Hayek

Francis Fukuyama reviews Bruce Caldwell ‘s new biography of Hayek in the Spring 2004 issue of The Wilson Quarterly . According to Caldwell, Hayek’s argument against a managed economy was basically an epistemological one: “There are limits to rationality, and what any individual knows tends to be local in nature. This is particularly true in a macroeconomy, which depends on the interactions of thousands, even millions of individual produces and consumers.” Hayek applied the same insight to other aspects of social order than the economic: “social order ?Enot simply markets but morality, social norms, the rule of law, and the like ?Eis often the spontaneous and unplanned consequence of the interactions of dispersed individuals with limited knowledge, not the work of a single designer.” Hayek understood that human beings were not purely rational nor purely economic: “individuals are neither omniscient nor fully rational and are constrained by institutions, norms, and traditions that can be understood only through a study of history.” Any economics that assumes simplistically that human choice is rationally self-interested fails to recognize the complexity of human choice. Further, the combination of individual choices and decision in an economy or social system produce results of a higher level of complexity than is possible to the individual components: the “spontaneous orders produced by the interactions of simpler agents” include “the human brain, whose higher functions cannot possible be inferred from its physical substratum, as well as ecosystems and, of course, markets, cultures, and other human institutions.”

Fukuyama describes Hayek’s work as an “incomplete victory.” Though Hayek, with others, convinced the world that central planning was doomed, Hayek’s critique of economics as a discipline, or “economic positivism.” According to Caldwell, Hayek regretted never being able fully to critique Milton Friedman’s work on “positive economics,” which he challenged because of Friedman’s notion that “economics could be turned into a rigorously empirical and predictive science.” For Hayek, the problem with such a program was the same as the problem with centralized planning: it assumed a degree of knowledge that human beings simply do not have. Fukuyama suggests that for Hayek “the highly mathematical and ahistorical turn that academic economics has taken in recent years” as “as much an abuse of reason as the socialist planning of earlier generations.”