Related Links in the Library:
Source: This essay first appeared in the journal Literature of Liberty: A Review of Contemporary Liberal Thought ,
vol. V, no. 2, Summer 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. Norman Barry was professor of poitical science at University College, Buckingham.
Table of Contents
Introduction: The Recent Revival of
Spontaneous Order
The theory of spontaneous order has a long tradition
in the history of social thought, yet it would be
true to say that, until the last decade, it was all
but eclipsed in the social science of the twentieth
century. For much of this period the idea of spontaneous
order - that most of those things of general benefit
in a social system are the product of spontaneous
forces that are beyond the direct control of man -
was swamped by the various doctrines of (to use Friedrich
A. Hayek's phrase in Law, Legislation and Liberty)
'constructivistic rationalism.'[1]
No doubt the attraction of this rival notion of rationalism
stems partly from the success of the physical sciences
with their familiar methods of control, exact prediction,
and experimentation. It is these methods which have
an irresistible appeal to that hubris in man
which associates the benefits of civilization not
with spontaneous orderings but with conscious direction
towards preconceived ends. It is particularly unfortunate
that the effect of constructivistic rationalism should
have been mainly felt in economics. This is unfortunate
not merely because attempts to direct economics have
repeatedly failed but also because the discipline
of economics has developed most fully the theory of
spontaneous order.
The last ten years have seen a rehabilitation of
the economic philosophy of classical liberalism;
indeed Hayek, its major contemporary exponent, was
awarded the Nobel Prize for Economic Science in 1974.
But the necessary accompaniment of that economic theory,
the philosophy of law and social institutions, has
been largely ignored by the social science establishment.
This oversight has occurred despite the fact that,
for example, the bulk of Hayek's own work in the last
thirty years has consisted of a theoretical reconstruction
of the social philosophy of classical liberalism
and despite the fact that he has himself stressed
that a knowledge of economic principles of resource
allocation alone is quite inadequate for the understanding
of the order of a free society. Indeed, the contemporary
concern with specialization in the social sciences
is itself an important barrier to the acceptance of
the doctrine of spontaneous evolution precisely because
this theory straddles so many of the artificial boundaries
between academic disciplines.
The Main Elements in the Theory of
Spontaneous Order
The simplest way of expressing the major thesis of
the theory of spontaneous order is to say that it
is concerned with those regularities in society, or
orders of events, which are neither (1) the product
of deliberate human contrivance (such as a statutory
code of law or a dirigiste economic plan) nor
(2) akin to purely natural phenomena
(such as the weather, which exists quite independently
of human intervention). While the words conventional
and natural refer, respectively, to these two
regularities, the 'third realm,' that of social
regularities, consists of those institutions and practices
which are the result of human action but not the result
of some specific human intention.[2]
'Invisible Hand' Social Patterns &
Methodological Individualism
Despite the complexity of the social world, which
seems to preclude the existence of regularities which
can be established by empirical observation, there
is a hypothetical order which can be reconstructed
out of the attitudes, actions, and opinions of individuals
and which has considerable explanatory power. What
is important about the theory of spontaneous order
is that the institutions and practices it investigates
reveal well-structured social patterns, which appear
to be a product of some omniscient designing mind
yet which are in reality the spontaneous coordinated
outcomes of the actions of, possibly, millions of
individuals who had no intention of effecting such
overall aggregate orders. The explanations
of such social patterns have been, from Adam Smith
onwards, commonly known as 'invisible hand' explanations
since they refer to that process by which "man
is led to promote an end which was no part of his
intention."[3]
It is a major contention of the theory of spontaneous
order that the aggregate structures it investigates
are the outcomes of the actions of individuals.
In this sense spontaneous order is firmly within the
tradition of methodological individualism.
Spontaneous Order & 'Reason'
The role of 'reason' is crucially important here
because the theorists of spontaneous order are commonly
associated with the anti-rationalist tradition in
social thought. However, this does not mean that the
doctrine turns upon any kind of irrationalism, or
that the persistence and continuity of social systems
is a product of divine intervention or some other
extraterrestrial force which is invulnerable to rational
explanation. Rather, the position is that originally
formulated by David Hume. Hume argued that a pure
and unaided human reason is incapable of determining
a priori those moral and legal norms which
are required for the servicing of a social order.
In addition, Hume maintained that tradition, experience,
and general uniformities in human nature themselves
contain the guidelines for appropriate social conduct.
In other words, so far from being irrationalist, the
Humean argument is that rationality should be used
to "whittle down" the exaggerated claims
made on behalf of reason by the Enlightenment philosophes.
The danger here, however, is that the doctrine of
spontaneous evolution may collapse into a certain
kind of relativism: the elimination of the role of
reason from making universal statements about the
appropriate structure of a social order may well tempt
the social theorist into accepting a given structure
of rules merely because it is the product of traditional
processes.
The 'rationalism' to which the theory of spontaneous
order is in intellectual opposition precedes the Enlightenment
and perhaps is most starkly expressed in seventeenth-century
natural law doctrines. In Thomas Hobbes' model of
society, for example, a simple 'natural' reason is
deemed to be capable of constructing those rules which
are universally appropriate for order and continuity.
It is assumed that this reason can only conceive of
a legal order in terms of rules emanating from a determinate
sovereign at the head of a hierarchical system. That
hidden wisdom immanent in a dispersed and evolutionary
system is therefore systematically ignored in the
pursuit of a statute or code structure. That other
seventeenth-century natural law theorists took a more
generous view of human nature, and hence produced
rule structures more amenable to liberty and rights,
does not alter the fact of their common anti-traditionalist
and rationalist epistemology.
The theory of spontaneous order, then, is concerned
with those 'natural processes' which are not the product
of reason or intention. The classic example is the
free market economy in which the co-ordination of
the aims and purposes of countless actors, who cannot
know the aims and purposes of more than a handful
of their fellow citizens, is achieved by the mechanism
of prices. A change in the price of a commodity is
simply a signal which feeds back information into
the system enabling actors to 'automatically' produce
that spontaneous co-ordination which appears
to be the product of an omniscient mind. The repeated
crises in dirigiste systems are in essence
crises of information since the abolition of the market
leaves the central planner bereft of that economic
knowledge which is required for harmony. There is
no greater example of the hubris of the constructivist
than in this failure to envisage order in a natural
process (which is not of a directly physical kind).
As Hayek says in "Principles of a Liberal Social
Order":
Much of the opposition to a system of freedom under
general laws arises from the inability to conceive
of an effective co-ordination of human activities
without deliberate organization by a commanding
intelligence. One of the achievements of economic
theory has been to explain how such a mutual adjustment
of the spontaneous activities of individuals is
brought about by the market, provided that there
is a known delimitation of the sphere of control
of each individual.[4]
Spontaneous Order & 'Law'
Following on from this account of reason to explain
spontaneous orders is a related account of 'law.'
There are terminological problems here because theorists
of spontaneous order do not always use the term 'natural
law' to describe those general rules that govern a
free society precisely because the phrase has, as
we have already observed, rationalistic overtones.
The 'natural' law of spontaneous order theory refers
to regularities in the social world brought about
by men generating and adapting those rules appropriate
to their circumstances. Thus law properly so-called
is neither (1) the dictate of pure reason in which
the structure of a legal order is designed independently
of experience, nor is it (2) the positive law of,
say, the Command School in which all law is deliberately
created by an act of will. The theory of spontaneous
order claims that in both deductivist natural law
and positive law, legal structures are likely to be
less regularized and more arbitrary and capricious.
This capriciousness arises precisely because, to the
extent that these legal structures ignore existing
legal orders, they depend on a supermind both taking
account of all possible human circumstances and devising
appropriate rules from first principles. Rules appropriate
for a spontaneous order, by contrast, are more likely
to be discovered than deliberately created.
There is, of course, implicit in all the writers
in this tradition the notion of an ethical payoff:
that is, we are likely to enjoy beneficial consequences
by cultivating spontaneous, natural mechanisms and
by treating the claims of an unaided reason with some
skepticism. Well-being, in other words, is the product
of a special kind of accident. This is a quasi-utilitarian
argument used to counter the more conventional utilitarian
thesis that the public good can be rationalistically
summed up from the preferences of individuals and
directly promoted by centralized positive law. The
theory of spontaneous order claims that the very complexities
of social affairs mean that such a rationalistic project
is almost certain to be self-defeating, even if one
could assume the existence of benevolent and well-intentioned
legislators. As Adam Smith put it: "I have never
known much good done by those who affected to trade
for the public good."[5]
Two Senses of Spontaneous Order:
Noncoercive Emergent Patterns vs. 'Survival of the
Fittest'
One important issue has a bearing on the explanatory
power of the doctrine of spontaneous order. This centers
on the fact that the theory has two interrelated meanings,
which the writers under discussion do not clearly
distinguish. In one sense we speak of a spontaneous
order to refer to a complex aggregate structure which
is formed out of the uncoerced actions of individuals,
whereas in another sense we speak of the evolutionary
growth of laws and institutions through a kind
of Darwinian 'survival of the fittest' process (and
the biological analogy is not inappropriate). In both
these meanings we are describing social structures
that are similar in not being of conscious design
and which emerge independently of our wills, but the
explanations are significantly different.[6]
One version shows how institutions and practices can
emerge in a causal-genetic manner while the
other shows how they in fact survive.
We can perhaps illustrate this difference in the
meanings of spontaneous order by comparing a market
order with a legal order. Now the invisible hand explanation
of the emergence of a market order is highly plausible
because there is a mechanism, the price system, to
bring about the requisite co-ordination. However,
it is not obviously the case that there is an equivalent
mechanism to produce that legal and political order
which is required for the co-ordination of individual
actions. Thus the legal system that a community has
may have survived yet not necessarily be conducive
to the hypothetical order of classical liberalism.
Evolutionary undesigned processes may very well produce
dead ends, and the escape from these dead ends would
involve more expansive use of reason than that conventionally
associated with the doctrine of spontaneous order.
Scholasticism and the Market as Spontaneous
Order
Hayek has always claimed that his explanation of
a more or less self-correcting social system continues
a long tradition. While acknowledging it is absurd
even to speculate on the beginnings of a tradition,
Hayek often refers to the original Spanish schoolmen
as the founders of the theory of spontaneous order.
At one time the received wisdom concerning scholasticism
was that this rationalistic moral philosophy, which
stressed virtue and, for example, condemned usury,
was incapable of generating a theory which traced
systematically the social regularities that emerge
from the pursuit of self-interest. But in the last
thirty years or so the story has been substantially
rewritten so that a more accurate interpretation of
the scholastic general doctrine would see it as anticipating
later individualistic theories. This is true of its
economic theory, for a close analysis of it reveals
a commitment to, and a clear understanding of, the
theory of subjective value, of economic competition,
and the quantity theory of money, among other things.
The scholastic economic philosophy reached its apogee
in sixteenth-century Spain where the theologian-economists
of the 'School of Salamanca' developed the first general
theory of value, embracing both goods and money, and
accommodated traditional Catholic natural law teaching
to an economic doctrine more appropriate to the needs
of a developing commercial society.
Such is the similarity between scholastic thought
and late nineteenth-century economic theory that it
would not be inaccurate to say that there is a continuous
stream of subjectivist economics that runs from the
thirteenth-century to Carl Menger and the Austrian
School of economics, and that the obsession with an
objectivist labor costs theory of value in 'classical'
economics was a quite unnecessary and time-consuming
detour. In his History of Economic Analysis,
Joseph Schumpeter, who was one of the first writers
to recapture scholastic economics for the modern world,
wrote that all that was missing from the scholastic
doctrine was the concept of the margin.[7]
It was also Schumpeter who saw that the Catholic natural
law philosophy was basically utilitarian and concerned
with justifying human institutions, such as property,
on public interest grounds, and that the concept of
'reason' for the later schoolmen was 'sociological'
rather than abstract. Reason's object was to trace
out regularities that are revealed when men are left
to their natural inclinations.
In addition to Schumpeter, the work of Raymond de
Roover and Marjorie Grice-Hutchinson has pioneered
in rehabilitating scholastic economics.[8]
From their work it is clear that, although there were
elements of cost of production theories in scholastic
economics, the dominant view (which can be traced
from Aristotle to St. Augustine through to St. Thomas
Aquinas) interpreted the value of a good not as something
that inhered in the thing itself but as a product
of 'common estimation' or subjective opinion, and
of the thing's perceived scarcity. Thus the 'just'
price was the competitive price that emerged from
the interaction of subjective supply and demand. As
Diego de Covarrabias (1512-1572) put it: "The
value of an article does not depend on its essential
nature but on the estimation of men, even if that
estimation be foolish. Thus in the Indies, wheat is
dearer than in Spain because men esteem it more highly,
though the nature of the wheat is the same in both
places."[9]
The 'ethical' element in the theory related not to
a moralistic idea that price ought to equal labor
cost but to the argument that the 'just' price would
emerge only under conditions of more or less perfect
competition (the schoolmen were in fact strident critics
of monopoly), and where there is no deceit, fraud,
or force. One reason why the schoolmen were reluctant
to embrace a cost of production theory rather than
a subjectivist theory was that it would actually give
merchants an excuse to raise prices above their market-clearing
level and would therefore exploit consumers.
