Austrian Economics, Book Club, Economic Philosophy, Economics and Culture
John Gray on Hayek
Alberto Mingardi
Categories: Austrian Economics Book Club Economic Philosophy Economics and Culture
By Alberto Mingardi, Aug 16 2015
John Gray is well known for being an ideological wanderer. Though a classical liberal in the late 70s and in the 80s, when he used to co-operate with a number of classical liberal organizations, he subsequently became a vocal critic of classical liberalism.
I read Gray's "Hayek on Liberty" a few years ago. I consider it an insightful book on Hayek. In this work Gray remarked on the similarity between Hayek's approach and Herbert Spencer's. Though most scholars are aware that both Hayek and Spencer were evolutionary thinkers, and that both obviously cared about markets and human freedom, they are not very often juxtaposed. This is not because of the fear of anachronism, but rather because of the Social Darwinism stigma that tainted Spencer.
Gray has a new piece on Hayek, for the New Statesman, which makes for an interesting read.
Gray tries to present a "balanced" view of Hayek and refers to his personal conversations with him. He points again to the Spencer connection. I found this bit interesting:
There are many similarities between Hayek's and Spencer's theories, not least the idea that capitalism will prevail over other economic systems because it is more productive and can support a larger human population. Hayek assured me that he had never read Spencer, and I'm sure this was the case. Very similar ideas had been popular in fin-de-siècle Vienna. Hayek was doing no more than reviving a recurrent modern delusion – the belief that history obeys evolutionary laws, which somehow underpin a process of progressive social development.
One of Gray's central points is that Hayek's theory is basically autobiographical, in the sense that he desperately hoped for a revival of fin-de-siècle Vienna. This was the period "Stefan Zweig described as 'the age of security': the long period of stability provided by the 68-year reign of its last-but-one emperor, Franz Joseph. Hayek witnessed the collapse of an imperial regime that for generations had been more civilised and more liberal than most of the nation states that replaced it in interwar Europe". That might well be, and quite frankly I can hardly disagree with nostalgia for Habsburg Austria – with a view of what came after it in the 20th century.
Perhaps it is also true that Hayek couldn't answer the question "How could liberal values be renewed in a time of political tribalism?"–but frankly, who can? A quick glimpse at Bryan Caplan's "The Myth of the Rational Voter" or Ilya Somin's "Democracy and Political Ignorance" may remind us that we are a long way from answering that question in a satisfactory way.
The fascinating thing in the article is the way in which Gray tries to tell the good Hayek from the bad Hayek.
One of his charges is a bit of an exaggeration, but is somewhat valid. That is, he accuses Hayek of "constructivism" for his attempts at constitutional engineering. They might sound self-contradictory, as Hayek relied so much on evolution and on time as the great legislator. Dan Klein has already dealt with that challenge in an amusing article on "The Ways of John Gray" (here, see also this paper by Jeremy Shearmur). I think however there is room to argue that Hayek's pars construens, in so far as constitutional design is concerned, is not his best contribution. Perhaps, any transition to a freer society involves some limited attempts of constructivism (as Vaclav Klaus explains very well in his essay included in The Great Rebirth comparing privatization processes in the West and in former communist countries).
On the other hand, Gray recognises what is most interesting and genuinely Hayekian in Hayek's thought: that is, his understanding of the market as "a means of discovering and transmitting information that is dispersed throughout society."
It was this insight into the knowledge-creating function of markets that enabled him to formulate a decisive argument against central economic planning.
Generations of socialists have maintained that the failings of the Soviet economy were because of historical causes extraneous to the planning system: a lack of democracy rooted in tsarist traditions of despotism, the underdevelopment of the Russian economy when the Soviet system came into being, and Stalin's deformation of Lenin's supposedly more benign inheritance.
As Hayek perceived, none of these factors can account for the universal failings of planned economies, which have followed a similar pattern in countries as different as Czechoslovakia and Mongolia, East Germany and Cuba. The fundamental reason for the failures of central economic planning is that economic knowledge cannot be centralised. More than the love of power or the inevitability of corruption, it is the limitations of human knowledge that make socialist planning an impossible dream. Here Hayek's argument was unanswerable.
But then comes what I consider the truly puzzling argument in Gray's piece: that is, he comments that "it was Keynes who understood fully the vanity of liberal rationalism", not Hayek. Wow, really?
Gray quotes Keynes's "My Early Beliefs" and his "Economic Consequences of the Peace" and seems to consider Keynes as a natural anti-constructivist, who developed conscious/deliberate solutions for a hazardous/uncertain/precarious world and was always open to revising his own proposals (on Keynes and complexity, see Don Boudreaux here). On the other hand Gray maintains that "'Keynesianism' is a confection of Keynes's more mechanical disciples, not an indication of how this mercurially brilliant mind would have responded to our present dilemmas".
Fair enough, we don't know what Keynes would have thought of the financial crisis, Margaret Thatcher, or the Back to the Future trilogy for that matter, but a thinker should be judged by his legacy. Keynes's legacy is in itself a potent constructivist experiment: modern macroeconomics, which certainly Hayek didn't like and which cannot be dismissed merely as "a confection of Keynes' mechanical disciples."
Gray's last paragraph is likewise interesting and bizarre:
Hayek watched the interwar collapse with horror, as Keynes did, and shared many of Keynes's liberal values. What he failed to understand is that these values cannot be renewed by applying any formula or doctrine, or by trying to construct an ideal liberal regime in which freedom is insulated from the contingencies of politics.
