Hayek, Mill and the Liberal Tradition

Andrew Farrant

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781136853357
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A PDF version of this book is available for free in open access via www.tandfebooks.com as well as the OAPEN Library platform, www.oapen.org. It has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives 3.0 license and is part of the OAPEN-UK research project.

This book considers the relationship between Hayek and Mill, taking issues with Hayek's criticism of Mill and providing a broader perspective of the liberal tradition. Featuring contributions from the likes of Ross Emmett, Leon Montes and Robert Garnett, these chapters ask whether Hayek had an accurate reading of the ideas of Mill and Smith, as well as considering themes such as sympathy and analytical egalitarianism that play a large part in the liberal tradition, but less in work of Hayek These chapters argue that addition of these key ideas to the Hayekian corpus leads to a far broader understanding of the liberal tradition than that provided by Hayek

Part I Hayek and the liberal tradition?

1 Is Friedrich Hayek rowing Adam Smith’s boat? ¹

Leonidas Montes

DOI: 10.4324/9780203834992-3

Introduction

When we think about Adam Smith and Friedrich Hayek, several connections easily come to mind. It is even difficult to refrain from imagining some similarities in their characters. Both were serious, responsible and even austere. Both had intellectually outstanding minds. Although they were separated by almost two centuries, they shared striking commonalities, especially in their perception of society. If Hayek was a great economist, he knew Smith was the father of economics. If Hayek was a great intellectual, he also knew he was inheriting a vision already developed by Smith and some of his contemporaries. And he often made his debt explicit in his writings.

Dugald Stewart, in his Account of the Life and Writings of Adam Smith (EPS: 269–352), explains that Smith divided his Moral Philosophy course at Glasgow University into four parts: Ethics, Jurisprudence, Political Economy and Natural Theology (EPS: 274).² Although in my personal view he did not take theology that seriously,³ he delved into the other three branches of his course. In 1759, based on his lectures, he published The Theory of Moral Sentiments. This book brought Smith intellectual prestige and, because of this, he was offered the opportunity to accompany the Duke of Buccleuch to a grand tour in 1764. It was an invitation he could not decline: the opportunity to meet the great intellectual figures on the Continent, and a considerable salary increase. The tour lasted until 1766, and after their return, due to the death of the duke’s younger brother, Smith remained with a pension for life. This pension allowed him to retire to his birthplace Kirkcaldy. There he spent ten years working on his magnum opus, which was finally published in the emblematic year of 1776. An Inquiry into the Nature and Causes of the Wealth of Nations was well received,⁴ but Smith never forgot his original plan of writing a treatise of Jurisprudence. In the advertisement of TMS’s last edition (the sixth edition published posthumously), Smith acknowledges that:

In the last paragraph of the first Edition of the present work, I said, that I should in another discourse endeavour to give an account of the general principles of law and government,⁵ and of the different revolutions which they had undergone in the different ages and periods of society; not only in what concerns justice, but in what concerns police, revenue, and arms, and whatever else is the object of law. In the Enquiry concerning the Nature and Causes of the Wealth of Nations, I have partly executed this promise; at least so far as concerns police, revenue, and arms. What remains, the theory of jurisprudence, which I have long projected, I have hitherto been hindered from executing, by the same occupations which had till now prevented me from revising the present work. Though my very advanced age leaves me, I acknowledge, very little expectation of ever being able to execute this great work to my own satisfaction; yet, as I have not altogether abandoned the design, and as I wish still to continue under the obligation of doing what I can, I have allowed the paragraph to remain as it was published more than thirty years ago, when I entertained no doubt of being able to execute every thing which it announced.

(TMS Adv.: 3–4)

It is well-known that before his death Smith ordered his executors to burn files of documents which might have contained a draft of his promised treatise on Jurisprudence. This single event has triggered some provocative theses, mainly suggested by Charles Griswold (1999) and then exposed by Sam Fleischacker (2004) that Smith’s concept of justice could not fit within his social system. However, we have his Lectures on Jurisprudence, and as Knud Haakonssen (1981) has brilliantly shown, there is much to be inferred from these students’ reports.

But there is another common context for both economists. They were against the generally accepted paradigm. Just after Hume’s death in 1776, in a letter to his editor, William Strahan, Smith concluded: “Upon the whole, I have always considered him, both in his lifetime and since his death, as approaching as nearly to the idea of a perfectly wise and virtuous man, as perhaps the nature of human frailty will permit” (Corr.: 221). This letter was published the same year by Strahan and Caldwell in a small book, just after The Life of David Hume Written by Himself. Approximately four years after Hume’s death, Smith famously wrote:

A single, and as, I thought a very harmless Sheet of paper, which I happened to Write concerning the death of our late friend Mr. Hume, brought upon me ten times more abuse than the very violent attack I had made upon the whole commercial system of Great Britain.

(Corr.: 251)

As Smith acknowledges, his very personal and beautiful account of Hume’s life brought him much trouble. But what is interesting is that he refers to his WN as a “very violent attack … upon the whole commercial system of Great Britain” (ibid.). Smith was fully aware not only of the nature of his magnum opus, but also of its implications. He knew that by harshly criticizing the “mercantile system” (especially in Book IV), he was turning upside down the economic status quo of his time. It is also true that WN was not fully understood by his contemporaries. Many times WN was adopted and adapted for different purposes, hiding the real essence of its main objective. In many ways Smith’s WN was often caricaturized for political purposes.⁶ If Smith was against the prevalent system of his time, so was Hayek.

