, 'inherent necessities determined by the permanent nature of the constituent elements.'"[55] As Hutchinson himself acknowledges in passing, however, such laws or necessities function in Hayek's writings as postulates (rather than as axioms), and they continue to do so even in his later writings, in which (as I have already noted) a suspicion of the nomothetic paradigm of social science is expressed. It is clear from the context of the quotations cited by Hutchinson that, in speaking of the general laws or inherent necessities of social and economic life, Hayek meant to controvert the excessive voluntarism of historicism, which insinuates that social life contains no unalterable necessities of any sort, rather than to embrace the view that there can be an apriori science of society or human action. To this extent Barry is right in his observation that, "there is a basic continuity in Hayek's writings on methodology."[56] Certainly there seems little substance in a periodization of Hayek's methodological writings by reference to the supposedly Popperian paper of 1937 on "Economics and Knowledge" (A-34).

At the same time, there seems little warrant for Barry's claim that throughout his work Hayek tries "to combine two rather different philosophies of social science; the Austrian praxeological school with its subjectivism and rejection of testability in favour of axiomatic reasoning, and the hypothetico-deductive approach of contemporary science with its emphasis on falsifiability and empirical content."[57] For there is no evidence, so far as I know, that Hayek ever endorsed the Misesian conception of an axiomatic or apriori science of human action grounded in apodictic certainties. Again, as we have seen, Hayek's view that the social sciences are throughout deductive in form antedates Popper's influence and is evidenced in the Introduction to Collectivist Economic Planning [E-5, 1935].

Popperian 'Conjectures & Refutations'

Hayek's real debts to Popper are, I think, different from those attributed to him by Hutchinson and Barry. It is not that Hayek under Popper's influence abandoned an apodictic-deductive method that was endorsed (in different versions, Kantian and Aristotelian) by Mises and Menger, but rather that he came to adopt Popper's proposal that falsifiability be treated as a demarcation criterion of science from non-science.[58] Again, Hayek follows Popper in abandoning his earlier Austrian conviction that there is a radical dualism of method as between natural and social science: this conviction, he tells us, depended on an erroneous conception of method in the natural sciences: as a result of what Popper has taught him, Hayek says, "the differences between the two groups of disciplines has thereby been greatly narrowed."[59] Hayek's debts to Popper are, then, in his seeing that it is the falsifiability of an hypothesis rather than its verifiability which makes it testable and empirical, and, secondly, in his acknowledging the unity of method in all the sciences, natural and social, where this method is seen clearly to be hypothetico-deductive.

Even in these Popperian influences, it is to be noted, there are differences of emphasis from Popper himself. Hayek anticipates Lakatos in perceiving that the theoretical sciences may contain a "hard core" of hypotheses, well-confirmed and valuable in promoting understanding of the phenomena under investigation, which are highly resistant to testing and refutation.[60] And Hayek explicitly states that in some fields Popper's ideas of maximum empirical content and falsifiability may be inappropriate:

It is undoubtedly a drawback to have to work with theories which can be refuted only by statements of a high degree of complexity, because anything below that degree of complexity is on that ground alone permitted by our theory. Yet it is still possible that in some fields the more generic theories are the more useful ones . . . Where only the most general patterns can be observed in a considerable number of instances, the endeavour to become more 'scientific' by further narrowing down our formulae may well be a waste of effort . . . [61]

In general, then, it seems fair to hold that Hayek acknowledges that the proper method in social and economic studies, as elsewhere, is the hypothetico-deductive method of conjectures and refutations set out by Popper. On the other hand, he continues to recognize that in respect of complex phenomena such as are found in the social studies, testability may be a somewhat high-level and protracted process, and the ideal of high empirical content captured in a nomothetic framework - a demanding and sometimes unattainable ideal.