Molina: The Market & Natural
Law Ethics
The earliest exponents of subjectivism were Buridan
(1300-1358), Saravia de la Calle (c. 1540) and Domingo
de Soto (149 -1560); but the clearest expositor of
the competitive view was the Portuguese Jesuit Luis
de Molina (1535-1600). Molina, of the School of Salamanca,
also showed an advanced analytical understanding of
competition.[10]
The achievement of those writers was to mitigate the
moralizing element in Catholic social science and
to show that the customary practices of trade were
not against 'nature.'
The School of Salamanca was similarly successful
in breaking out of moral theology in its theory of
money. While Jean Bodin (1530-1596), the French political
theorist, is normally credited with the first formulation
of the quantity theory, it is now clear that this
originated with the Spanish schoolmen. Influenced
by the rise in the price level in Spain brought about
by the influx of gold and silver from the New World,
the Dominican Martin de Azpilcueta (1493-1587), wrote
in 1556 that "money is worth more where and when
it is scarce than where and when it is abundant."[11]
Once again, however, it was Molina who systematically
placed the explanation of the value of money within
the general theory of value and developed a theory
of foreign exchange that anticipated the purchasing
power parity doctrine. An important consequence of
this latter point was that profits on exchange dealings
between foreign currencies were adjudged to be not
usurious and therefore not contrary to natural law.
Molina also showed that the value of money was necessarily
inconstant and that to "control it would do a
great deal of harm to the republic";[12]
therefore its value ought to be left to vary freely.
Of course, to say that important elements of modern
value theory were contained in scholastic theory does
not make these economists classical liberals. Although
the just price was the market price there is ample
justification in natural law for the suspension of
the market and for the public regulation of prices,
especially in famines and emergencies. De Roover concedes
that since scholastic doctrine authorizes interference
with the market to protect buyers and sellers this
could license a wholesale suspension of the competitive
system.[13]
Certainly, scholastic economic theory was too closely
linked with ethics and natural law to produce a systematic
theory of the self-regulating market order.
In her later work, Marjorie Grice-Hutchinson claims
that a theory of the general harmony of the market
order was absent from the sixteenth-century Spanish
scholastics and does not appear until 1665 with the
work of Francisco Centani.[14]
It is important to note, however, that two eminent
scholars, Schumpeter and Hayek, both regard Molina's
social theory as a natural law doctrine which looks
forward not to seventeenth-century rationalism
but to the theory of spontaneous order. Molina's economics
is an investigation of nature, in the sense
of there being sequences of events which would occur
"if they were allowed to work themselves out
without further disturbance."[15]
Here the maxims of natural law appear to be less the
dictates of an unaided reason than the implications
of a benign nature.
The Rise of the Common Law
It is with the emergence of the common law in England
that the scholastic hints at an anti-rationalistic
natural law are transformed into a substantive jurisprudence.
The outstanding figure here is Sir Matthew Hale (1609-1676);
for in his argument for the common law he specifically
claimed that it possessed a greater inner wisdom and
rationality than the anti-traditionalist and a
priori theories of law precisely because it accommodated
facts and circumstances unavailable to the unaided
reason. In explicating this argument, he inaugurated
a tradition of jurisprudence which we normally associate
with Adam Smith and Edmund Burke and, in the present
day, Hayek. The major contention of these writers
is that genuine law is, in some sense or other, discovered
rather than made.
Hale's important argument against rationalism in
the law is in the form of a reply to Hobbes' Dialogue
of the Common Laws and is conveniently reprinted
in the fifth volume of Sir William Holdsworth's History
of English Law.[16]
Among Hale's other works is the History of the
Common Law, published in 1715, in which he continues
the style of argument found in the reply to Hobbes.
Hale contra Hobbes: On Reason &
Sovereignty
Hale's Reflections on Hobbes' system are in
two parts: one dealing with the role of reason
in the law and the other consisting of a critique
of the Hobbesian version of sovereignty.
In the first part on reason and the law Hale
clearly adumbrates an empirical and historical view
of the law. No body of existing law can be constructed
by pure abstract reasoning because the immense complexity
of a legal process makes it impossible to represent
its elements in a few simple maxims. The understanding
of law therefore requires an 'artificial' reason,
not the abstract syllogistic reasoning of the philosophers.
Rationalism must fail because law requires the application
of general principles to particular cases and this
depends largely upon experience. It is because the
law must be predictable and certain that there is
a presumption in favor of experience and what is known.
In anticipating an argument later made famous by Hayek,
Hale maintains that because of our ignorance we are
thrown back on experience and that it is better to
rely on a body of stable and known rules "though
the particular reason for the institution appear not."[17]
Furthermore, in a conservative attack on ill-thought-out
legal reforms, Hale likened a social order to an organic
entity which could suffer unanticipated damage
to its component parts if pure reason were to be the
criterion for innovation. This is so because the mind
cannot comprehend the totality of a social order,
which is itself the product of many minds. He argues
that "it is a reason for me to preferre a Lawe
by which a Kingdome hath been happily governed four
or five hundred yeares than to adventure the happiness
and Peace of a Kingdome upon Some new Theory of my
owne ... ."[18]
In his reply to Hobbes on sovereignty Hale
wished to show that Hobbes' definition in politically
absolutist terms was both inapplicable to English
conditions and inexpedient. While he admits that only
the king and parliament can make law "properly
so-called," the courts "have great weight
and authority in expounding, declaring and publishing
what the law of this kingdom is. ..."[19]
The concession to the sovereignty thesis is more apparent
than real for his observation that only the king and
parliament may make new laws is immediately qualified
by a long argument to show that this power is limited
by natural law and expediency. He explicitly ties
in the 'law' with traditional liberty and property
and maintains that the "obligation of Naturall
Justice bindes Princes and Governors." The greatest
flaw in the sovereignty model is that it sees law
exclusively in terms of enactment.
In fact, it is almost certainly the case that Hale
misunderstood Hobbes' argument about sovereignty.
Hale meant by the sovereign the power of the king,
and it was easy for him to show that the king was
limited by morality and the existing law. However,
Hobbes meant by his sovereignty theory that in any
legal system there must be a supreme body, which could
logically take any form, which is the author
of all law, and which itself cannot be bound or limited
by any law. Thus to speak of an unlimited sovereign
in this sense as being subject to natural law would
be self-contradictory.
Indeed, the concept of 'parliamentary sovereignty'
did develop in this way and this poses problems for
anti-constructivist, evolutionary theories of law:
for it is the unplanned emergence of an all-powerful
parliament which in Britain has done so much to undermine
the common law itself. While it would be absurd to
censure Hale on this score it is important to note
the implications of extreme versions of his traditionalism.
For extreme traditionalism may well commit the social
theorist to the acceptance of institutions that have
survived a particular historical process merely because
they have survived, even though 'reason' may indicate
their inappropriateness for the liberal order.
Private Vices, Public Benefits
Mandeville: Self-Interest & the
Invisible Hand
Bernard Mandeville (1670-1733) is often regarded
as a major precursor of the ideas in law, economics,
and social philosophy of what came to be known as
the 'Scottish Enlightenment.' However, he presented
his social theories in the guise of an outrageous
demonstration of the social benefits that accrue from
vicious and self-interested motivations. He argued
that prosperity was inconsistent with the traditional
moral virtues and that all human action, despite displays
of altruistic affectations, was purely self-regarding.
From psychological assumptions not unlike those of
Hobbes, he produced a social theory which included
elements of laissez-faire economics, an early
outline of the division of labor and, according to
Hayek, early versions of the invisible hand explanation
of an equilibrating economic system and the theory
of the spontaneous evolution of rules and institutions.
While writers such as Hume and Smith were eager to
refute his ethical doctrines they were more influenced
than they were prepared to admit by his general social
theory.
Mandeville's 'Fable of the Bees':
Passions & Interests
The Fable of the Bees: or, Private Vices, Public
Benefits was originally published as a poem, The
Grumbling Hive: or, Knaves Turned Honest, in 1705.
At the time of the poem's publication a fierce campaign
was under way to rid England of vice, luxury, sin,
and corruption, and to encourage the selfless pursuit
of virtue and the public good. Hence Mandeville's
claim that prosperity depended upon the pursuit of
those very vices:
Thus every part was full of vice
Yet the whole mass a paradise
and his argument that the actions of the meanest
and vilest contributed something to well-being,
The worst of all the multitude
Did something for the common good
seemed particularly outrageous to an audience that
associated the public interest with the virtue of
self-sacrifice.
In 1714 the poem was republished as The Fable
of the Bees with an additional essay and detailed
prose commentaries on its various aspects. Successive
editions, with new material, were published throughout
the 1720s; the final edition to appear in Mandeville's
lifetime was published in 1732.[20]
Whatever particular interpretation is made of his
social theory its revolutionary significance lay in
Mandeville's argument that the 'passions' of men were
not disruptive and harmful and that order did not
require the suppression of man's natural instincts
but only the channeling of them in an appropriate
framework. The recognition of the value of the passions
was an essential step in the development of the social
philosophy of capitalism. Although, unlike later writers,
Mandeville did not reject the traditional view that
virtue involved self-sacrifice and the suppression
of the baser instincts, he thought that not only were
most men incapable of that virtue but also that its
successful pursuit would quickly produce poverty and
misery. Since commerce depended on 'selfishness' it
was incompatible with virtue.
Mandeville started from the assumption of the basic
constancy of human nature: men were egoistic and did
not naturally follow that morality which others thought
necessary for social order. He argued that behind
overt acts of altruism, charity, and selfless promotion
of the ends of the public, could be found purely selfish
motivations. Morality was therefore a contrivance
"broached by skillful politicians, to render
men useful to each other as well as tractable."[21]
However, the pursuit of the natural vices paradoxically
leads to progress because it increases consumption
and encourages the development of the division of
labor ("... what a number of people, how many
different trades, and what a variety of skills and
tools must be employed to have the most ordinary Yorkshire
cloth"). The habit of 'luxury,' condemned by
many because it led to increased and allegedly 'unnecessary'
foreign imports was thought by Mandeville to be quite
harmless and in his refutation of the 'bullionists'
he produced an early version of the automatically-equilibrating
tendency inherent in free international trade: "Buying
is bartering, and no nation can buy goods of others
that has none of her own to purchase with. . . . "[22]
Mandeville's Role in Spontaneous
Order Theory
It is not, however, the ethics or the economics which
have suggested to twentieth-century social theorists
that Mandeville's work is in the tradition of spontaneous
order. Hayek, for example, regards the social theory
that Mandeville constructs from the postulate of self-interest
as being simply one exemplification of a general theory
which explains how a coherent aggregate structure
can emerge accidentally from the actions of individuals
(be they altruistic or egoistic).
It is true that there are many passages in The
Fable of the Bees which suggest both (1) that
aggregate structures can emerge in an unintended manner
and (2) that enduring laws and institutions are a
product of evolution rather than design. Mandeville's
discussion of free trade would be an example of the
first point. As regards the second point, Hayek claims
that Mandeville explains laws as the product of experience
and wisdom rather than unaided reason:
there are very few, that are the work of one man,
or of one generation; the greatest part of them
are the product, the joint labour of several ages.[23]
There is also evidence that Mandeville saw that the
task of social theory was to reconstruct those 'concatenated
events' which are not visible to the 'short-sighted
vulgar' who, "in the chain of causes can seldom
see further than one link."
However, the thesis that Mandeville was a precursor
of Adam Smith has been seriously challenged. Jacob
Viner[24]
has argued that his social theory is not one that
celebrates spontaneous order but, on the contrary,
stresses artifice and contrivance in the explanation
of social regularity. Furthermore, Viner claims, the
reliance on individualism and economic self-interest
as the decisive forces in the generation of wealth
were as characteristic of mercantilist thought as
they were of Adam Smith's, and Mandeville was in principle
a mercantilist because of his belief that it is by
political methods that the baser instincts
of men are channeled to the advantage of the public.
This view is reinforced in Thomas Horne's recent study[25]
in which he claims that there is no genuine theory
of spontaneity in Mandeville, that there are no theoretical
limits on the extent of government activity, and that
the doctrine of laissez-faire was meant to
apply only to the property-owning classes.
It is undoubtedly the case that many quotations from
The Fable can be produced which seem to indicate
that social regularity depends upon the cunning of
politicians and it is certainly true that Viner trades
heavily on Mandeville's claim that order is the product
of that "dextrous management by which the skillful
politician might turn private vices into public benefit."[26]
In addition, frequent assertions by Mandeville of
man's 'natural unsociability' imply that order must
be constructed by art, and reveal a Hobbesian strain
which does not fit at all well with the Hayekian interpretation.
