Sunday, July 27, 2008

Friedrich von Hayek: A Model Scholar

I want to excerpt a fairly brief paragraph from F.A. von Hayek's book Individualism and Economic Order not because I believe it to be particularly insightful passage but that I think it is indicative of Hayek's method of analysis and attentiveness to detail. Hayek took pains to use the most precise language when articulating his message, and I think that many aspiring scholars can learn a lot from Hayek's precision, as well as from his conceptions of economics and social order.

Without further ado, here it is:
"But if our conclusions on the merits of the beliefs which are undoubtedly one of the main driving forces of our time are essentially negative, this is certainly no cause for satisfaction. In a world bent on planning, nothing could be more tragic than that the conclusion should prove inevitable that persistence on this course must lead to economic decay. Even if there is already some intellectual reaction under way, there can be little doubt that for many years the movement will continue in the direction of planning. Nothing, therefore, could do more to relieve the unmitigated gloom with which the economist today must look at the future of the world than if it could be shown that there is a possible and practicable way to overcome its difficulties. Even for those who are not in sympathy with all the ultimate aims of socialism there is strong reason to with that, now that the world is moving in that direction, it should prove practicable that a catastrophe be averted. But it must be admitted that today it seems, to say the least, highly unlikely that such a solution can be found. It is of some significance that so far the smallest contributions to such a solution have come from those who have advocated planning. If a solution should ever be reached, this would be due more to the critics, who have at least made clear the nature of the problem--even if they have despaired of finding a solution."

This is Hayek commenting toward the end of an essay written in 1935 on socialist calculation. Although scientifically the arguments of the planners and collectivists were not anywhere near as detailed and comprehensive as those of the market theorists, public opinion and the overall societal zeitgeist, at least throughout Europe and among the so-called intelligentsia, was thoroughly imbued with notions derived from a crude conception of marxism (class conflict, capitalist exploitation, etc). A preponderance of the populace favored some form of collectivism and, indeed, some of the most fascinating writings on the history of thought attempt to break down and interpret the development of the ideas pertaining to the various forms of socialism. Unfortunately, for all the eloquent rhetoric and grandiose speeches, the theoretical foundations of socialism were essentially empty and exceedingly vague. It was commonly lamented that after WWI when the old forms of governance in Central Europe disintegrated and the parties espousing socialism assumed power, they had no conception as how they were to govern. Believing that socialism was an inevitable and inexorable stage of a future human organization they failed to develop an idea as to how it would function once in practice!

Few people recognized this cataclysmic gulf that seperated our understandings of the functioning of a society based upon private property and, ostensibly, free markets versus the functioning of a mysterious and hitherto untried system based on collective ownership. The more famous, at least to those living today, Ludwig von Mises and F.A. Hayek.

Hayek had the only system that was functional and understandable according to economic theory on his side. He wrote extensively on the unintended consequences associated with an economic system that would increasingly blur the distinction between remuneration for individuals based upon the value-in-exchange of their contribution to the economy against the rewards stemming from political favors, and he felt that this distinction would eventually be eliminated altogether. It stood in 1935 as it does today, socialism remains an economic system incapable of being used to maintain and grow our standards of living. Numerous examples from the past 100 years attest to this fact. Despite the overwhelming intellectual case for capitalism and the free market, rather than unabashedly declaring that the free market was the only functional method--Mises wrote that socialism would be chaos--Hayek carefully argued that, although today socialism is inpracticable, this does not necessarily imply that it will forever be impracticable. He wrote that in the future there could be discoveries that would show that socialism would be at least as efficient as the capitalist system. If it's not practicable today this does not preclude anyone from searching for a satifactory solution for the future, and any attempt to arrive at a solution can only be encouraged by those aspiring to uncover it. Even if there is no solution to a problem today, there may be one for it in the future. But it would be foolhardy to implement an untried and unknown social system that has no theoretical justification.

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