Some Applications of Hayek's Methodological Views: Keynes, Friedman, and Shackle on Economic Policy

Hayek's view that we can at best attain abstract models of social processes, whereas the concrete details of social life will always largely elude theoretical formulation, has large and radical implications in the field of public policy. In brief, it entails that the object of public policy should be confined to the design or reform of institutions within which unknown individuals make and execute their own, largely unpredictable plans of life. In a free society, in fact, whereas there may be a legal policy in respect of economic institutions, there cannot be such a thing as economic policy as it is presently understood, for adherence to the rule of law precludes anything resembling macroeconomic management. Here I do not wish to take up this point, which I will consider later, but rather to spell out the connection between Hayek's methodological views and his belief that most, if not all economic policy as practiced in the postwar world has had a self-defeating effect.

Hayek contra Constructivism & Social Engineering

We have seen that, for Hayek, the most we can hope for in understanding social life is that we will recognize recurring patterns. Hayek goes on to observe:

Predictions of a pattern are . . . both testable and valuable. Since the theory tells us under which general conditions a pattern of this sort will form itself, it will enable us to create such conditions and to observe whether a pattern of the kind predicted will appear. And since the theory tells us that this pattern assures a maximisation of output in a certain sense, it also enables us to create the general conditions which will assure such a maximisation, though we are ignorant of many of the particular circumstances which will determine the pattern that will appear.[62]

Hayek's view stands in sharp opposition to any idea of a policy science or a political technology aimed at producing specific desired effects. Such a policy science demands the impossible of its practitioners, a detailed knowledge of a changing and complex order in society. Even Popper's conception of "piecemeal social engineering," Hayek tells us, "suggests to me too much a technological problem of reconstruction on the basis of the total knowledge of the physical facts, while the essential point about the practical improvement is an experimental attempt to improve the functioning of some part without a full comprehension of the structure of the whole."[63] Indeed Hayek's central point is that understanding the primacy of the abstract in human knowledge means that we must altogether renounce the modern ideal of consciously controlling social life: a better ideal is that of cultivating the general conditions in which beneficial results may be expected to emerge.

Hayek's critique of the constructivistic or engineering approach to social life parallels in an intriguing way that of Michael Oakeshott and of the Wittgensteinian philosopher Rush Rhees. Consider Oakeshott's statement: "The assimilation of politics to engineering is, indeed, what may be called the myth of rationalist politics."[64] Or Rhees' observation (made in criticism of Popper): "There is nothing about human societies which makes it reasonable to speak of the application of engineering to them. Even the most important 'problems of production' are not problems in engineering."[65] The conception of social life which talk of social engineering expresses is at fault not only because it presupposes an agreement on goals or ends which nowhere exists but also because it promotes the illusion that political life may become subject to a sort of technical or theoretical control.

Hayek contra Keynes

These general views illuminate much of the rationale of Hayek's opposition not only to Keynesian policies of macroeconomic demand management but also to Friedmanite monetarism. Of course, in the great debates of the Thirties, Hayek had argued forcefully that Keynes in no way provided a general theory of economic discoordination. Again, Hayek always argued that the policies Keynes suggested, depending as they did for their success upon institutional and psychological irrationalities which their very operation would undermine, were bound over the longer run to be self-defeating. In particular, Hayek maintained that Keynesian policies of deficit financing depended for their success upon a widespread money illusion which the policies themselves could not help but erode. Hayek's further objection to Keynesian policies is that, in part because they depend on a defective understanding of the business cycle (which is seen as expressing itself in aggregative variations in total economic activity rather than in a discoordination of relative price structures brought about by a governmental distortion of the structure of interest rates) Keynesian policy-makers, because of their holistic and aggregative bias, find it hard to avoid committing a sort of fallacy of conceptual realism: statistical artefacts or logical fictions are allowed to blot out the subtle and complex relationships which make up the real economy.

Now there is plainly much in Hayek's subtle account of the business cycle, and in his contributions to capital theory, which is difficult and disputable, and to comment on such questions is in any case beyond my expertise. Quite apart from its technical details, however, it is clear that Hayek's critique of Keynesian policies is of a piece with his emphasis on the primacy of the abstract and with his insight into the indispensability of conventions for the orderly conduct of social life. Policies of macroeconomic demand management ask more in the way of concrete knowledge of the real relationships which govern the economy than any administrator could conceivably acquire, and their operation is in the longer run self-defeating. More generally, Hayek's challenge to Keynesian theory is a demand that Keynesians specify in detail the mechanisms whereby an unhampered market could be expected to develop severe discoordination. Only if such mechanisms could be clearly described and (crucially) given a plausible historical application, would a serious challenge to Hayek's own Austrian view - in which it is governmental intervention in the economy which is principally responsible for discoordination - enter the realm of critical debate.