However, much may turn on how we interpret Mandeville's
language, and Maurice Goldsmith may be right in his
claim that the phrase 'skillful politician' is not
meant to represent a 'person' but rather a system
which does operate in a more or less self-regulating
manner.[27]
But he does agree that the system is not entirely
self-regulating and that it could be altered by deliberate
human action. Whatever the 'true' interpretation of
Mandeville is, it is the case that later writers,
whose claims to classical liberal orthodoxy are better
substantiated, were undoubtedly influenced by his
way of thinking, even though not all were prepared
to admit this.
Josiah Tucker (1712-1799)
Along with Mandeville, Josiah Tucker, the Dean of
Gloucester, is often regarded as a precursor of Adam
Smith (although he was a close contemporary his major
economic writings[28]
preceded the publication of The Wealth of Nations).
But again the genuineness of his contribution to spontaneous
order has been questioned. Many writers have commented
on certain mercantilist and statist elements that
persist in Tucker's writings and Viner claims that,
despite the fact of the translation of his economic
works into French by Turgot, " . . . the notion
that Smith was appreciably influenced by Tucker, via
the physiocrats, can be regarded only as a blind stab
in the dark."[29]
Nevertheless, his description of the main features
of the commercial order and his enthusiastic
portrayal of those accidental benefits that accrue
from the operation of self-interest outweigh those
constructivistic elements which his social thought
undoubtedly contains.
Tucker's Mix of Constructivist and
Spontaneous Approaches
Skeptical of the ability of government to produce
public well-being, though lacking that instinctive,
almost a priori, objection to interventionism
that some of the classical liberals had, Tucker trusted
in nature. The spontaneous passions of men could be
reconciled with their long-term interests under certain
conditions. Thus while 'self-love' was potentially
destructive, the point was neither to extinguish nor
enfeeble it "but to give it a direction, that
it may promote the public interest by pursuing its
own."[30]
Reason, however, had a role in specifying those actions
of government which would be required for the operation
of an otherwise self-regulating commercial machine.
Self-love, benevolence, and a limited 'reason' produced
that commercial method which would generate harmony
without central direction. The division of labor exemplified
the commercial system for Tucker, and he showed no
fear that the introduction of machinery might produce
unemployment. Increases in population and the creation
of artificial needs would widen the market and automatically
absorb temporarily unemployed labor.
Tucker's contributions were in the main polemical
applications of the commercial method to some familiar
problems in an English society which was beginning
to show the first signs of the liberal economic
order. He was a fierce opponent of monopoly and those
governmental regulations, such as the apprenticeship
laws, that privileged certain people in the labor
market. In a brilliant argument, matched only by Adam
Smith in The Wealth of Nations, Tucker showed
how a spontaneous market would clear any over supply
of labor which might emerge from the relaxation of
such laws. An early advocate of free trade, he was
engaged in a dispute with David Hume over the effects
of free trade on the international economy. Against
Hume's claim in the essay Of Money that free
trade would tend to equalize poor and rich nations,
Tucker argued that certain natural advantages would
perpetuate the hegemony of the existing wealthy countries.[31]
Tucker's thesis was a kind of 'economic' imperialism
which tried to show how the mercantilist end of the
aggrandisement of state power could be achieved by
liberal means. In fact, nineteenth-century anti-free
trade theorists, such as Frederick List, used just
these arguments to justify poorer nations raising
tariff barriers. Indeed, Tucker himself was not opposed
to such actions and anticipated the 'infant industries'
justification for limited governmental protection.
There are then constructivistic elements in Tucker.
It was because he believed that national prosperity
depended on an increase in population that Tucker
felt that this should be deliberately encouraged:
hence his bizarre scheme for imposing severe penalties
on bachelors. He did not in fact think that private
interest always coincided with the public interest,
and therefore produced a series of recommendations
of ad hoc interventionism. This was unsystematic
because, although he was an acute expositor of the
philosophy of the market, he had little theoretical
understanding of the nature of the legal order. Although
he wrote on political philosophy he did not succeed
in generating a social theory to complement his (generally)
liberal economics.
Spontaneous Order & the Scottish
Enlightenment
It was the thinkers of the eighteenth-century Scottish
Enlightenment - Smith, Hume, Ferguson, Dugald Stewart,
and Thomas Reid - who were largely successful in integrating
all these significant hints at a doctrine of spontaneous
order into a general social philosophy. The most striking
thing about this remarkable group of thinkers is the
breadth of their interests, and Adam Smith, indeed,
can be looked upon, not inaccurately, as the 'Newton
of the social sciences' in his attempt to explain
the natural processes of a social order in terms of
universal principles. However, one important feature
of the thought of the Scottish thinkers is that, although
they were the major celebrants of spontaneous processes,
two of them, Ferguson and Smith, showed some skepticism
about the outcomes of such processes. Thus, as we
shall see, they did not regard all the unintended
consequences of freedom as being necessarily beneficial.
Commercial prosperity, they feared, might be bought
at the cost of civic virtue.
David Hume (1711-1776)
Although easily the most distinguished philosopher
of the Scottish Enlightenment, Hume did not write
a systematic treatise on social theory even though
he wrote widely in this area. His contributions can
be found in his two major philosophical works, A
Treatise on Human Nature (Book III), first published
in 1737, Enquiry Concerning the Principles of Morals
(1751), and volumes of essays published in 1741, 1782,
and 1748. It is not surprising that a philosopher
who was so skeptical about the foundations of human
knowledge should deny that moral political principles
can be determined by reason. But while Hume sometimes
spoke dramatically of the impotence of reason in human
affairs ("it is not contrary to reason to prefer
the destruction of the world to the scratching of
my finger"), and maintained that morality was
a matter of passion and feeling, he did not suggest
that ethical and political judgments were arbitrary.
That there is a uniformity in human nature led Hume
to speculate profitably on that structure of general
rules which is consonant with those regularities that
characterize man and society. Further, Hume was a
rigorous critic of any contractual basis for society,
depending as it does on a rationalist conception of
natural law. In common with his contemporaries, he
located the origins of law and government in certain
natural propensities in man.
An important consequence flowed from Hume's belief
in the uniformity of human nature. He stressed that
any suggestions for the improvement of man must rest
not on a utopian 'reformation of the manners of mankind'
but on observation and experience of those rules that
best serve men's more or less unchanging needs. The
'facts' that give rise to essential rules of
conduct are scarcity, limited altruism, and an ever-present
desire in men to forego long-run advantages in favor
of immediate satisfactions. It is because of these
unchanging circumstances that humans establish artificial
rules of justice by reflecting on the utility
that these rules produce in the enforcement of property
rights. In Hume's words, they preserve the "stability
of possession, of its transference by consent and
the performance of promises."[32]
It is important to note that these rules, which establish
the connection between individual and public interest,
emerge spontaneously. Hume is insistent that
those things which are for the public benefit are
not a product of rationalist calculation. The happiness
of a community is not promoted by trying to instill
a passion for the public good in people but by animating
them with a "spirit of avarice and industry,
art and luxury" so that the same result comes
about indirectly. The rules of justice themselves
are for the public good undoubtedly, but they emerge
in an evolutionary manner from the actions of individuals
who have only self-interest in mind. He says that
"those rules, by which property, right and obligation
are determined ... have all of them a direct and evident
tendency to public good" but that it is "self-love
which is their real origin."[33]
Thus a system develops which is in everyone's
interest "though it be not intended for that
purpose by the inventors."
Adam Ferguson (1723-1816)
As a contributor to the tradition of spontaneous
order, Adam Ferguson is noted mainly for his An
Essay on the History of Civil Society (1767),
but he was very much a 'system-builder' and the other
elements in his social philosophy, covering ethics,
jurisprudence, and economics, are contained in his
Institutes of Moral Philosophy (1769) and the
two-volume Principles of Moral and Political Science
(1792). Often quoted with approval by Hayek as
an early exponent of the antirationalist explanation
of social order, Ferguson's defense of the liberal
order of commercial society is less enthusiastic than
others. In addition, his often moralistic celebration
of an ethics of 'virtue' and public spirit, derived
from classical antiquity, provides some contrast with
the familiar morality of enlightened self-interest.
Indeed, he denied that Mandeville's postulate of self-interest
was sufficient to hold a society together. He feared
that the individualist ethics of ambition and enterprise
and the social system of the division of labor might
so dilute patriotism that despotism would threaten
commercial orders. Ferguson maintained this fear while
not denying that liberty was associated with the commercial
order and prosperity with the division of labor.
Consistent with the Scottish tradition, Ferguson
sought to explain the social state by reference to
nature and instinct, rather than reason and artifice.
There is no state of nature out of which isolated
individuals armed only with their reason contrive
their way into society via a contract. On the contrary:
"Mankind has always wandered or settled, agreed
or quarrelled in troops and companies."[34]
Society has always been coterminous with man, and
its bonds arise "from the instincts, not the
speculations of men." Again, ethics do not emanate
from reason but from the facts of nature: that men
naturally seek self-preservation, they desire to improve
themselves, and are capable of benevolence. It was
Ferguson's aim to link an evolutionary and quasi-historical
explanation of society with a universalistic and naturalistic
ethics.
Ferguson's Conjectural History as
Spontaneous Order
Ferguson's descriptive sociology was a hypothetical
reconstruction of the natural evolution of society
from a 'rude' to a 'polished' state. He distinguished
three sorts of social order: 'savage,' which is scarcely
a society at all, with no property and little inequality;
'barbaric,' which is characterized by the natural
emergence of property, inequality, and elementary
political institutions; and 'polished,' which is the
order of the commercial society, with specialized
social roles, manufacturing industry in addition to
agriculture, and the division of labor.
The emergence of the commercial society, then, is
spontaneous and undesigned, coming about through man's
natural adjustment to circumstances. Government and
law, for example, are needed to protect property,
and the forms of political rule depend on experience
and instinct rather than reason, since "no constitution
is formed by concert, no government is copied from
a plan." And, in a phrase made famous by Hayek,
Ferguson declared that:
Every step and every movement of the multitude,
even in what are termed enlightened ages, are made
with equal blindness to the future; and nations
stumble upon establishments, which are indeed the
result of human action, but not the execution of
any human design.[35]
Yet there is a curious mixture in Ferguson; his thought
includes not only a voluntaristic ethic that stresses
activity and benevolence (and which is favorably disposed
to conflict as a mainspring of human action) but also
a recognition of the fact that men are in general
governed by self-interest and that the public interest
is better promoted by each person caring for his own
welfare. This would reinforce Hayek's view that the
theory of spontaneous order does not necessarily
depend on a self-interest axiom of human nature but
only on the idea that aggregate and orderly social
structures can be traced from the actions of individuals
who had no intention of bringing them about. It is
important to note, however, that Ferguson was obsessively
concerned with the idea that the commercial system
was inadequate precisely because it unintentionally
attenuated those social values, such as the
public spirit and the military ethic, which were evident
in earlier and ruder forms of society.
Adam Smith (1723-1790)
Smith's Systematic Social Science:
Economic & Legal Order
Smith was the most systematic social theorist
of the Scottish Enlightenment. His Wealth of Nations
(1776) is a type of 'general equilibrium' theory of
economic society in which a self-regulating system
of spontaneous order is reconstructed out of the basic
impulses in human nature. Although it explores the
implications of self-love for the maintenance
of an economic system there is no real inconsistency
between this and his earlier treatise on ethics, The
Theory of Moral Sentiments (1759), in which a
much wider range of human motivations is analyzed.
It is true that The Wealth of Nations
is less sanguine about the beneficial effects of natural
liberty, and therefore it sanctions a not inconsiderable
number of interventionist actions, but there is little
difference in the principles of human nature that
underlie it and The Theory of Moral Sentiments.
Smith had promised a general treatise on law and
government but did not live to complete this; however,
two reports of his Lectures on Jurisprudence
were discovered after his death, and these contain
elements of a general theory of law. Although many
of Smith's ideas were not original to him, he constructed
a novel theory of how a social order might be maintained
through the operation of natural forces, with little
in the way of artificial direction and control. There
is, however, a minor revolution presently going on
in Smithian scholarship, largely concerned with downgrading
the elements of spontaneity and automatic adjustment
hitherto thought to be characteristics of his social
theory and 'recapturing' his work for the eighteenth
century. The criticism is that previous commentators
have tended to look at Smith's work through nineteenth-century
laissez-faire spectacles rather than see him
in the context of eighteenth-century politics.[36]
While perhaps a slightly more statist Smith has emerged
from this analysis it does not affect the judgment
that his work forms a land-mark in the history of
the theory of spontaneous order.
Smith's Invisible Hand and Natural
Liberty
In common with his contemporaries Smith sought an
explanation of social order which economized on reason.