It is clear that Smith attempted to build a system, as Andrew Skinner (1976, 1979) has continuously reminded us. Smith’s social system can be defined as a “social science,” a term not used in the eighteenth century. Smith’s main purpose was the study of society as a whole. But society is composed by human beings, which are not literally “in-dividuals” detached from it, but social beings in continuous interaction. Man without society would be like exchange without a market economy; something utterly unconceivable for Smith. Hayek also agreed with Smith’s plan and the interrelationship between men and society. This ambitious aim of understanding what is society, how does it work and why in different historical contexts it could not work as it should, is an important common theme for both Smith and Hayek.

Both intellectual colossi strived to understand social phenomena. Both knew the importance of economics for society. Both knew the risks of pure economics without ideas, of theory without principles. Both shared the same apprehensions about those enlightened men who knew what was best for society. Both respected empirical reality over rational constructions. Both were concerned about the “great body of the people.” Both were misunderstood. And both were writing in an intellectual context not very favorable to their ideas.

In this chapter I will attempt to uncover Hayek’s debt to Adam Smith and the Scottish Enlightenment in general. As he continuously refers to Smith, I will mainly concentrate on two of Hayek’s most important essays from the perspective of history of ideas: “Individualism: True and False” (delivered at Dublin in 1945) and “Liberalism” (written in 1973). They are separated by almost 30 years. However, I will refer incidentally to other writings (principally “The Trend of Economic Thinking,” “The Legal and Political Philosophy of David Hume,” “The Results of Human Action but not of Human Design” and his Constitution and Liberty). The aim of this chapter is to investigate the context of Smith and the Scottish Enlightenment as fundamental sources for Hayek’s thought. Given that Hayek’s debt to Smith is explicit in most of his writings, my attempt, within this revealed preferences framework, will be more selective than exhaustive.

In the next section Hayek’s famous essay, “Individualism: True and False,” will be analyzed. Special emphasis will be given to the importance for Hayek of Smith’s conception of social beings and self-interest. The famous Fergusonian passage of “human action, human design” will be discussed, and some moral implications of true and false liberalism, especially regarding egalitarianism, will be drawn. The third section will study his essay “Liberalism” in order to show that Hayek’s position on Smith and the Scottish Enlightenment remained almost unaltered. In addition, the importance of justice and education will be traced back to Smith. Also, as Hayek frequently refers to those “ends which were no part of his purpose,” I will briefly refer to Smith’s three invisible hands and their interpretations, emphasizing Hayek’s own reading of the most important, elusive and controversial metaphor in the history of economic thought. Finally some brief conclusions, underlining their main differences, will be drawn.

Hayek’s “Individualism: True and False”

Introducing the two traditions

Already in 1933, during his inaugural lecture at the London School of Economics suggestively entitled “The Trend of Economic Thinking,” Hayek defined “continental socialism,” attributing this social phenomenon to the German Historical School.⁷ He discusses themes that will accompany him during his long intellectual life, such as planning and socialism. More important for the purpose of this chapter are his embryonic views about spontaneous order and unintended consequences. Hayek asserts:

From the time of Hume and Adam Smith, the effect of every attempt to understand economic phenomena – that is to say, of every theoretical analysis – has been to show that, in large part, the co-ordination of individual efforts has been brought about, and in many cases could only have been brought about, by means which nobody wanted or understood … In short, it showed an immensely complicated mechanism existed, worked and solved problems, frequently by means which proved to be the only possible means by which the result could be accomplished, but which could not possibly be the result of deliberate regulation because nobody understood them. Even now, when we begin to understand their working, we discover again and again that necessary functions are discharged by spontaneous institutions.

(Hayek 1991 [1933]: 129)

This passage is more than an eye-blink to Hayek’s lifelong project.⁸ He refers to Adam Smith and David Hume as pioneers of his already developing idea of “spontaneous institutions.” Later, throughout Hayek’s successive works, this idea will become a common ground.

In 1945 he gave another lecture at Dublin: his famous “Individualism: True and False” (Hayek 1948: 1–32). In this important essay Hayek makes a sharp distinction, as the title suggests, between two different kinds of liberalism: true and false individualism.⁹ This essay is quite important; true individualism is key to understand what will be termed classical liberalism.

In his essay, Hayek begins by looking at the historical situation of the last 30 years, calling for those “general principles,” as “the ‘inevitability of gradualness’ leads us back from a social order resting on the general recognition of certain principles to a system in which order is created by direct commands” (1948: 1). As religion is impotent to give us guidance (and when it has done so, its results have been disastrous), and considering that terms “like ‘liberalism’ or ‘democracy’, ‘capitalism’ or ‘socialism’, today no longer stand for coherent systems” (ibid.: 2–3), Hayek attempts to search for those real, but not necessarily manifest, principles. He then complains about the caricatures erected by defining “individualism,” recalling that this word entailed for Saint-Simonians “competitive society,” as opposed to “socialism,” describing a centrally planned society.¹⁰ Hayek immediately states that he is developing his own position as an alternative to “socialism,” that is, from a competitive society perspective.

Hayek also claims that the roots of “individualism true” may be traced to “John Locke, and particularly with Bernard Mandeville and David Hume, and achieved full stature for the first time in the work of Josiah Tucker, Adam Ferguson, and Adam Smith” (1948: 3–4). The second strand of thought labeled as false individualism “is represented mainly by French and other Continental writers – a fact due, I believe, to the dominant role which Cartesian rationalism plays in its composition” (ibid.: 4). The Encyclopedists, Rousseau and even the physiocrats are “the outstanding representatives” of this kind of “rationalistic individualism” that “always tends to develop into the opposite of individualism, namely, socialism or collectivism” (ibid.).¹¹ T...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Contents
• Notes on contributors
• Acknowledgments
• Introduction
• Part I Hayek and the liberal tradition?
• Part II Pushing the boundaries of the liberal tradition?
• Index