Hayek's Political Theory, Epistemology, and Economics

Jeffrey Friedman

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317586135
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Hayek thought that all economic behavior (and by implication other human behavior) is based on fallible interpretations of what information is important and of its implications for the future. This epistemological idea animated not only his heterodox economic thought, but his ideal of the rule of law; his road-to-serfdom thesis; and his critique of the notion of social justice. However, the epistemological idea is a protean one that Hayek did not always handle carefully. This volume presents one of the most sophisticated critical reflections on Hayek ever assembled between two covers.

This book was originally published as a special issue of Critical Review.

Jeffrey Friedman

HAYEK’S TWO EPISTEMOLOGIES AND THE PARADOXES OF HIS THOUGHT

ABSTRACT: Hayek developed two contradictory epistemologies. The epistemology for which he is famous attributed dispersed knowledge to economic actors and credited the price system for aggregating and communicating this knowledge. The other epistemology attributed to human and non-human organisms alike the error-prone interpretation of stimuli, which could never truly be said to be “knowledge.” Several of the paradoxes of Hayek’s economic and political thought that are explored in this symposium can be explained by the triumph of the first epistemology over the second, including his historical interpretation of socialism as a planning mentality; his tendentious definitions of “liberty” and “justice”; and his opposition to economic redistribution even as he endorsed all manner of economic and social regulations.

This is the third theme issue of Critical Review on F. A. Hayek. Introducing the second issue, in 1997,¹ I wrote that the first one, published in 1989,² had appeared “at the apogee of Hayek’s political influence,” when his ideas inspired many of the leaders of the Eastern European governments that had just come to power. By 1997, though, “Hayek’s political influence” had been exposed, I wrote, as “ephemeral” (Friedman 1997, 1). That was premature. With the rise of the Tea Party and the assistance of Glenn Beck, Hayek’s The Road to Serfdom has become a best seller again. However, François Godard’s contribution to this issue (Godard 2013) shows that Hayek’s renewed popularity among libertarian conservatives is based on a misconception: that Hayek was an advocate of small government. In truth, he supported a vast range of government activities and did not seem to favor even a “limited” government: As long as government acted on the basis of general rules, Hayek would have had it provide a host of services and regulate a host of private activities.

What Hayek opposed was “socialism.” His definition of that term was shaped by what it had meant during the “socialist-calculation debate” in which he participated in the 1930s. At issue had been the possibility of centrally directing an entire economy according to a single plan.³ In arguing against the feasibility of this type of socialism, Hayek maintained that the central planners would face insuperable epistemic barriers. But as he elaborated his epistemological position during the course of his career, he committed himself to the view that the “knowledge problem” facing central planners was solved, under capitalism, by the price system. It only stood to reason, then, that as long as government activities did not interfere with the price system (and took the form of general rules), Hayek had no fundamental objection to them.

Hayek’s epistemological focus—emphosized here by Peter J. Boettke and Kyle W. O’Donnell (2013), Michael Strong (2013), Karen I. Vaughn (2013), and especially Paul Lewis (2013)—explains the ongoing interest of this journal in his work. As far as I know, no other major figure in any social science, including even Herbert Simon, was as preoccupied by questions of knowledge as Hayek was. In this respect, Hayek was exemplary and offers lessons for political theorists. Yet he was not entirely successful in answering the epistemological questions he asked, and his failures may explain some of the blind alleys to which his political theory led—dissected below by Andrew Gamble (2013), Andrew Lister (2013), and Alan Ryan (2013).

In this introduction I will pull together the successes and the failures by describing two contradictory strands of Hayekian epistemology. A relatively unknown strand, which is found in Hayek’s completely apolitical The Sensory Order, is fallibilist and interpretivist. The more famous and politically charged strand, found in his paper on “The Use of Knowledge in Society” and in many later essays and books, leaves little room either for fallibility or interpretation, since it attributes “knowledge” to the participants in a capitalist order, albeit knowledge that is locally dispersed. This knowledge, reflected in prices, is supposed to be inaccessible to central planners, making a prosperous socialist economy impracticable.