Smith puts this point graphically with his explanation
of the emergence of the division of labor: this is
not
originally the effect of any human wisdom, which
foresees and intends the general opulence to which
it gives occasion. It is the necessary, though very
slow and gradual consequence of a certain propensity
in human nature which has in view no such extensive
utility: the propensity to truck, barter and exchange
one thing for another.[37]
The anti-intentionalist aspect of Smith's approach
is clear from his emphasis on 'natural liberty': allowing
this to operate produces benign consequences in contrast
to those that come from artifice. In The Theory
of Moral Sentiments he argues fiercely against
that 'spirit of system' of the rationalist philosophers
which arrogantly presupposes that the happiness of
human beings can be arranged, independently of experience,
according to a predetermined plan. He says that rationalists
forget that "in the great chess-board of human
society, every single piece has a principle of motion
of its own, altogether different from that which the
legislature might choose to impress upon it."[38]
In a number of passages in The Wealth
of Nations he argues that the centralized legislator
will not have the knowledge at his disposal that individuals
have of their 'local situations' and it is this which
is maximized in their pursuit of natural liberty.
That 'invisible hand' that co-ordinates human action
under the system of natural liberty is as much a metaphor
to describe how a society responds to the problem
of ignorance as it is a metaphor to explain how the
public good can be a product of self-regarding action.
By a natural occurrence of events, Smith means what
happens when the normal course of events is allowed
to proceed without some deliberate human intervention.
The behavior of a market is an obvious example of
such natural phenomena. The self-regulating properties
of the market are not a product of a designing mind
but are a natural product of the price mechanism.
Now from certain uniformities of human nature, including
of course the natural desire to 'better ourselves,'
it can be deduced what will happen when government
action disturbs this self-regulating process. Thus
Smith shows how apprenticeship laws, restraints on
international trade, the privileges of corporations,
etc., all disturb, but cannot entirely suppress, natural
economic tendencies. The spontaneous order of the
market is brought about by the interdependency
of its constituent parts and any intervention with
this order is simply self-defeating: "No regulation
of commerce can increase the quantity of industry
in any part of society beyond what its capital can
maintain. It can only divert a part of it into a direction
which it might otherwise not have gone."[39]
Smith's celebration of the market in no way revealed
an admiration for the merchants as a 'class': Smith's
criticism of them is well-known. The order emerges
despite the intentions of merchants, who are as eager
as anyone else to seek advantage through state action
which is disruptive of that order.
The Limits to Smith's Spontaneous
Order
The system of natural liberty, however, can only
work in the context of a form of interventionism;
that of the enforcement of the strict rules of justice.
Nature, while the source of unintended benefits for
mankind, also accommodates those impulses which, if
unregulated, turn self-love into an anti-social selfishness.
For Smith justice is basically commutative,
imposing negative obligations on people to refrain
from violating the natural liberty of others and requiring
the enforcement of contracts. While a society may
subsist without the sentiment of benevolence, it cannot
survive without the enforcement of justice: the rules
of which are the minimum requirements of the market
society.
While Smith certainly does not believe that natural
processes alone can be relied on to generate a legal
order, or in the rationalist notion of natural law
that validates 'anarcho-capitalism,' he does have
a theory of the spontaneous emergence of those legal
rules which are to be enforced by the state. This
is contained mainly in his (reported) writings on
jurisprudence. His legal theory is based on the idea
that law is not the artificial command of a sovereign
but the formalized expression of natural
justice. The content of this natural justice is that
which would be determined by the hypothetical impartial
spectator, informed by tradition and experience. The
mechanism for producing that desired harmony between
positive law and natural justice is the common law:
and Smith's jurisprudence contains a typically anti-rationalist
defense of judge-made law against statute. However,
while the common law needs to be supplemented by statute
(one reason being the need to control the judges),
the standard for statute law should be natural reason
and not the will of the legislator. Although, it is
not clear whether 'natural reason' refers to merely
conventional standards or represents a more universal
naturalistic morality.
Yet in Smith the spontaneity of a social order appears
not to be the same as that of an economic system governed
by natural liberty. His explanation of the evolution
of a social and political order has a historicist,
almost deterministic, and fatalist aspect which has
been seized on by some contemporary critics as evidence
of a disjuncture between his economics and politics.
In his tracing of a conjectural history of society's
development through four stages, the initial periods
of Hunters and Shepherds, through to Agriculture and
culminating in Commerce, he implies not merely that
social institutions are to be explained independently
of specific intentions but that there is a certain
inevitability about the course of events. He actually
says that there is a "fatal dissolution that
awaits every state and constitution whatever."[40]
This raises the possibility that the explanation of
spontaneous order in the non-economic sphere may slip
unintentionally into a kind of determinism.
Furthermore, Smith is certainly not happy with certain
of the unintended consequences of the market order
that he detected, and their presence justified, in
his mind, certain constructivistic interventions by
government. Attention has recently been focused on
those passages in The Wealth of Nations[41]
which suggest that the specialization of the division
of labor renders large numbers of the population stupid,
inactive, and 'alienated' from the system of natural
liberty; and also progressively incapable of mastering
those requisites for the making of moral judgment
which are described in The Theory of Moral Sentiments.
It is this concern that underlies his belief in a
state system of education. It is, in fact quite easy
to compile a sizeable list of ad hoc interventions
which Smith authorizes, and this indicates that he
did not think the outcomes of the system of natural
liberty were automatically benign.
As with other great systems of ideas it is possible
to read almost anything into Smith's works. What cannot
be denied, however, is the fact that they constitute
the first detailed statement of the theory that a
society is a system of interrelated parts which exhibits
a natural tendency to equilibrium if left undisturbed.
It is this insight that makes a social science possible
and which, in a normative sense, enables the mind
to hypothetically construct the likely consequences
of arresting or diverting these natural processes.
In the light of this discovery the offence of 'inconsistency'
seems less heinous than some recent critics of Smith
have implied.
Between Smith and Menger
It is commonly thought that after Smith the theory
of spontaneous order went into a decline until the
rise of Austrian economics and social science in the
last decades of the nineteenth century: that the cautious
consequentialism of Hume and Smith was replaced by
the activist utilitarianism of Bentham and the two
Mills, which authorized government to directly promote
social well-being by coercive law (that law itself
was a product of command and will rather than evolution).
However, this interpretation would be misleading since
there were other writers during this period who continued
the individualist tradition. The most important were
the writers in the French laissez-faire school
and Herbert Spencer.
Bastiat and de Molinari
The leading figures in France were Frederic Bastiat
(1801-1850) and Gustave de Molinari (1819-1912). One
reason why they have not been taken as seriously as
they deserve as theorists of spontaneous order is
that they contributed little in the way of original
theory to economics. Bastiat is largely known as a
brilliant economic journalist and tireless exposer
of statist and protectionist fallacies, and de Molinari
as a relentless advocate of the logic of laissez-faire
towards a version of free market (and lawful) anarchy.
Although, for example, Hayek's admiration of Bastiat
extends only to his feats as a polemicist, he is worth
further study because his novelty lay not in economic
theory but in general social philosophy; in the theory
of law and government. One reason why Hayek pays no
attention to this is that, although Bastiat comes
up with a theory of limited government and an explanation
of the ultimate harmony that automatically
results from the free play of economic forces, the
foundation for this conclusion is rather different
from others in the tradition that Hayek admires.
In a word Bastiat was a rationalist; he deduced
his theory of limited government and economic harmony
directly from an abstract theory of natural law and
natural rights. While he was indefatigable in his
demonstrations of the beneficial consequences that
inevitably flow from freedom and exposure of the dis-coordinating
actions of government, his ultimate justification
for liberty lay in an essentialist concept of man
abstracted from time and place. In his work on jurisprudence,
The Law, Bastiat espouses an individualist
view of law and justice that derives not from those
natural propensities and passions, as in Hume and
Smith, but from reason, and ultimately God: "Each
person has a natural right - from God - to defend
his person, his liberty and his property."[42]
It is just this that the anti-rationalists reject
on the ground that 'nature' does not furnish us with
a permanent and universal standard of conduct independently
of experience. This means that whereas Bastiat deduced
the relationship between the individual and government
axiomatically from the first principle of liberty
- that each man has the right to protect his life,
liberty and property - the evolutionary approach suggests
that the ideal working of a social system is too complex
to be captured in a simple formula, that no abstract
system of rules can be rationally devised which can
accommodate all future unknown cases.
Herbert Spencer
In the writings of Herbert Spencer there are obvious
indications of an evolutionary approach. For although
in his early work Social Statics (1851) he
appears to have deduced the system of laissez-faire
from a doctrine of natural rights, couched in the
form of the Law of Equal Freedom, the idea of the
spontaneous evolution of rules and institutions came
to dominate his social thought. In his Social Statics,
The Man versus the State (1881), and his sociological
writings there are numerous examples of his commitment
to a form of reasoning we associate with spontaneous
order. He stresses that societies develop (from militant
to industrial) without design and according to laws
which operate independently of man's will; that a
market allocation, specialization, and the division
of labor spontaneously develop to man's advantage;
that reformers mistakenly treat a society as a 'manufacture'
which can be manipulated by rationalist planners when
it is in fact a 'growth'; and that proper social science
requires an exploration of the long-term and unintended
consequences of human action. Furthermore his normative
ethics were of a complex consequentialist kind. The
Law of Equal Freedom was justified because it was
consistent with the long-run happiness of men:
what he objected to was that constructivistic rationalist
utilitarianism which tried to measure the immediate
effects of rules and policies. It was a fundamental
tenet of Spencer that the complexity of a social order
precludes this kind of calculation.
It is curious why Hayek should pay so little attention
to Spencer's social science and philosophy. What is
even more remarkable is that the influence of evolution
had a corrosive effect on both their systems. For
if the criterion of social value is survival
in an evolutionary process, what can be said against
those institutions which, although they may embody
anti-liberal values, have survived? Spencer was faced
with this problem during his lifetime because of the
rise and political success of socialist institutions
and measures which he claimed belonged to a pre-industrial
state of social evolution. As we shall see below,
Hayek is faced with the problem that undesigned institutions
may develop in a number of different ways, including
anti-liberal ways.
Carl Menger (1840-1921)
Carl Menger is associated primarily with Jevons and
Walras for his rediscovery of the subjectivist theory
of value and the principle of marginal utility in
his first published work of economic theory (1871).
But his contribution to the theory of spontaneous
order is contained in his methodological work, Problems
in Sociology and Economics (1883). In this he
attacked the methodology of the 'younger historical
school' of German economists and tried to found a
'causal-genetic' theory of society in which
the regularity and predictability of institutions
is theoretically reconstructed out of the actions
of individuals. Menger in fact called his procedure
the 'compositive' method: this holds that while it
is meaningful to talk of social 'aggregates,' the
behavior of such aggregates is explicable only in
individualist terms.
Menger's methodology consists of two parts. The first
part describes those timeless generalities called
'exact' laws (such as the law of demand) which do
not refer to any actual empirical phenomena but which
enable us to organize social knowledge. The second
part, which is more important from the point of view
of the theory of spontaneous order, describes those
empirical regularities that, although they are necessarily
less precise than the exact laws, are capable of a
theoretical and ahistorical explanation.
What Menger wished to do was to refute what is now
called 'historicism,' i.e., the idea that the laws
of social science consist of observed historical regularities;
normally, in the German historical school, these were
purported regularities of holistic (and irreducible)
entities, such as the 'national economy.' Menger had
no objection to the proper historical method,
which was the study of unique individual events; his
criticism was directed at the attempt to construe
empirical laws as sequences of such historical events.
For Menger 'empirical' laws were not historical generalizations
but hypothetical constructions derived from regularities
in individual behavior. This anti-inductivism is a
striking feature of the social science of the Austrian
economists and social philosophers. For them the immense
complexity of the social and economic world means
that the theorist must proceed by the way of 'abstraction'
rather than description.
The institutions that social science explains by
the method of abstraction are money, languages, markets,
and law. They are examples of what Menger calls organic
phenomena because they are the results of natural
processes. These organic institutions are
to be contrasted with pragmatic institutions,
which are the product of human deliberation and will.
In common with the eighteenth-century thinkers Menger
comments on how the organic institutions serve the
common welfare without being the product of a common
will. In a revealing passage he wrote:
Language, religion, law, even the state itself,
and to mention a few economic social phenomena,
the phenomena of markets, of competition, of money,
and numerous other social structures are already
met with in epochs of history where we cannot properly
speak of purposeful activity of the community as
such directed at establishing them.[43]
Menger's most significant example is his explanation
of money. He was struck by the fact that, since people
only exchange to procure goods that they need, it
seems implausible that self-interest would produce
a 'public' institution such as money, which is clearly
not required for their immediate needs. Menger
points out that many social philosophers were driven
by this paradox to claim that money was the product
of some specific agreement or contract, or positive
act of legislation by the state.
Against this rationalist explanation Menger argues
that, although money can and has come about in this
way, the institution can be accounted for by natural
processes. In an original barter economy it will be
apparent that some goods are exchangeable for a greater
range of goods than many others and people will naturally
exchange their less marketable goods for these, even
though they do not immediately need them, to satisfy
more conveniently their future wants: "the economic
interest of the economic individuals, therefore, with
increased knowledge of their individual interests,
without any agreement, without legislative compulsion,
even without any consideration of public interest,
leads them to turn over their wares for more marketable
ones.... "[44]
(italics in original). The process will automatically
produce a good that has the familiar properties of
money.
