F. A. Hayek and the Modern Economy

Economic Organization and Activity

S. Peart, D. Levy, S. Peart, D. Levy

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137359582
• eBook ISBN: 9781137354365
• Topic: Economics
• Subtopic: Business Strategy
• Index: Economics

What is the role of human agency in Friedrich Hayek's thought? This volume situates Hayek's writing as it relates to economic organization and activity, particularly to assess what role Hayek assigns to leaders in determining economic progress.

P A R T I

Foundations

C H A P T E R O N E

On Hayek’s Unsentimental Liberalism

PETER MCNAMARA

This chapter has two goals. First, and most importantly, I wish to make clear one of the most distinctive features of Hayek’s thought—his unsentimental liberalism. To bring out this feature of Hayek’s thought I compare his account of human nature with the eighteenth-century science of human nature as it was elaborated by Adam Smith. What is strikingly absent from Hayek’s deep debt to that eighteenth-century science is a “theory of the moral sentiments.” I will draw out some of the implications of this significant absence in Hayek’s thought. The second but related goal is more speculative, and that is to use Hayek to reflect on the status of liberalism in the post–Cold War world. Let me begin there.

Hayek began his intellectual life during a world crisis. The First World War shook Europe in a way that had not been experienced since the French Revolution and the Napoleonic Wars. The human toll was just one aspect of the crisis. The war’s social, political, economic, and intellectual impact was just as fundamental. Keynes argued, in The Economic Consequences of the Peace, that the war shattered the “delicate, complicated organization” of European civilization. He put the change this way: “In continental Europe the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or “labour troubles”; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilization.”¹ Hayek experienced the crisis firsthand when he returned from the Italian front to find his home, the enlightened, cosmopolitan, and imperial city of Vienna, in a desperate state. Austria and Europe’s convulsions were, of course, only in their early stages. Keynes’s sense of foreboding was vindicated. The questions about the future of capitalism and the broader fate of Western civilization that Keynes would reckon with in the years following the Versailles Treaty were very similar to those that would engage Hayek, especially after his move from economics to political philosophy. What was the explanation for the extraordinary events that followed the Great War? Hayek broke ranks with many liberals and all socialists by pointing to the common roots of communism, Fascism, and Nazism. Rather than seeing Nazism as somehow a reaction against communism and as an outgrowth of capitalism, Hayek famously argued in The Road to Serfdom that left-wing and right-wing totalitarianism had the same roots in the move toward greater state control of society that emerged in late-nineteenth-century Europe.²

Hayek died in 1992 soon after the collapse of Soviet communism and did not leave us with any analysis of that momentous fin de siècle event. It is not hard to guess the basic outlines of what would have been Hayek’s analysis of the economic failures of the Soviet Bloc. But what of his broader reflections on the future prospects for liberalism? What might they have been? Hayek is still often portrayed as a free market ideologue, a starry-eyed optimist, and a rationalist. To the numerous errors of this caricature that scholars have already pointed out, I would like to suggest another.³ Hayek certainly did see the Cold War as a battle of ideas, of competing political philosophies.⁴ And, it is true that, broadly speaking, Hayek’s ideas won the day. But Hayek was too cautious a thinker to believe that even a momentous victory was an “end of history”–type moment that signaled liberalism’s inevitable global victory. Hayek’s caution, one might say, his conservatism, is evident in his understanding of the foundation of liberal societies and, in particular, in his account of human nature, which makes clear the “complicated” and “delicate,” to use Keynes’s words, foundations of a liberal political order.