Hayek contra Friedman

In respect to Friedman's proposals for monetary regulation by a fixed rule, Hayek has argued that in a modern democracy no governmental or quasi-governmental agency can preserve the independence of action essential if such a monetary rule is to be operated consistently. More fundamentally, such a policy of adopting a fixed rule in the supply of money is opposed by Hayek on methodological grounds. Such a policy calls for an exactitude in modeling and measuring economic life, and an unambiguity in the definition of money, which it is beyond our powers to attain. Hayek's own objection to Friedman's monetarist proposals is, then, most substantially that money is not the sort of social object that we can define precisely or control comprehensively; Hayek has even suggested that, in recognition of the elusiveness of the monetary phenomenon, we should treat "money" as an adjectival expression,[66] applicable to indefinitely many distinct and disparate instruments. Hayek's proposals in this area clearly open up technical questions in monetary theory which I am unqualified to adjudicate. It seems clear, though, that Hayek's proposal favoring currency competition by the private issuance of money would be found objectionable by Friedmanites (who would argue that Hayek exaggerates the effect such competition would have in preventing currency debasement) and by advocates of the classical gold standard. It is clear, nonetheless, that in arguing for the establishment of a monetary catallaxy Hayek has illuminated questions both in monetary theory and in political economy which had hitherto gone largely neglected, but which it is critical that supporters of the market order now examine.

Hayek and Shackle

One objection to Hayek's view may be worth addressing at this point. There is much in Hayek's account of the business cycle, as in his more general account of spontaneous social order, to suggest that he believes economic discoordination results always from institutional factors, so that at any rate large-scale disequilibrium would be impossible in a catallaxy of wholly unhampered markets. Against this view, Hayek's brilliant and largely neglected pupil, G. L. S. Shackle, has argued[67] that the subjectivity of expectations must infect the market process with an ineradicable tendency to disequilibrium. It must be allowed that, if we accept Hayek's view of equilibrium as a process in which men's plans are coordinated by trial and error over time, there can be nothing apodictically certain about this process: conceivably, under some conditions of uncertainty in which hitherto reliable expectations are repeatedly confounded, large scale discoordination could occur in the market process.

Three counter-observations are in order, however. First, nothing in Shackle's argument tells against the point, defensible both on theoretical grounds and as an historical interpretation, that in practice by far the most destabilizing factor in the market process is provided by governmental intervention. Secondly, and relatedly, it is unclear that the kind of disequilibrium of which Shackle speaks - disequilibrium generated by divergency in subjective expectations - could amount to anything resembling the classical business cycle, which is more plausibly accounted for in Austrian and Hayekian terms as a consequence of governmental intervention in the interest rate structure.

And thirdly, it is unclear that Shackle's argument shows the presence in the market process of any tendency to disequilibrium. What we have in the market process is admittedly a 'kaleidic' world, in which expectations, tastes, and beliefs constantly and unpredictably mutate. Yet, providing market adaptation is unhampered, what we can expect from the market process is an uninterrupted series of monetary equilibrium tendencies, each of them asymptotic - never quite reaching equilibrium - and each of them soon overtaken by its successor. In this kaleidic world there may well be no apodictic certainty that we shall never face large-scale, endogenous discoordination, but we are nevertheless on safe ground in preferring that the self-regulating tendencies of the process be accorded unhampered freedom and that governmental intervention be recognized as the major disruptive factor in the market process. We are on safe ground, then, in discerning in the tendency to equilibrium in the market process the formation of spontaneous order in the economic realm.