However, all the economic agents could never simultaneously
possess the knowledge of the advantages of the money
good. The emergence of money is a gradual process
and is in fact set in train originally by a small
number of individuals perspicacious enough to see
its advantages. It was not the intention of those
economic agents to produce something for the public's
advantage but this is what occurs.
The interesting thing about Menger's discussion of
spontaneous order, however, is that he does not emphasize
the value of undesigned institutions in quite
the same way as other thinkers in the same tradition
and does not assume that they are necessarily superior
to pragmatic ones. It is true that in Appendix
VIII of his Problems he specifically contrasts
evolving law with statute law and draws out the advantages
of the former in what has become the orthodox fashion,
but he then goes on to discuss some important qualifications.
He is particularly concerned that the organic view
should not be interpreted to mean that rules which
have developed in an undesigned manner should necessarily
be regarded as superior to made or contrived law.
It is not the origin of the law that determines its
value but its usefulness. He says that the "common
law has proved harmful to the common good often enough
... and legislation has just as often changed common
law in a way benefiting the common good."[45]
Menger is then highly skeptical of the notion that
the common law contains some 'higher wisdom' which
is immune from rational criticism. The fact that institutions
had emerged organically is not a reason for approving
of them any more than their pragmatic origin is a
reason for condemnation. There is a tendency in some
writers in the literature of spontaneous order to
regard certain institutions as functional merely because
they have survived an evolutionary process, but this
conviction is absent in Menger.
F.A. Hayek (1899-1992)
Of all the twentieth-century theorists of spontaneous
order, Friedrich A. Hayek (b. 1899) has contributed
most to the intellectual reproduction of Adam Smith's
vision of a self-correcting social order which requires
little direction and control. Throughout the great
variety of his works[46]
he has stressed the importance of spontaneous processes
and the impossibility of predicting the future growth
of a social order. The whole of his social philosophy
may be described as an assault on the exaggerated
claims made for 'reason' and a justification for the
view that we must adopt an attitude of humility towards
natural processes and "submit to conventions
which are not the result of intelligent design, whose
justification in the particular instant may not be
recognizable, and which will ... often appear unintelligible
and irrational."[47]
While Hayek has been a rigorous critic of 'scientism,'
the belief that the methods of the physical sciences
can be readily applied to the study of society, with
their concomitant advantages of prediction and control,
he does not deny that a social system is governed
by 'laws.' There are, for example, laws of economics;
these consist of, to use Lord Robbins' phrase, "those
necessities to which human action is subject."
In Hayek's opinion, many of the mistakes of rationalist
planning stem from attempts to resist the operation
of the basic principles of scarcity, supply and demand
and so on, and well-established laws of human behavior.
A genuine social science, then, would describe how
men adjust to certain inevitable laws and stress how
little they can, or need to, control their societies.
Knowledge and Society
In his description of a self-regulating system Hayek's
major achievement has been to show that the advantages
of decentralized decision-making in a market stem
from the fact that this is the only device that man
has discovered for coping with the universal facts
of ignorance and uncertainty. It is because the social
world does not consist of physical objects governed
by simple laws of causality, but is a 'kaleidic' world
inhabited by individuals with minds, whose inner recesses
are inaccessible to the external observer, that knowledge
is not 'fixed' and available to a single person or
institution.[48]
Co-ordinating Dispersed Knowledge:
Rationale for Market & Liberty
The problem of knowledge arises because the 'facts'
of a social and economic system are dispersed throughout
the minds of thousands, possibly millions of actors;
therefore this knowledge has to be co-ordinated if
we are to exploit it for the benefit of man. This
division of knowledge, which characterizes any social
process with a degree of complexity, is, in Hayek's
opinion, as important as the division of labor as
a mechanism to explain progress; the co-ordination
of this diffused knowledge via a market process allows
us to utilize a much greater amount of knowledge than
under known alternative systems. Thus, whereas Adam
Smith and his successors saw the market and law as
co-ordinating the self-interested actions of
agents so as to produce an unintended beneficial outcome,
Hayek speaks of the co-ordination of the actions of
necessarily ignorant people. Thus the theory
of spontaneous order does not depend for its truth
on the so-called 'egoistic' behavior assumptions of
traditional economic theory because there remain universal
co-ordination problems whether people are selfish
or altruistic in their impulses. Nevertheless, one
should not ignore the importance of 'vulgar' motivations
in the economic nexus; the interdependent parts of
an economic system are normally held together by self-interest.
The justification for individual liberty is then
largely instrumental in that the case for freedom
"rests chiefly on the recognition of the inevitable
ignorance of all of us concerning a great many of
the factors on which the achievement of our ends and
welfare depends."[49]
It is not that the theory of spontaneous order precludes
planning as such; it is that only planning by individuals
in decentralized markets will tend towards an optimal
use of knowledge. The central planner has only that
knowledge available to him, which is less than that
which is co-ordinated among all the agents in a market
process. Furthermore, because the future is unknowable,
a system that relies on liberty allows for the accidental
and spontaneous. Hayek's main objection to the rationalist
theory of liberty is that the rationalist associates
the growth of knowledge with predictability and control;
but those things which can be predicted and controlled
comprise only a small part of social and economic
experience.
In Hayek's epistemology, scientific knowledge
of society is knowledge of spontaneously formed orders:
the knowledge that we do have of made orders
cannot be genuine scientific knowledge. Thus much
of contemporary sociology and political science is
not scientific knowledge but rather contemporary history
because those subjects deal with phenomena which are
the product of will and intention: the only social
phenomena which are explicable by scientific, causal-genetic
laws are markets and legal systems.
Ambiguity in Explaining Legal Orders:
Spontaneous Order vs. Relativistic Evolution
It is my intention to show that while Hayek's attempt
to explain the spontaneous order of the market is
largely successful, and indeed contains some of the
most brilliant insights into the nature of economic
processes since Adam Smith, his attempt to account
for the legal order in similar terms is less successful.
This is largely because he blends two subtly different
types of explanation: one concerned with the formation
of spontaneous orders, and one concerned with the
evolution of rules and institutions by natural selection.
Hayek himself speaks of the 'twin ideas' of evolution
and of the spontaneous formation of an order without
indicating that there might be an important difference
between the two. But the emphasis on evolution and
the cultural transmission of rules and practices
introduces a note of historical relativism which does
not always harmonize with the universalistic liberal
rationalism characterizing his explanation of the
formation of economic orders.
The Free Exchange System
'Catallaxy' vs. 'Economy'
Market Co-ordination vs. Neoclassical Equilibrium
The word that Hayek uses to describe a spontaneous
market order is catallaxy; and a catallaxy
is contrasted with an economy. An economy
is a social practice defined in terms of the pursuit
of a 'unitary hierarchy of ends,' where knowledge
of how to achieve these ends is given. A single firm
(or a household) is an economy and may be evaluated
with the methods of an engineering type of science
for its success in achieving prescribed goals, or
common purposes. However, a catallaxy is a
network of many firms and households and has no specific
purpose of its own: it is that which results naturally
from the interaction of firms and households through
the exchange process: "the order of the market
rests not on common purposes but on reciprocity; that
is, on the reconciliation of different purposes for
the mutual benefit of the participants."[50]
According to Hayek, the mistake of orthodox neoclassical
theory is to treat a catallaxy as if it were
an economy. This is because of the neoclassical emphasis
on static equilibrium. This is an example of rationalism
because it is assumed that an 'efficient' economic
order, in the conventional sense of there being a
state of affairs in which it is impossible to switch
a resource from one use to another and receive a net
benefit, can be designed without a market process
to signal information about tastes, costs, and so
on. However, this assumes perfect information, whereas
the real world is characterized by ignorance, change,
and uncertainty, so that knowledge cannot be 'objectified'
and made to serve given ends. All we can expect is
a tendency towards equilibrium as the actions of individuals
are co-ordinated through the mechanism of prices.
Thus Hayek extends subjectivism beyond the theory
of value to the theory of market process.
This theory, that there is a tendency to equilibrium
in a decentralized exchange system is of course an
empirical theory, which may be falsified. It is logically
possible that there may be such endogenous 'shocks'
to the system that the plans of the participants may
not harmonize. Indeed, there are extreme 'subjectivists'
who do not merely reject the neoclassical orthodoxy
concerning static equilibrium, but also suggest that,
because of the divergence of 'expectations,' future
profitable opportunities may not be exploited so that
there is not even a tendency for the actions of economic
agents to be co-ordinated. In the work of G.L.S. Shackle
and Ludwig Lachmann there is the implication that
the spontaneous emergence of an order may be
only a chance phenomenon, rather than a theoretical
property of an interdependent economic system. In
other words, the market does not co-ordinate expectations
in the way that it co-ordinates knowledge.[51]
In Hayek's early work on the theory of market process,
his main concern was with the disequilibrating effect
of certain exogenous factors, such as governmental
control of money, which dis-coordinated the actions
of economic agents; he did not consider seriously
the possibility of the presence of ignorance and uncertainty
producing spontaneous disorder. Further, although
Hayek presented his theory as an empirical one, he
did not indicate under what circumstances it might
be falsified. The assumption was that a catallaxy
was tending towards equilibrium rather than being
moved away by endogenous factors.
Co-ordinating Market Knowledge: Competition
& Entrepreneurship
However, it should be argued that there are certain
identifiable causal factors at work which bring about
this tendency, namely competition and entrepreneurship;
and here, Hayek's important suggestions have been
taken up by other writers.[52]
His argument is that in the standard general equilibrium
model competition does not exist, since, if there
is an equilibrium, competition has ceased and opportunities
for further trade are exhausted. What is not considered
in the general equilibrium model is how this stable
state of affairs comes about, or what mechanisms produced
this optimum. Hayek's theory maintains that in an
uncertain world, the 'discovery procedure' of competition
spontaneously co-ordinates decentralized information
and thus brings about a tendency towards equilibrium.[53]
That array of 'correct' prices proposed by orthodox
theory is an illusion; in reality prices are always
to some extent 'incorrect' and therefore always suggestive
of some reallocation of resources through the competitive
process.
It is here that the role of the entrepreneur becomes
important because the co-ordination process depends
upon the existence of entrepreneurship as a special
activity. The concept of entrepreneurship can perhaps
be better explained by reference to 'prediction.'
Since the general equilibrium model assumes knowledge
of tastes, costs, and so on, the implication is that
it is possible to predict mechanically what an efficient
allocation of resources would be. If this were so,
then entrepreneurship would be redundant.
However, in a world of uncertainty, where the future
is unknowable, a predictable outcome is an epistemological
absurdity. The entrepreneur, albeit guided by self-interest,
accidentally plays a socially beneficial role in co-ordinating
economic knowledge to produce an outcome which looks
as if it had been designed and predicted by an
omniscient legislator, but clearly could not have
been.[54]
In this view of a competitive process such market
imperfections as monopoly are not therefore aberrations
which can be legislated away so as to eliminate an
alleged 'welfare loss' but may well be necessary elements
in the emergence of a spontaneous order. It may be
the case that the monopoly reflects superior efficiency,
or that without the prospect of monopoly gains a particular
good would not be produced at all. In these cases
there is entrepreneurial activity. In any
event, as long as there are no governmental barriers
to entry the monopolist operates under some constraint
so that rather than eliminate monopoly by law and
artificially create some abstract concept of 'perfect
competition,' it is better to let natural competitive
processes operate. It is Hayek's claim that 'natural'
monopolies are extremely rare, and that most monopolies
are the product of deliberate government intervention;
where they do exist, the market itself is a natural
process which generates its own corrective devices.
The most important feature of the price system is
that it economizes on knowledge. Each participant
has to know little of the whole system for the co-ordination
to be successful since its signals "enable individual
producers to watch merely the movement of a few pointers,
as an engineer might watch the hands of a few dials,
in order to adjust their activities to changes of
which they may never know more than is reflected in
the price movement."[55]
Disruptions of Catallaxy
How then does Hayek explain the breakdowns of this
economical order? In short, he maintains that
most of the disorder in the market system that we
experience is a result of mistaken interventionist
measures which distort natural self-correcting processes
that are at work in the system. Thus the theoretical
study of economic processes must emphasize those institutional
structures which are disruptive of a spontaneous order.
Later, of course, Hayek was to develop a theory of
society which suggests how dis-coordinating institutions
may be rectified, but in his writings as an economist
he took institutions as given and made certain economic
inferences from them. In this sense only is his economic
theory independent of his general social theory.
Throughout his career as a pure economist the institutional
factor which has concerned Hayek most is governmental
control of the monetary instrument. It is this that
has generated economic disorder and dis-coordination
by distorting the system of relative prices which
would otherwise induce economic actors to produce
a stable order. Furthermore, arbitrary privileges
granted to trade unions by statute law suppress the
natural functioning of the labor market so that resources
are misallocated and involuntary unemployment generated.