Hayek’s Interpretivist Epistemology

Hayek did not set out to be an economist. In 1920, while his future mentor, Ludwig von Mises, was launching the socialist-calculation debate (Mises 1920), Hayek was a law student who had, however, turned to the study of psychology and was writing a paper on neurobiology. This paper grew into The Sensory Order, published in 1952. Hayek later said: “The insights I gained—and I can’t say now when—both from the first stage in 1920 or later,” when he was writing the book in the 1940s, “were probably the most exciting events that ever happened to me, which shaped my thinking. But it works both ways. What I’d done in economics helped me to do this biological work as much as the opposite” (Kresge and Wenar 1994, 153).

The Sensory Order uses a fairly straightforward associationist psychology to describe learning at the neurological level. But from this Lockean foundation (with admixtures of Weber and ultimately Kant),⁴ Hayek seeks to establish that facts—even primal facts such as sensations, not to mention perceptions—never speak for themselves. His “theory of the formation of sensory qualities,” therefore, “is no more than an extension and systematic development of the widely held view that every sensation contains elements of interpretation” (Hayek 1952b, 42).

Hayek argues that we cannot sense “facts” that we are not pre-equipped to sense. The necessary equipment often consists not only of our sense organs and other neurology but, in addition, the central nervous system’s registry of previous encounters with our (ultimately unknowable) environment. The stimuli produced by such experiences, when interpreted by the central nervous system, prepare an organism to notice similar experiences in the future.

The interpretive question is what qualifies, in the judgment (as it were) of the central nervous system, as a “similar” experience. Clearly this type of interpretation does not mean the exercise of “judgment” that is inspired or arbitrary. Indeed, in Hayek’s account the organism (including the human organism) contributes nothing that might be thought of as “creative,” in the ordinary sense of the word, to its ongoing interpretation of the environment. Instead, Hayek’s psychological system, which he rightly calls a “theory of the determination of mental qualities” (Hayek 1952b, 53), attributes an organism’s interpretation of sensations to the propensity of its central nervous system to make “linkages” among various stimuli that happen to be experienced at the same time (ibid., 107). A classification of contiguous stimuli as being associated with each other is an “interpretation.” There is no spontaneity to it; it is strictly determined by the conjunction of stimuli with the neurological ability to associate them with each other.

Thus, “‘sensation’ and ‘perception’ … constitute merely different stages in an even more comprehensive range of processes, all of which can be interpreted as acts of classification (or evaluation) performed by the central nervous system” (Hayek 1952b, 77). “The connexions formed by the linkages between different impulses,” Hayek continues, “will evidently reproduce … a sort of record of past associations of any particular stimulus with other stimuli which have acted upon the organism at the same time” (ibid., 107). As this record builds, it is abstracted into “signals reaching the higher and more comprehensive centres [that] will often not represent individual stimuli, but may stand for classes or groups of such stimuli formed at lower levels” (ibid., 109). Thus, “not merely a part but the whole of sensory qualities” is ultimately “an ‘interpretation’ based on the experience of the individual or the race” (ibid., 42). And “the principle used to explain these phenomena applies also to the so-called ‘higher’ mental process such as the formation of abstract concepts and conceptual thought” (ibid., 78). So a full name for Hayek’s theory might be “the mechanical determination of perceptions and ideas by the associative interpretations created by previous experiences.”

Although Hayek seemed reluctant to say so,⁵ one aspect of his theory of interpretation relies as much on Darwin as Locke or Kant. The ability to sense certain stimuli and not others, the ability to associate contiguous stimuli, the ability to remember the associations, abstract from them, and engage thereby in conceptual thought; all, in Hayek’s account, are adaptive for an organism in a particular environment, because they contribute to the ability to form somewhat reliable expectations about the environment. The “correct anticipation of future events in the environment … implies that there exists inside the [neurological] structure a system of relationships between events caused by external circumstances which is in some measure structurally equivalent to the system of relationships which exists between those external events” (Hayek 1952b, 129). The factors that contribute to a neurological ability to “model” the organism’s external environment in certain respects (those that are targeted by the organism’s sensory array) must, one assumes, be explicable only as an outcome of natural selection, since organisms that tended not to have this ability would not long have survived.