Hayek and the Eighteenth-Century Science of Human Nature

Hayek’s admiration for and debt to the classical liberalism of the eighteenth century is well known and much explored. Indeed, it is no exaggeration to say that Hayek engaged in an attempt to revive the eighteenth-century science of human nature that underwrote classical liberalism. The goal of Hayek’s restatement of classical liberalism was to provide a clear and appealing picture of the foundations and the benefits of a “free civilization.” Most prominently, Hayek drew much of his notion of spontaneous or unintended orders from the work of Bernard Mandeville, David Hume, Adam Ferguson, and Adam Smith. The concept threads through Hayek’s work in economics, politics, and morality. Closely related to the idea of spontaneity in the economic realm was Hayek’s emphasis on the inescapable role of self-interest in providing the motivation for socially beneficial economic activity. He did not, however, endorse the idea of homo economicus as either theoretically useful or practically true. Most importantly, Hayek deliberately left open the question of the ultimate ends that individuals pursue when they engage in economic activity. Hayek’s thought as a whole is also certainly deeply affected by Hume’s skeptical turn, especially insofar as it highlighted the limits of human reason. Thus, spontaneous order, the invisible hand, self-interest, and the limits of human knowledge comprise Hayek’s chief debts to the eighteenth century.

Yet, there is an interesting and consequential omission in Hayek’s borrowings from the eighteenth-century science of human nature. Hayek generally neglects the notion of sympathy and the related theory of the moral sentiments that Hume and especially Smith elaborate at such great length, and that comprised such a large part of that science of human nature. In terms of Smith’s published work, The Theory of Moral Sentiments comprised fully one half.⁵ The “theory of the moral sentiments” was an essential component of Smith’s attempt to extend Hume’s project of elaborating a science of man.⁶ The Theory of Moral Sentiments is particularly interesting because it is in that work that Smith pushes, what Hayek considered, the anti-rationalistic turn of the eighteenth century to its greatest extent in the area of morality. Smith in The Theory of Moral Sentiments attempts to remove, to the extent possible, the last elements of rationalism from Hume’s account of the origins of morality. The key step was his grounding of morality even deeper in human nature by exploring what he saw as the natural human faculty of sympathy.

Smith and the Eighteenth-Century Science of Human Nature

For present purposes, four features of the eighteenth-century science of human nature warrant our attention: its belief in a universal human nature; its thick moral unity; its connecting of morality and progress; and its confidence. Together they form a powerful theoretical outlook that is capable of underwriting a great deal of confidence in the future of liberal societies. Of the four, I will focus on the first two: universalism and thick moral unity. My summary is made with an eye to the comparison with Hayek.

Universalism

Hume, and even more so Smith, believed in an underlying universal human nature. They rejected the argument that so-called physical causes—climate especially—played a significant role shaping human behavior. Hume and Smith focus on “moral causes”—what we would call culture or education—as the force that in conjunction with human nature shapes human behavior.⁷ Smith and Hume tell the history of mankind as the gradual unfolding of human capacities for cooperation, production, and for morality brought about by changing economic circumstances, specifically different levels of economic development. It was Smith who famously described the four stages of economic development (hunting, shepherding, agriculture, and commerce) each accompanied by particular forms of government and society. The final stage of commercial society coincided with what Smith also calls “civilization” and which he contrasts with noncommercial or “barbarous” societies. This pattern of development repeats itself across the globe subject, of course, to contingencies of time and place that may disrupt the natural course of things.

Smith’s assumption of a universal human nature shows itself as well in his treatment of apparent anomalies in this story of progress. In what I think to be the most embarrassed part of The Theory of the Moral Sentiments, Smith confronts the problem of seeming extreme departures from ordinary moral norms. “Can there,” he asked, “be a greater barbarity . . . than to hurt a child?” Yet, Smith must acknowledge that the practice has been widespread even in the Western world. Smith had to explain such departures in terms of the effect of what he called “custom.” For example, in the case of the “polite and civilized Athenians,” infanticide was once thought necessary because of the conditions of extreme poverty. Smith does not seem to think that it was or is ever necessary. He explained its continuance, though it was clearly no longer necessary, in the civilized nations of the ancient world as the effect of “uninterrupted custom.”⁸ The power of custom was such that even the enlightened of the time did not register an objection: “Aristotle talks of it as what the magistrate on ma...

Table of contents

• Cover
• Title
• Introduction
• Part I   Foundations
• Part II   Contributions to Political Economy in Theory and Practice
• Part III   Hayek and Policy Making
• Conclusion: The Hayek Differenc
• Notes on Contributors
• Index