Before looking at these types of disorder, however,
we should give some attention to that spontaneous
disorder that Hayek himself admits may be
produced by a market subject to no controls.
This occurs in the now familiar areas of public goods
and externalities. These areas were little discussed
at the time Hayek wrote his pioneering essays on the
theory of spontaneous order.[56]
He has, however, always argued, against the claims
of anarcho-capitalists, that the market cannot spontaneously
produce a police and defense system, and other 'public
goods' which, according to public goods theory assumptions,
it would pay no individual economic actors to supply.
In the logically similar area of 'external bads,'
i.e., where each individual actor in the market has
every incentive to impose external costs on the community,
as in the case of pollution, Hayek agrees that there
may be a role for collective action.
One familiar way of preventing this latter sort of
spontaneous disorder is to specify a set of appropriate
property rights so that any external harm falls on
an individual property holder who can then sue the
instigator of the harm for damages. In this way external
'bads' might be internalized. While this approach
is not antithetical to the Hayekian system it does
imply an activist role for some authority in determining
new property rules and the deliberate agreement
of actors to follow such rules. In this, and other
areas, Hayek places (in the opinion of many critics)
too much reliance on the evolution of appropriate
property rules for the competitive process:[57]
and this is a consequence of his refusal to consider
the possibility that in some areas reason may improve
on natural processes.
Austrian Perspective on Intervention:
Dis-coordination of Economic Knowledge
The kind of disorder, however, to which Hayek has
contributed much illumination is that brought about
by government intervention in a catallaxy at
the 'macro' level. Of course Hayek has never recognized
a macroeconomic theory which is not reducible to individual
volitions (holistic magnitudes are 'fictions,' they
do not display irreducible regularities) but nevertheless
his inquiries into the trade cycle focused on the
behavior of a catallaxy as a whole.[58]
Most of his economic theory addresses those who deny
the basic proposition that an unhampered market economy
(or catallaxy) tends towards the full employment
of all resources. The most notorious of these theories
is Keynesian macroeconomics, and it is to this that
Hayekian economics is normally addressed, although
he formulated his theory of money and the trade cycle
before the publication of Keynes' General Theory.
In the familiar Austrian theory of the trade cycle,
disequilibrium and the dis-coordination of economic
knowledge is a function of misleading signals being
put out to market transactors by the monetary system.
An automatic co-ordination of the intentions of savers
and investors, which would produce more or less full
employment of all resources, is systematically disrupted
by manipulated money, which leads to misallocation
and therefore painful periods of readjustment. What
happens is that under the fractional-reserve banking
system, increased credit lowers the rate of interest
on the money market below its 'natural' rate (i.e.,
the rate determined by the time-preferences of individuals)
so that extra investments are made at longer stages
of production.
In Austrian theory the structure of production[59]
consists of a series of integrated stages with immediate
consumption goods located at the nearest stages and
capital goods at the farthest. This 'order' is fundamentally
stable if the investments at the farthest stages are
warranted by the current consumption-savings ratio
of the public, since, then, savings will make available
those complementary capital goods which are required
to complete the structure of production. However,
under the fractional-reserve banking system the structure
is unstable. The long-term investments, in this system,
are malinvestments, brought about by cheaper
credit and not by a lowering of time-preferences by
the public. Since individuals are consuming at the
same rate as before the credit injection begins, extra
earnings of labor factors will be spent on consumer
goods and therefore cause a switch back to the nearest
stages to meet this new demand; and therefore a shrinking
of the capital structure occurs. Thus there will be
temporary unemployment in the remote stages. The resulting
recession must be endured while normal market processes
liquidate the malinvestments brought about by misleading
price signals.
While this is the standard version of the theory,
the particular form in which the disorder takes place
will vary according to different institutional structures.
In the 1930s it was increased bank credit that produced
the cycle and its effect was visible in the form of
unemployment in investment goods industries. In the
contemporary world, characterized by massive government
intervention, the misallocation is much more diffused
throughout the whole system.[60]
Also, today the natural readjustment process may be
slower, in Britain especially, because welfare legislation,
union privileges, and housing policy have all combined
to increase the immobility of labor.
Hayek on Monetary Disorder
In all this, the instability of a catallactic
process is a function of the 'non-neutrality' of money.
Since increases in credit do not affect all prices
in a uniform manner (which is the implication of the
Walrasian general equilibrium theory), disorder must
occur under the orthodox banking systems of capitalist
economies because changes in relative prices mislead
market transactors. The question is whether such disorder
is a necessary part of a catallaxy or whether
it is always brought about by some exogenous agency.
Now Hayek has described money as a kind of 'loose
joint'[61]
in a process which in other respects showed an automatic
tendency towards equilibrium. The fractional-reserve
system, while its elasticity of credit caused misleading
price signals, had itself developed spontaneously,
and therefore Hayek, in the 1930s, claimed that its
abolition and replacement by a 100 percent reserve
system would create even more problems. All that was
required for the self-regulating processes to work
was something like the Gold Standard (or fixed rates
of exchange) and the withdrawal of government from
the economy: this would mitigate, if not entirely
eliminate, the effects of the cycle. In practice,
it was government mismanagement of the currency that
caused severe maladjustment of the catallaxy.
Hayek gave no suggestion at this time that government
should lose its monopoly over legal tender. Rather
he claimed that the disequilibrating effects of this
could be mitigated by institutional procedures. In
recent years, however, Hayek has pioneered the idea
that complete removal of government's monopoly over
money is required and that competition between rival
currencies, issued by banks and governments, would
spontaneously generate monetary stability.[62]
The curious feature of this proposal is its contrast
with previous theorists of spontaneous economic order
who had argued that the removal of government from
money would produce a commodity-based money (indeed,
it was a fundamental feature of the monetary theory
of Ludwig von Mises that the value of a money device
could ultimately be traced back to its value in use).
Hayek, however, appears to think that competition
between paper currencies will produce stability. He
is skeptical of gold becoming usable again - for the
fallacious reason, according to orthodox theory, that
"there is just not enough gold about" -
and makes the constructivistic proposal that countries
should mutually bind themselves by formal treaty not
to impede the free use of currencies issued by other
countries or banks.[63]
Irrespective of the details of Hayek's proposed solution
to the problems caused by monetary disorder, his persistent
argument, over a period exceeding fifty years, that
government control of money produces never-ending
inflation and a consequent disruption of economic
order, has been amply borne out by events. If his
social science had been limited to this alone it would
constitute a major achievement.
The Structure of a Legal Order
Social Cosmos: Spontaneous Order
vs. Constructivistic Rationalism
The most important aspect of the unity of Hayek's
method is his attempt to explain the nature of legal
and social institutions with the same intellectual
tools which he used in the explanation of economic
phenomena: tools that stress natural processes rather
than reason and artifice. In an essay, "The Principles
of a Liberal Social Order," Hayek said:
Under the enforcement of universal rules of just
conduct, protecting a recognizable private domain
of individuals, a spontaneous order of human activities
of much greater complexity will form itself than
could ever be produced by deliberate arrangement.
...[64]
The problem here is the explanation of the origin
of the 'universal rules of just conduct.' Do they
emerge spontaneously? Or is some element of constructivistic
rationalism required for the explanation of these
rules that service a catallaxy? While Hayek
has always been favorable to the common law, as opposed
to statute, in the Constitution of Liberty
he did suggest that the growth and development of
a catallaxy could take place within the context
of general codes of law that define the conditions
of freedom.[65]
However, in his trilogy, Law, Legislation and Liberty,
there is almost an exclusive emphasis on the virtues
of spontaneously developing law and institutions.
The explanation for this change lies in the fact that
although Hayek concedes that codified law may be more
certain than judge-made law, this advantage is nullified
if it leads to the view that "only what
is thus expressed in statutes should have the force
of law"[66]
(italics in original). Spontaneous legal orders will
contain rules that have yet to be formulated in words.
Hayek does not regard a social system (or cosmos)
as completely self-regulating and self-correcting,
since he recognizes a role for coercive government
in the enforcement of rules and concedes that 'legislation'
will be required for the correction of 'law' that
may have developed in an inappropriate manner. But
the task allocated to evolution in the explanation
of genuine law is clearly meant to parallel that of
the 'invisible hand' in the explanation of harmony
in the market economy.
However, many contemporary classical liberals argue
that Hayek's analogy fails: that just because 'discovered,'
as opposed to 'made,' law is a product of accident
this does not make it efficient law, in the sense
of it providing an appropriate framework for the order
of the market. The elimination of reason from the
construction of the rules of an economic system would
seem to commit Hayek to a certain kind of conservatism
and quietism in the face of some ineluctable flow
of events, despite his own personal commitment to
economic liberalism and his recommendation of quite
radical institutional reforms.
Spontaneous 'Nomos' vs. Rationalist
Law.
Common Law vs. Statute Law
In Rules and Order Hayek defines 'order' as
... a state of affairs in which a multiplicity
of elements of various kinds are so related to each
other that we may learn from our acquaintance with
some spatial or temporal part of the whole to form
correct expectations concerning the rest . . . [67]
(italics in original)
This means that a social order is a structure of
interrelated parts that displays predictability
and regularity because of rules that govern
its behavior. In a legal order such rules may be a
product of command (and Hayek maintains that in any
social system some of its rules will have to be of
this type). However, his claim is that greater regularity
and predictability, and therefore complexity, will
exist in orders where the bulk of the rules that govern
interdependency have emerged spontaneously. The point
he is making here is the anti-rationalist one that
rules are not the product of a mind, abstracted from
experience, as in the Hobbesian model. Rather rules
and society have developed, as Ferguson and the eighteenth-century
writers insisted, coterminously. As a result, 'law'
(in the sense of those rules of just conduct which
govern individual relationships) differs from, and
precedes, 'legislation' (that body of deliberate commands
which is addressed to specific purposes). 'Discovered'
law is called nomos[68]
and is consistent with the order of a free society.
This is because, since it is concerned with no overall
purpose of its own, nomos enables an unknown
number of individual purposes to be fulfilled. Its
domain is the protection of the person, of property,
and the enforcement of contracts.
In this argument Hayek is, in effect, restating some
familiar themes concerning the virtue of the common
law system which he himself has detected in the writings
of Hale, Burke, and the European historical school
of jurisprudence. However, undoubtedly a major influence
on his post-Constitution of Liberty jurisprudence
has been the late Bruno Leoni's Freedom and the
Law.[69]
This is perhaps the most sophisticated expression
of the evolutionary theory of law; for Leoni does
not merely rely on the 'wisdom of history' but constructs
a direct analogy between law and the market. Law develops
in a case by case manner during which judges fit and
adapt existing law to circumstances so as to produce
an overall order which, although it may not be 'efficient'
in a technical, rationalistic sense, any more than
competitive markets are 'perfect,' is more stable
than that created by statute. Statute law may appear
to be more predictable because it is written down,
whereas common law ('lawyers' law') may not actually
be known until a judge has 'discovered' it, statute
law is in fact much more capricious precisely because,
in the modern world especially, statutes change frequently
according to the whims of legislatures. Hayek's position
is similar to Leoni's antistatute approach in all
important respects: because it is impossible to predict
human (legislative) behavior, a structure of law which
is not the result of will and cannot be known in its
entirety, paradoxically, displays more regularities
than a written code. Furthermore, because the future
is unknowable and unpredictable, no code could be
designed to cope with all possible cases. This is
why judicial activity, as a form of 'puzzle-solving,'
is essential to Hayek's jurisprudence.[70]
Cultural Transmission of Rules of
Conduct
However, Hayek adds to these not unfamiliar themes
something rather more controversial. This is the argument
that a spontaneous system of rules will be more efficient
(than known alternatives) to the needs of what he
calls the 'Great Society' precisely because it has
survived an evolutionary process: a process in which
not reason but natural selection determines
which rules and institutions are appropriate.[71]
The history of institutions consists of a kind of
Darwinian struggle out of which certain rules and
procedures prove to be more durable than others; and
a society progresses not by designing institutions
for specific purposes but by adapting those that have
emerged independently of men's wills to new circumstances.
Furthermore, societies progress to the extent that
they 'imitate' known successful rules and practices
rather than construct them in some calculating manner.[72]
The mechanism in this process is what Hayek calls
'cultural transmission.'
[73] This means that the rules
and institutions that we inherit are neither (1) the
product of a biological causality which is traceable
to genetic structures (as the extreme sociobiologists
would have it) nor (2) do they emanate from an unaided
reason. They are 'learnt rules' which, although they
may not yet be formulated explicitly, have been transmitted
through a process of cultural evolution. Since an
evolutionary order is unpredictable it follows that
"we will have less power over the details of
such an order than we would of one which we produce
by arrangement."[74]
The fact that we cannot fully comprehend or state
such rules is not a reason for doubting their efficacy,
since that efficacy itself would appear to be a function
of their very survival. While Hayek wants to use this
argument against a rationalistic legal positivism
which erroneously supposes that all laws are mere
conventions which are alterable at will, he frequently
writes as if we must passively accept a given structure
of rules precisely because it is undesigned. It may
be true that "law existed for ages before it
occurred to man that he could make or alter it."[75]
It does not follow, however, that such law is necessarily
'efficient' or appropriate to the order of classical
liberalism (which Hayek favors for reasons other than
those to do with evolution). The doctrine of the cultural
evolution of rules of conduct would seem to bind man
in a more decisive way than, say, the 'laws' of economics,
which merely indicate the necessary boundaries within
which free and rational action takes place.