Hayek's Constitution of Liberty: Ethical Basis of the Juridical Framework of Individual Liberty

Clarifying Hayek's Moral Theory

Given that we recognize governmental intervention to be the greatest subverter of spontaneous order in the realm of economic exchange, what legal framework is to be adopted for the regulation of economic life? Here we come to one of the most fascinating and controversial of Hayek's contributions to social philosophy, his account of individual liberty under the rule of law. Before we can address ourselves to some of the problems surrounding Hayek's contribution to philosophical jurisprudence, however, a few words must be said about Hayek's moral theory, since few aspects of Hayek's work are so often misunderstood. Hayek has been characterized as a moral relativist, an exponent of evolutionary ethics and, less implausibly but nonetheless incorrectly, as a rule-utilitarian. Let us see if we can dissipate the confusion.

In the first place, moral life for Hayek is itself a manifestation of spontaneous order. Like language and law, morality emerged undesigned from the life of men with one another: it is so much bound up with human life, indeed, as to be partly constitutive of it. The maxims of morality, then, in no way presuppose an authority, human or divine, from which they emanate, and they antedate the institutions of the state. But, secondly, the detailed content of the moral conventions which spring up unplanned in society is not immutable or invariant. Moral conventions change, often slowly and almost imperceptibly, in accordance with the needs and circumstances of the men who subscribe to them. Moral conventions must (or Hayek's account of them) be seen as part of the evolving social order itself.

Now at this point it is likely that a charge of ethical relativism or evolutionism will at once be levelled against Hayek, but there is little substance to such criticisms. He has gone out of his way to distinguish his standpoint from any sort of evolutionary ethics. As he put it in his Constitution of Liberty:

It is a fact which we must recognize that even what we regard as good or beautiful is changeable - if not in any recognizable manner that would entitle us to take a relativistic position, then in the sense that in many respects we do not know what will appear as good or beautiful to another generation ... It is not only in his knowledge, but also in his aims and values, that man is the creature of his civilization; in the last resort, it is the relevance of these individual wishes to the perpetuation of the group or the species that will determine whether they persist or change. It is, of course, a mistake to believe that we can draw conclusions about what our values ought to be simply because we realize that they are a product of evolution. But we cannot reasonably doubt that these values are created and altered by the same evolutionary forces that have produced our intelligence.[68]

Hayek's argument here, then, is manifestly not that we can invoke the trend of social evolution as a standard for the resolution of moral dilemmas, but rather that we are bound to recognize in our current moral conventions the outcome of an evolutionary process. Admittedly, inasmuch as nothing in the detailed content of our moral conventions is unchanging or unalterable, this means that we are compelled to abandon the idea that they have about them any character of universality or fixity, but this is a long way from any doctrine of moral relativism. As Hayek observes in his remarks on the ambiguity of relativism:

... our present values exist only as the elements of a particular cultural tradition and are significant only for some more or less long phase of evolution - whether this phase includes some of our pre-human ancestors or is confined to certain periods of human civilization. We have no more ground to ascribe to them eternal existence than to the human race itself. There is thus one possible sense in which we may legitimately regard human values as relative and speak of the probability of their further evolution.

But it is a far cry from this general insight to the claims of the ethical, cultural or historical relativists or of evolutionary ethics. To put it crudely, while we know that all these values are relative to something, we do not know to what they are relative. We may be able to indicate the general class of circumstances which have made them what they are, but we do not know the particular conditions to which the values we hold are due, or what our values would be if those circumstances had been different. Most of the illegitimate conclusions are the result of erroneous interpretation of the theory of evolution as the empirical establishment of a trend. Once we recognize that it gives us no more than a scheme of explanation which might be sufficient to explain particular phenomena if we knew all the facts which have operated in the course of history, it becomes evident that the claims of the various kinds of relativists (and of evolutionary ethics) are unfounded.[69]

Hume's Influence on Hayek's Social Philosophy

Hayek does not, then subscribe to any sort of ethical relativism or evolutionism, but it is not altogether clear from these statements if he thinks humanity's changing moral conventions have in fact any invariant core or constant content. In order to consider this last question, and to attain a better general understanding of Hayek's conception of morality, we need to look at his debts to David Hume, whose influence upon Hayek's moral and political philosophy is ubiquitous and profound.