A theory that explains generic organisms’ ability to model the external environment by means of neurological association may seem an unpromising foundation for a theory of interpretation that can explain human behavior. But the deterministic part of Hayek’s theory offers the advantage of explaining perceptions and thus (especially in conscious organisms) actions without relying on non-explanations such as irrationality or free will. In particular, Hayek’s determinism dispenses with appeals to will, choice, or arbitrary judgment to explain the differing interpretations produced by different individuals; and it provides an alternative to irrationalist explanations for the errors inhering in various interpretations. (As we shall see, Hayek by no means suggests that the ability of an amoeba or a human being to model its environment is infallible.) In addition, the Darwinian side of the theory allows Hayek to make due allowance for the subjective element in interpretation without denying the existence of objective reality or suggesting that it—rather than our perception of it—is “constructed.”

In Hayek’s view, different individuals’ differing interpretations, far from resulting from arbitrary or underdetermined acts of will,⁶ are the necessary products of each organism’s inevitably different experiences. Individuals’ different conceptual maps will be

determined by factors which are sufficiently similar to make those maps … similar to each other. But they will not be identical. Complete identity of the maps would presuppose not only an identical history of the different individuals but also complete identity of their anatomical structure. (Hayek 1952b, 110)

This makes it understandable that different people can look at the same facts and reach different conclusions: In the past, they have looked at slightly different sets of facts, and this cumulative experience forms the lens through which present facts are interpreted.

In turn, the adaptive aspect of Hayek’s approach to interpretation can explain erroneous interpretations without invoking irrationality (as is so often done by social scientists, especially economists). Hayek’s explanation for error juxtaposes the wider objective world against expectations that we form on the basis of local objective conditions (as reflected by the stimuli we notice). “The kinds of physical stimuli which will act on a particular organism, and the relative frequency of the simultaneous occurrence of the different stimuli, will correspond not to conditions in the world at large, but to conditions in the particular environment in which the organism has existed” (Hayek 1952, 108). Therefore, the “reproduction of those relations … will not necessarily be representative” of objective conditions in the world at large. Moreover, as we automatically classify primal classifications into ever-more-abstract categories, “the order which the linkages will gradually create in the central nervous system will … constitute not only a very imperfect but in some respects even a definitely erroneous reproduction of the relations which exist between the corresponding stimuli” (ibid.), because we are abstracting away what we interpret to be irrelevant details. Thus, Hayek’s account of learning describes the correction of our subjective interpretations by further experience with the objective environment. “The experience that the classification based on the past linkages does not always work, i.e., does not always lead to valid predictions” of the future associations of stimuli from the environment, “forces us to revise that classification” (ibid., 168).

In accounting for differing and erroneous interpretations historically or biographically—as necessary consequences of the past experiences of fallible creatures with limited experience—Hayek grounds interpretive charity as not merely a kindness, but as a necessary precondition for understanding interpretations that are different from one’s own, which one therefore views as erroneous. In principle, all differences of opinion can be traced to different experiences and the interpretations these experiences necessitate. Even consciously held interpretations—such as hypotheses about which facets of a given political or economic situation are important and require analysis—simply reiterate what our (inevitably somewhat idiosyncratic) experience tells us is likely to be important in this situation, given that we classify it as similar to certain earlier situations.

Thus, in trying to understand an interpretation different from one’s own, the only procedure that might make headway is to infer what experiences have made the other person’s interpretation seem to her to be (literally) compelling. In practice, this procedure will be possible only to a limited degree, since we do not possess extra-sensory perception and cannot know or infer more than a small fraction of the many influen...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• Citation Information
• Notes on Contributors
• 1. Hayek’s Two Epistemologies and the Paradoxes of His Thought
• 2. The Failed Appropriation of F. A. Hayek by Formalist Economics
• 3. Hayek and Liberty
• 4. The Road to Serfdom’s Economistic Worldview
• 5. Hayek, Social Theory, and the Contrastive Explanation of Socio-Economic Order
• 6. The “Mirage” of Social Justice: Hayek Against (and For) Rawls
• 7. The Planners and the Planned
• 8. Some Implications of Hayek’s Cognitive Theory
• 9. Hayek, Equilibrium, and the Role of Institutions in Economic Order
• 10. Hayek’s Business-Cycle Theory: Half Right
• Index