Ok. I have difficulties in picturing Hayek like the rationalist sketched by Oakeshott, who thinks politics can be changed through the appropriate training of the minds and thus that education in 'public administration' is "the surest defence against the flattery of a demagogue and the lies of a dictator". But one of Hayek's less apparent legacies is the contemporary classical liberal movement, upon which he exercised a considerable influence both as a theorist and as an intellectual leader. Classical liberals tend to believe they can renew liberal values by sharing them with a wider number of people, thus attempting to persuade public opinion at large to "buy in" the doctrine of liberty.
This was Hayek's strategy. It was sometimes implemented by producing blueprints (applying a formula to politics) and on other occasions by investing into the dissemination of the liberal doctrine. I think it did plenty of good but certainly didn't produce many "regime changes" in direction of freer societies. But after all, is it no mean feat to devise a strategy which won't keep freedom "insulated from the contingencies of politics" and yet will continue to hold a classical liberal idea of freedom?
ThomasH
Aug 16 2015 at 11:32am
Rather than
keep freedom "insulated from the contingencies of politics"
I think those of us who value freedom generally and, more narrowly, value value the information aggregation power of markets need more engagement with politics at a granular level.
In practice I think this needs to go beyond arguing that policy or practice, actual or proposed, has certain costs but to indicate an alternative. This will often mean engaging not only the the most naive or least well informed argument for the policy we oppose (even if it is egregious and common), but the best one or ones.
I think this is better way of arguing for three reasons.
1. It is equally informative to a well meaning but uniformed opponent.
2. It is more respectful in that it supposes that the other person has good, thought not quite good enough, reasons for his position. If not the case, this amounts to mo more than innocent flattery, but if it is the case, it avoids insult.
3. It signals areas of agreement and of shared values, even if the agreement and sharing are incomplete and so, hopefully, gets ones arguments a fairer hearing.
Many of my posts on this site I express frustration with what I see (perhaps incorrectly in many cases) as arguments against weaker reasons for favoring Mistake X and a failure to even acknowledge that there may be stronger arguments.
Let me illustrate (again) with the minimum wage debate. I do not think it is enough to point out that a minimum wage does cause some harm to some workers, whether this is because the elasticity of demand is less than zero or because the conditions for the efficiency wage do not apply. I think one should a) acknowledge that those who favor a higher minimum wage wish to transfer income to some low paid workers, possibly even at a cost to other low paid workers, b) show how large those costs are and c) suggest that the costs are too high. "Do you really want to prevent the employment of X million people in order to transfer $Y million dollars of wages to Z million low income people who will not loose/fail to gain jobs? Why not support instead policy P that transfers Y1 million" of income to Z1 million low income people but only results in X1 people losing/failing to gain jobs?
Greg G
Aug 16 2015 at 12:09pm
>—"There are many similarities between Hayek's and Spencer's theories, not least the idea that capitalism will prevail over other economic systems because it is more productive and can support a larger human population."
I always thought that supporting a larger human population was a bizarre standard for Hayek to choose to measure the success of his ideas. India and China supported by far the largest human populations when Hayek was writing and they did so without implementing any of his economic theories.
Hayek tended to use the word "evolution" more in the way we would use the term "emergent order" today.
Andrew_FL
Hayek hadn't read Spencer? Then what is with this line from "Individualism: True and False"?
But because both theories have become known by the same name, and partly because the classical economists of the nineteenth century, and particularly John Stuart Mill and Herbert Spencer, were almost as much influenced by the French as by the English tradition, all sorts of conceptions and assumptions completely alien to true individualism have come to be regarded as essential parts of its doctrine.
Hayek not only mentions Spencer, he criticizes him for polluting British Liberalism with Cartesian Rationalism!
Did Hayek malign Spencer without ever having read him?
[comment edited lightly to remove crude language–Econlib Ed.]
Daniel Kuehn
Aug 16 2015 at 3:55pm
I am glad you are giving so much consideration to the point about constructivism. I have always found it amazing that so many people consider Hayek an anti-constructivist. He made assertions to that effect of course, but he always struck me as having an extremely prescriptive and narrow vision of constitutional orders and liberal society. Not as narrow as others in the Austrian tradition but quite narrow indeed. It's nice that Gray mentions Keynes as well, who doesn't have the same self-assurance about how social order needs to look.
I would push back on the point about constructivism in macro, though. Even there I don't see Hayek as the non-constructivist side. In policy Hayek is at least as proscriptive as Keynes – there's a great deal of uncertainty in Keynes and modern Keynesians' approach to resolution of the crisis in part because recovery depends so much on the private sector's willingness to invest. But even putting policy aside and just looking at the economics, Hayekian macro his highly deterministic and mechanical where in the General Theory (and to some extent even modern Keynesian work) conditions depend more on public sentiment and idiosyncratic shocks.
I think Hayek is most obviously anti-constructivist when he is just describing the market process itself, but whenever he gets into specific questions the anti-constructivism seems to slide away.
Robert Schadler
Too often dichotomies (e.g. market/government; constructivist/anti-constructist) cloud more reasonable stances.
To believe the market is an extremely valuable source of information should not deny that there are other sources of information as well.
To argue that the market is very valuable in motivating productive action and distributing economic goods, requires neither the notion that only the market can do this or even that all goods and services should be judged by market prices alone
One can be against central planning, as Hayek was, without foregoing any and all more "modest" suggestions for improving a constitutional order.
Finally, Hayek himself was friendly with Keynes and seemed to think Keynes was more free market oriented than Keynesian was and is thought to be.
@Andrew_FL: I think that quotation may actually support Gray's point. Conflating Mill and Spencer is easier if you haven't read Spencer.
Hayek may have found plenty of things to be sympathetic with in, for example, Spencer's "The Study of Sociology".
Hayek had certainly read _OF_ Spencer. Perhaps he thought the secondary literature he was familiar with was enough to make his own mind. This is not uncommon.
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