Hayek's Traditionalist Evolutionism
and Liberalism
It is in the epilogue to volume III of Law, Legislation
and Liberty, "Three Sources of Human Values,"
that Hayek's anti-rationalism seems to collapse into
an uncritical traditionalism. In merging legal and
moral rules into simply those rules that have developed
culturally, he says: "Tradition is not something
constant but the product of a process guided not by
reason but by success."[76]
Also, the limitations of the human mind dictate that
'all progress must be based on tradition '[77]
(italics in original). Furthermore, not only are ethical
rules relative to particular traditions, but we are
incapacitated from recommending alteration, apart
from minor tinkering, of such rules because, since
the future is unknowable, we cannot predict the consequences
of such alteration. This extreme anti-rationalism
follows directly from Hayek's claim that mind itself
is explicable only in terms of cultural transmission:
"all enduring structures up to the brain and
society are a product of selective evolution."[78]
This clearly differentiates him from the rationalistic
classical liberalism of, for example, Ludwig von Mises,
who based a theory of laissez-faire economics
and politics on the universal properties of the human
mind.
The difficulty with Hayek's analysis is that social
evolution does not necessarily culminate in the classical
liberalism that he so clearly favors: there are many
non-liberal institutions which have indeed survived.
The period of the dominance of the open society, the
market economy and minimal government may then be
regarded as perhaps a chance mutation in a course
of evolution which is proceeding in quite another
direction, an evanescent torch in an inexorably darkening
world. Yet if we are intellectually tied to tradition,
and if our 'reason' is too fragile an instrument to
recommend satisfactory alternatives, how are we to
evaluate critically that statist and anti-individualist
order of society which seems to have as much claim
to be a product of evolution as any other social structure?
The problem is that the spontaneous formation of
a market is not the same thing as the evolution of
a legal system, although neither is designed. In a
market there is a mechanism, the price system, which
does co-ordinate the actions of economic agents to
produce an efficient order (though even here the presence
of externalities constitutes 'disorder'); but there
is no similar mechanism at work in a legal system.
In Hayek's analysis it looks as if rules and practices
are functional merely because they have survived
rather than because they adequately service a liberal
order. One striking example, from the British experience,
is the constitutional rule that parliament is sovereign.
This is a product of evolution yet is probably the
single most important institutional cause of the undermining
of the rule of law and the breakdown of the market
economy in that country.
In fact, Hayek implicitly concedes part of the rationalist
libertarian's argument in that much of his social
philosophy does consist of rational criticism of anti-liberal
and anti-individualist economic and political institutions.
He admits that the common law does not automatically
develop in desirable directions, and may even protect
'class' interests, so that it will have to be modified
by legislation.[79]
Presumably such artificial correction must be sanctioned
by the principles of classical liberalism and individualism.
But even here the normative principles that are used
must be part of an ongoing tradition. It is epistemologically
impossible to stand outside a tradition of conduct
and appraise or reject it in its entirety: "Ethics
is not a matter of choice. We have not designed it
and cannot design it."[80]
Law and Liberty: The Problem of Criteria
To Distinguish Liberal and Non-Liberal Orders
Those modifications that have to be made to an ongoing
system will normally take the form of additional rules
of just conduct. Again Hayek does not offer any substantive
criterion for the evaluation of such proposals: all
that is required is that new rules be universalizable
within an ongoing system. But, as is well known, this
is a purely formal criterion, so that it is possible
for a variety of quite different rules to be universalized
within a given structure.
Perhaps Hayek's explanation of the emergence of a
self-regulating liberal order can be 'saved' by interpreting
his argument to mean that which is a product of evolution
is simply what would have occurred were it not for
arbitrary interventions of a constructivistic kind.
However, this could lead to an un-Hayekian anarcho-capitalism
in which a rationalistic natural law guarantees each
individual the right to 'opt out' of the state, and
this is clearly not what he has in mind. The liberal
order contains an organization (taxis),[81]
the state, which operates through designed law (thesis);
and this institution is charged with specific purposes.
The rationale of this organization seems to be cultural
and evolutionary in that, according to Hayek, experience
indicates that a form of the state is required to
enforce the rules of just conduct and supply public
goods.
Hayek argues that the activities of government can
be constrained by the meta-legal principle of the
rule of law; rules should be perfectly general, binding
on everybody, not be retrospective in application,
and should name no individual or group. He does not
in fact place substantive limitations on the actions
of political authorities but insists only that they
conform to certain formal requirements. In this sense
law and liberty are consistent, since general rules
set boundaries within which people may choose rather
than be directed to specific tasks. In Hayek's legal
theory a free order would appear to be a predictable
order: as long as a person knows in advance how a
law will affect him, and can therefore plan his life
so as to avoid that law, he cannot be regarded as
unfree.[82]
This contrasts strongly with the natural rights theory
of a liberal order in which the boundaries of an individual's
liberty are set by the moral requirement that he should
not violate the rights of others rather than by certain
formal requirements of legality. Under the Hayekian
view, general prohibitions which did not require any
positive action on the part of individuals could reduce
dramatically the range of choices open to them, but
they would not, paradoxically, count as restraints
on liberty. Curiously, a regime which had a number
of mild commands or instructions but few general prohibitions
would not count therefore as a free order. In fact,
Hayek's own definition of freedom under law breaks
down with his justification of conscription, since
this is clearly a direct command. That such a command
is predictable and perfectly general does not make
it any the less destructive of personal liberty. It
follows from Hayek's refusal to countenance a more
substantive structure of natural law and morality,
and his commitment to the outcomes of an undesigned
evolutionary process, that it is difficult to distinguish
between free and unfree orders. The general consensus
of opinion is that Hayek's requirements of legality
are necessary but not sufficient conditions for the
operation of the order of classical liberalism.
The Breakdown of the Cosmos
One of Hayek's most important contributions to knowledge
is his penetrating exposure of those intentionalist
policies which have set in train a seemingly ineluctable
process of disintegration of the cosmos, that
self-regulating order of events that once constituted
western liberal society. Allied to this, and almost
in defiance of his own belief in evolutionary processes,
is his complex set of radical reforms which is designed
to arrest this decline. The major causes of this disruption
are attempts to regulate an economy by inflationary
methods; the granting of privileges to groups, especially
trade unions, by way of 'legislation,' which distorts
the functioning of the labor market; the attempt to
redistribute income away from that impersonal allocation
made by the market on the ground of an entirely subjective
theory of 'social justice'; and the tendency for law
to be cast in the form of commands addressed to specific
purposes rather than in the form of general rules.
The combined effect of these measures is to divert
a cosmos, in a politically-determined manner,
away from its natural course (the destination of which
can never be known). A 'road to serfdom' scenario
will develop, in which ever-increasing amounts of
coercion will have to be used as people naturally
try to avoid the effects of the original intervention.
Political Interventionism vs. Market
Self-correction
In fact, the dramatic kind of disruption of a spontaneous
order that Hayek predicted would follow from interventionism
has not actually occurred. Western welfare states
have not (yet) collapsed into tyranny and serfdom
under the weight of welfarist legislation and other
forms of intervention. Rather they have become immobile,
stagnant, and unable to make the best use of the dispersed
knowledge that characterizes an open society. This
is because democratic politics, subject to few constitutional
restraints, has enabled groups to secure privileges
for themselves and encouraged the spread of incomes
in society to be a function of political rather than
economic mechanisms.[83]
Instead of liberal democracy maximizing the public
interest (i.e., the interest each person has in such
things as a stable currency, the rule of law and the
predictability of government action), competition
for votes produces coalitions of interest groups,
which are held together by privileges which only government
can grant. Such a political order is inherently unstable
because there are no natural, correcting mechanisms
in it that are equivalent to those in the market.
Thus instead of being an organization charged with
necessary but specific purposes, government becomes
a machine for the solving of all problems and the
meeting of all grievances. But as Hayek points out:
"It is a fact that most of the grievances of
particular individuals or groups can be removed only
by measures which create new grievances elsewhere."[84]
Apart from monetary disturbances, the reason the
market economy appears to be unstable is that continual
intervention has impaired its self-correcting mechanisms.
The biggest destabilizing factors here, according
to Hayek, are the trade unions, which are able to
prevent automatic adjustment in the labor market by
keeping the price of labor above its market clearing
price. They are able to do this, in many western countries,
because of certain legal privileges: such as their
exemption from the law of tort (in industrial disputes)
and their exploitation of tolerant picketing laws.
The former privilege is a breach of Hayek's 'rule
of law' doctrine, since it prevents the application
of a general rule to particular groups and could not
possibly be universalized within a legal order. This
privilege is a product of statute law, and it is inconceivable
that such a rule would have emerged spontaneously
from the common law process. Aside from the distortions
caused by inflation, the existence of union privilege
and disincentives to work caused by welfare and housing
policies constitute the major causes of unemployment.
They are almost universally ignored by Keynesian macroeconomists,
who deal only in holistic aggregates. These theorists
erroneously interpret extensive unemployment as evidence
of some inherent disequilibrating tendency in the
system rather than as an indication of some deficiency
in the adjustment process which can be traced back
to a constructivistic intervention. As long as these
defects remain unremedied monetary policy can have
little or no permanent effect on unemployment.[85]
The Myth of Social Justice
Hayek's objections to social justice similarly turn
on the misallocative effect such essentially arbitrary
redistributive measures have on the equilibrating
process of a catallaxy.[86]
Thus his concern, here, is not with the violation
of a right to legitimately acquired property which
social justice entails; his argument is that coercive
redistributions of income reduce the real output of
a catallaxy by suppressing those inequalities
that act as signals to attract labor and capital to
their most productive uses. He maintains that in the
absence of such signals labor and capital will have
to be directed by government.
The argument for social justice usually turns upon
an alleged distinction between production and distribution:
it is assumed that there is a 'given' volume of goods
and services which can be distributed according to
abstract moral principles, such as 'desert,' 'need,'
or 'merit,' rather than according to the principles
by which the goods and services were produced in the
first place. In catallactics, however, there
is no such distinction: income is distributed according
to the anticipated marginal productivity of factors
and the consequence of redistributing it in any other
way will be a diminution of the volume of goods and
services. A person's income in a free society, then,
is a function of the value of his services
to his fellow men; it has logically nothing to do
with any 'merit' or 'desert' (in a moral sense) in
his actions.[87]
Hayek argues that modern societies, which persist
in using merit as a criterion of income, display remnants
of the morality of the closed or intimate society.
If this is so, however, it implies that these societies
have not spontaneously generated a morality appropriate
to the economic order of capitalism.
A catallactic order is a constantly changing
system so that the prices paid to labor services must
vary considerably over time. Any attempt to impose
a pattern of earnings based on noneconomic criteria
on this order would spell not merely the end of economic
efficiency, but would also bring about the collapse
of the cosmos, since the enforcement of that
pattern necessitates a vast increase in the law of
thesis.
Hayek's arguments against social justice are of a
purely consequentialist kind in that they derive from
the misallocative tendencies of redistributive policies
and from their long-run effect on the order of liberty.
While Hayek claims that expressions such as 'social
justice' are linguistically meaningless, he does not
extend his philosophical arguments into the ethics
of property. He certainly gives us no guidance as
to the justice or injustice of particular property
holdings prior to the operation of an exchange process.
Presumably his stance must be the conservative one
that we ought not to disturb the existing structure
by, say, the application of a natural law rectification
rule, because this would disturb a prevailing order
of expectations; the consequences of such disturbance
cannot, of course, be known.
The Problem of Controlling Government
While it is clear that political systems do not automatically
develop corrective mechanisms, it is noticeable that
Hayek does not want to restore the workings of the
catallaxy and cosmos by rationalistic
natural law limitations on what governments may actually
do but, rather, to subject their behavior to strict
legalistic and formalistic requirements. Thus in his
complex, and somewhat unrealistic, constitutional
reform proposals, he hopes to introduce a new version
of the separation of powers, in which democratically
elected parliaments would enact that public law which
is required for government activity, while a separately-elected
assembly (less subject to party politics) would be
charged with the making of the general rules of just
conduct.[88]
Thus the Governmental Assembly would decide on what
projects taxation would be spent, while the Legislative
Assembly would determine what form the tax rules should
take. There are in principle no limitations on the
government's power to tax and therefore no substantive
limits on government spending; of course, the free
market in money will prevent government expenditure
being financed by the economically damaging and dishonest
method of inflation, but there is no actual limit
on government spending.