Hayek follows Hume in supposing that, in virtue of certain general facts about the human predicament, the moral conventions which spring up spontaneously among men all have certain features in common or (in other words) exhibit some shared principles. Among the general facts that Hume mentions in his Treatise, and which Hayek cites in "The Legal and Political Philosophy of David Hume" (in B-13), are men's limited generosity and intellectual imperfection and the unalterable scarcity of the means of satisfying human needs. As Hayek puts it succinctly: "It is thus the nature of the(se) circumstances, what Hume calls 'the necessity of human society,' that gives rise to the 'three fundamental laws of nature': those of 'the stability of possessions, of its transference by consent, and of the performance of promises.'" And Hayek glosses this passage with a fuller citation from Hume's Treatise: "Though the rules of justice be artificial, they are not arbitrary. Nor is the expression improper to call them Laws of Nature; if by natural we understand what is common to any species, or even if we confine it to mean what is inseparable from the species."[70]

Hume's three rules of justice or laws of nature, then, give a constant content to Hayek's conception of an evolving morality. They frame what the distinguished Oxford jurist, H. L. A. Hart, was illuminatingly to call "the minimum content of natural law."[71] The justification of these fundamental rules of justice, and of the detailed and changing content of the less permanent elements of morality, is (in Hayek's view as in Hume's) that they form indispensable conditions for the promotion of human welfare. There is in Hayek as in Hume, accordingly, a fundamental utilitarian commitment in their theories of morality. It is a very indirect utilitarianism that they espouse, however, more akin to that of the late nineteenth-century Cambridge moralist Henry Sidgwick[72] (1838-1900) than it is to Jeremy Bentham or John Stuart Mill. The utilitarian component of Hayek's conception of morality is indirect in that it is never supposed by him that we ought or could invoke a utilitarian principle in order to settle practical questions: for, given the great partiality and fallibility of our understanding, we are in general better advised to follow the code of behavior accepted in our own society. That code can, in turn, Hayek believes, never properly be the subject of a rationalist reconstruction in Benthamite fashion, but only reformed piecemeal and slowly. In repudiating the claims that utilitarian principles can govern specific actions and that utility may yield new social rules, Hayek shows himself to be an indirect or system utilitarian, for whom the proper role of utility is not prescriptive or practical but rather as a standard of evaluation for the assessment of whole systems of rules.

Hayek's Utilitarianism & Liberty

Again however, Hayek's utilitarian outlook is distinctive in that he explicitly repudiates any hedonistic conception of the content of utility itself.[73] How, then, does he understand utilitarian welfare? Just how are we to assess different systems of rules in regard to their welfare-promoting effects? Here Hayek comes close to modern preference utilitarianism, but gives that view an original formulation, in arguing that the test of any system of rules is whether it maximizes an anonymous individual's chance of achieving his unknown purposes.[74] In Hayek's conception, we are not bound to accept the historical body of social rules just as we find it: it may be reformed in order to improve the chances of the unknown man's achieving his goals. It will be seen that this is a maximizing conception, but not one that represents utility as a sort of neutral stuff, a container of intrinsic value whose magnitude may vary. Indeed, in taking as the point of comparison an hypothesized unknown individual, Hayek's conception (as he recognizes[75]) parallels John Rawls' model of rational choice behind a veil of ignorance as presented in Rawls' Theory of Justice.

Mention of Rawls' contractarian derivation of principles of justice at once raises the question of how Hayek's indirect or system utilitarian argument is supposed to ground the rules of justice he defends, and, in particular, how Hayek's defense of the priority of liberty squares with his utilitarian outlook.

Several observations are apposite here. First, Hayek undoubtedly follows Hume in believing that, because they constitute an indispensable condition for the promotion of general welfare, the rules of justice are bound to take priority over any specific claim to welfare. Again, it is to be noted that Hume's second rule of justice, the transference of property by consent, itself frames a protected domain and so promotes individual liberty. Finally, Hayek argues forcefully that, if individuals are to be free to use their own knowledge and resources to best advantage, they must do so in a context of known and predictable rules governed by law. It is in a framework of liberty under the rule of law, Hayek contends, that justice and general welfare are both served. Indeed, under the rule of law, justice and the general welfare are convergent and not conflicting goals or values.

Justice, Liberty, and the Rule of Law In Hayek's Constitution of Liberty


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