Hayek is no doubt correct in identifying the main
disruptive threat to the preservation of a spontaneous
order as the inevitable formation, under present democratic
rules, of coalitions of interests which divert the
stream of income in a catallaxy to politically-favored
groups - to the ultimate harm of all. The problem
is that there is a 'public good' trap here in that
no rational individual, given the normal behavioral
assumptions of classical liberalism, can have any
incentive to promote the public interest. This is
why there must be an element of constructivistic rationalism
in any explanation of the order of a free society.
Men will have to design those institutions that will
automatically encourage them to maximize their long-run
interests.[89]
Conclusion
In conclusion, it may be suggested that Hayek's theory
of spontaneous order is the product of two related
but distinct influences that do not always tend in
the same direction. As an economic theorist, his explanation
of the co-ordinating properties of the catallaxy
trades very heavily on those mechanisms that produce
order, and which can be given a rational explanation.
But as a legal and social theorist, he leans, by contrast,
very heavily on a conservative and traditionalist
approach which, from Hale onwards, is so distrustful
of reason that it instructs us to submit blindly to
a flow of events over which we can have little control.
But in this latter approach, reason may be so disabled
that it is impossible to assess critically this flow
of events. The evidence suggests, however, that there
is no necessary tendency to equilibrium in a legal
order, in which case spontaneous evolution will have
to be arrested and diverted under the authority of
'reason.' But such is the force of Hayek's anti-rationalism
that it tells just as much against a rationalist justification
of the capitalist order of classical liberalism (which
is largely derived from a moral order that enshrines
an abstract and universalist structure of individual
rights) as it does against the familiar varieties
of rationalistic collectivism. Hayek's claim, following
Hume, to 'whittle down' the claims of reason may have
succeeded all too well in that his belief in spontaneous
evolution, and his formalistic criteria for the evaluation
of government activity, may well inhibit the search
for those ground rules which are required for the
servicing of a free society. In some ways, his evolutionary
gloss on the theory of spontaneous order distinguishes
him from other writers in that tradition (for example,
Menger) who do not preclude the use of reason in the
critical evaluation of the outcomes of an undesigned
process.
Endnotes
For a full citation of books quoted in these notes
see the following Bibliography.
[1] F.A.
Hayek, Law, Legislation and Liberty, vol. I,
Rules and Order, (1973), pp. 8-11; vol. III,
The Political Order of a Free People, (1979),
p. xii. It is in the latter that Hayek uses the word
'constructivistic' rather than the more familiar 'constructivist.'
[2] See
Hayek's essay, "The Results of Human Action but
not of Human Design," in Studies in Philosophy:
Politics and Economics (London: Routledge and
Kegan Paul, 1967), pp. 96-105; see also the important
article by Edna Ullmann-Margalit, "Invisible
Hand Explanations," in Synthese 39 (1978):
263-291.
[3] Adam
Smith, The Wealth of Nations, R.H. Campbell
and A.S. Skinner (eds.) p. 456. The reference to the
'invisible hand' occurs also in Smith's Theory
of Moral Sentiments, D.D. Raphael and A. Macfie
(eds.), p. 58.
[4] Hayek,
"Principles of a Liberal Social Order,"
in Studies in Philosophy, Politics and Society,
p. 167. The only comprehensive treatment of contemporary
social and economic problems from a Hayekian standpoint
is Thomas Sowell's Knowledge and Decisions
(1980).
[5] Adam
Smith, The Wealth of Nations, p. 456.
[6] See
Edna Ullmann-Margalit, "Invisible Hand Explanations,"
pp. 282-286.
[7] Joseph
Schumpeter, A History of Economic Analysis,
p. 98.
[8] See
especially Marjorie Grice-Hutchinson, The School
of Salamanca; Raymond de Roover, "Scholastic
Economics," in Quarterly Journal of Economics
69 (1955): 162-190; and "Joseph Schumpeter
and Classical Economics," in Kyklos 10
(1957): 115-146. See also Murray N. Rothbard, "New
Light on the Prehistory of the Austrian School,"
in The Foundations of Modern Austrian Economics,
E. Dolan (ed.), pp. 52-74.
[9] Quoted
in Grice-Hutchinson, The School of Salamanca,
p. 48.
[10]
See appendix VII in Grice-Hutchinson, The School
of Salamanca, pp. 112-115.
[11]
Quoted in Grice-Hutchinson, The School of Salamanca,
p. 94.
[12]
Grice-Hutchinson, The School of Salamanca,
p. 115.
[13]
De Roover, "Scholastic Economics," p. 185.
[14]
Grice-Hutchinson, Early Economic Thought in Spain,
pp. 147-148.
[15]
Schumpeter, A History of Economic Analysis,
p. 112.
[16]
For a concise exposition of Hale's jurisprudence see
J.G.A. Pocock, The Ancient Constitution and Feudal
Law, pp. 170-81.
[17]
Holdsworth, A History of English Law, vol.
V, p. 505.
[18]
Holdsworth, A History of English Law, vol.
V, p. 504.
[19]
Holdsworth, A History of English Law, vol.
V, p. 509.
[20]
Bernard Mandeville, The Fable of the Bees,
edited by Philip Harth (1970).
[21]
Mandeville, The Fable of the Bees, p. 85.
[22]
Mandeville, The Fable of the Bees, pp. 138-9.
[23]
Quoted in Hayek's essay "Bernard Mandeville,"
in New Studies in Philosophy, Politics, Economics
and the History of Ideas (1978), p. 261.
[24]
See Jacob Viner, "An Introduction to Bernard
Mandeville, A Letter to Dion (1732),"
in The Long View and the Short (Glencoe: The
Free Press, 1958), pp. 332-42.
[25]
Thomas Horne, The Social and Political Thought
of Bernard Mandeville (London: Macmillan, 1978).
[26]
Mandeville, The Fable of the Bees, p. 371.
[27]
Maurice Goldsmith, "Public Virtues and Private
Vices," Eighteenth Century Studies 9 (1976):
510.
[28]
Tucker's major work on political economy was the unfinished
Elements on Commerce and Theory of Taxation (1754).
See R. Schuyler (ed.), Josiah Tucker: A Selection
from His Economic and Political Writings. For
a recent biographical essay on Tucker, see G. Shelton,
Dean Tucker and Eighteenth-Century Economic and
Political Thought.
[29]
Review of Schyler's Josiah Tucker: A Selection
from His Economic and Political Writings, in Viner's
The Long View and the Short, p. 407.
[30]
Josiah Tucker, Josiah Tucker: A Selection from
His Economic and Political Writings, p. 31.
[31]
See Bernard Semmel, "The Hume-Tucker Debate and
Pitt's Trade Proposals," Economic Journal
75 (1965), pp. 759-70.
[32]
Hume, A Treatise of Human Nature, Book III,
p. 578.
[33]
Hume, A Treatise of Human Nature, pp. 528-9.
[34]
See Duncan Forbes (ed.), Adam Ferguson: An Essay
on Civil Society, p.16. A detailed account of
Ferguson's social philosophy can be found in David
Kettler, The Social and Political Thought of Adam
Ferguson (Ohio: Ohio State University Press, 1965).
[35]
Ferguson, An Essay on Civil Society, p. 122.
[36]
This point of view is forcefully argued in Donald
Winch, Adam Smith's Politics (1978). More orthodox
recent treatments of Smith include T. Campbell, Adam
Smith's Science of Morals (1971); Andrew S. Skinner,
A System of Social Science (1979); Knud Haarkonssen,
The Science of a Legislator (1981); and E.G.
West, Adam Smith (1969).
[37]
Smith, The Wealth of Nations, p. 25.
[38]
Smith, The Theory of Moral Sentiments, pp.
233-34.
[39]
Smith, The Wealth of Nations, p. 453.
[40]
Smith, Lectures on Jurisprudence, p. 32.
[41]
Smith, The Wealth of Nations, p. 788.
[42]
Frederic Bastiat, The Law, p. 6.
[43]
Carl Menger, Problems of Economics and Sociology,
p. 146.
[44]
Menger, Problems of Economics and Sociology,
p. 154.
[45]
Menger, Problems of Economics and Sociology,
p. 233.
[46]
See following Bibliography
for a comprehensive list of Hayek's major works.
[47]
Hayek, "Individualism: True and False,"
in Individualism and Economic Order, p. 23.
[48]
See especially Hayek's The Constitution of Liberty
(1960), chapter 2.
[49]
Hayek, The Constitution of Liberty, p. 29.
[50]
Hayek, Law, Legislation and Liberty, vol. II,
The Mirage of Social Justice, pp. 109-110.
[51]
See Ludwig Lachmann, "From Mises to Shackle,"
Journal of Economic Literature 14 (1976): 54-62.
For a sophisticated critique of the extreme 'subjectivists,'
see G.P. O'Driscoll, Jr. "Spontaneous Order and
the Co-ordination of Economic Activities," in
New Directions in Austrian Economics, Louis
M. Spadaro (ed.), pp. 111-142.
[52]
Hayek's views are contained in the following essays,
"The Use of Knowledge in Society," and "The
Meaning of Competition," at pp. 77-91 and 91-106,
respectively, in Individualism and Economic Order.
Also, Hayek's theory of the competitive process emerged
from his critique of those socialists who tried to
use the neoclassical equilibrium as a model for a
socialist economy without private property and a decentralized
market. See Hayek's three essays on "Socialist
Calculation," in Individualism and Economic
Order, pp. 119-208. Israel Kirzner has produced
a sophisticated version of Hayek's pioneering ideas
in Competition and Entrepreneurship. See also
S.C. Littlechild, The Fallacy of the Mixed Economy.
[53]
See Hayek's "Competition as a Discovery Procedure,"
in New Studies in Philosophy, Politics, Economics
and the History of Ideas, pp. 179-90.
[54]
Hayek, "The Use of Knowledge in Society,"
in Individualism and Economic Order, p. 86.
[55]
Hayek, "The Use of Knowledge in Society,"
in Individualism and Economic Order, p. 87.
[56]
For Hayek's recent thoughts on these topics, see
Law, Legislation and Liberty, vol. III, The
Political Order of a Free People, chapter 14.
[57]
Hayek, Constitution of Liberty, p. 365.
[58]
For expositions of the Austrian theory of the trade
cycle see the following: F.A. Hayek, Prices and
Production (2nd edition); Hayek, Monetary Theory
and the Trade Cycle; G. Haberler, Prosperity
and Depression; and G. O'Driscoll, Economics
as a Co-ordination Problem.
[59]
See Hayek's Prices and Production (2nd edition),
pp. 34-42.
[60]
See "The Campaign Against Keynesian Inflation,"
in Hayek's New Studies in Philosophy, Politics,
Economics and the History of Ideas,
p. 212.
[61]
Hayek, The Pure Theory of Capital, p. 408.
[62]
First suggested in 1976; see Hayek's The Denationalisation
of Money (2nd edition).
[63]
Hayek, The Denationalisation of Money (2nd
edition), p. 19.
[64]
Hayek, "Principles of a Liberal Social Order,"
in Studies in Philosophy, Politics and Economics,
p. 162.
[65]
See Hayek, The Constitution of Liberty, chapter
13.
[66]
Hayek, Law, Legislation and Liberty, vol. II,
The Mirage of Social Justice, p. 116.
[67]
Hayek, Law, Legislation and Liberty, vol. I,
Rules and Order, p. 36.
[68]
See Hayek, Rules and Order, chapter 5.
[69]
Bruno Leoni, Freedom and the Law (1961).
[70]
Hayek, Rules and Order, pp. 18-23.
[71]
Hayek, Constitution of Liberty, pp. 58-61.
[72]
See"Rules, Perception and Intelligibility,"
Studies in Philosophy, Politics and Economics,
p. 47.
[73]
See Hayek's Epilogue, "Three Sources of Human
Values," Law, Legislation and Liberty,
vol. III, The Political Order of a Free People,
pp. 154-155.
[74]
Hayek, Rules and Order, p. 41.
[75]
Hayek, Rules and Order, p. 73.
[76]
Hayek, "Three Sources of Human Values,"
p. 166, (see note 73 above).
[77]
Hayek, "Three Sources of Human Values,"
p. 167.
[78]
Hayek, "Three Sources of Human Values,"
p. 158.
[79]
Hayek, Rules and Order, p. 88.
[80]
Hayek, "Three Sources of Human Values,"
p. 167.
[81]
Hayek, Rules and Order, pp. 48-54.
[82]
Hayek, The Constitution of Liberty, pp. 207-210.
[83]
Hayek, The Political Order of a Free People,
p. 13.
[84]
Hayek, Rules and Order, p. 144.
[85]
See especially "The Campaign Against Keynesian
Inflation," pp. 191-217.
[86]
See Hayek, Law, Legislation and Liberty, vol.
II, The Mirage of Social Justice, chapter 10.
[87]
Hayek, The Constitution of Liberty, pp. 93-9.
[88]
See The Political Order of a Free People, chapter
17.
[89]
For a contractarian critique of Hayek's doctrine of
evolution, see James Buchanan, "Law and the Invisible
Hand," in Freedom in Constitutional Contract,
pp. 25-39.
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