Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism

Abstract

In the main, Hayek favored rules that apply equally to all and located such rules in tradition, beyond conscious construction. This led Hayek to attack Keynes’s immoralism, i.e., the position that one should be free to choose how to lead one’s life irrespective of the informal institutions in place. However, it is argued here that immoralism may be compatible with Hayek’s enterprise since Hayek misinterpreted Keynes, who did not advocate the dissolving of all informal rules for everybody. By avoiding this misinterpretation, immoralism can be seen as institutional experimentation at the margin, which Hayek himself favored.

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Notes

  1. 1.

    See also Hayek (1973, p. 50) and Locke (1988, p. 284): “But freedom of men under government is to have a standing rule to live by, common to every one of that society, and made by the legislative power erected in it” [italics added]. Cf. Buchanan and Congleton (1998) who, inspired by Hayek, present an extended argument in favor of a generality principle in politics.

  2. 2.

    Note that generality is part of the definition of liberty. Cf. Hayek (1960, chaps. 1, 4, 9, 14; 1973, pp. 55–56; 1978, pp. 132–133). For initiated discussions of Hayek’s concept of liberty, see Gray (1984) and Klein (2004).

  3. 3.

    See Hayek (1944, p. 72; 1960, p. 154 ff, 207 ff).

  4. 4.

    See Hayek (1960, pp. 205–206). Cf. Oakeshott (1983).

  5. 5.

    It is somewhat unfortunate that North uses the term “devised”, as it might be taken to imply conscious construction only. However, the term should be interpreted in a wider sense, as North (1990, p. 4; 1991) clarifies that institutions can indeed evolve. He can be taken to use the term to stress that rules, in his view, do not have extra-human origins—they are either constructed consciously or they emerge in evolutionary processes, but they are always the result of human action.

  6. 6.

    See especially Hayek (1960, chap. 10; 1973, chaps. 4–6). Cf. Leoni (1961) and Zywicki and Sanders (2007).

  7. 7.

    However, Hayek (1973, pp. 88–89) does admit that grown law may require correction by legislation, which indicates that he does not regard the outcomes of evolutionary processes as necessarily optimal. Cf. Vanberg (1994a).

  8. 8.

    Cf. Hayek (1976, pp. 56–59; 1988, p. 66 ff).

  9. 9.

    This dichotomy between spontaneous and made orders and an assessment of their respective characteristics is a recurring theme in Hayek’s works: see, e.g., Hayek (1948; 1952b, chaps. 8, 9; 1960, chap. 4; 1967, chaps. 5–7; 1978, chap. 1; 1988, chaps. 1–5). For surveys of theories of spontaneous order, see Barry (1982) and Sugden (1989).

  10. 10.

    See Hayek (1948; 1967, p. 85; 1973, p. 5, 29; 1978, chap. 1).

  11. 11.

    Hayek (1952a) outlines a cognitive theory according to which the human brain cannot explain itself or phenomena more complex than itself. This makes it impossible for man to know much about complex social matters, such as to how to successfully design institutions. Hayek began stressing man’s knowledge problem in the economic context (see, e.g., Hayek 1937, 1945). For further analysis, see Vanberg (1994b), van den Hauwe (1998), Steele (2002), Caldwell (2004), and Butos and Koppl (2006).

  12. 12.

    See Hayek (1978, chap. 2).

  13. 13.

    See Hayek (1978, chap. 9).

  14. 14.

    The Keynes quote is from Keynes (1949, p. 97)—note that “experience and self-control” from the original text has been added to Hayek‘s rendering of the quote. A similar critique of Keynes as in the quote is also presented in, e.g., Hayek (1960, p. 159; 1973, pp. 25–26; 1978, p. 16; 1984, pp. 320–321; 1988, pp. 57–58).

  15. 15.

    See, e.g., Friedman (1962, pp. 25–27), Brennan and Buchanan (1985, chap. 1), Buchanan (1990), and van den Hauwe (1998, p. 96 ff). Hayek (1976, p. 36) affirms this way of looking at things when he says that (formal) rules “protect ascertainable domains within which each individual is free to act as he chooses”.

  16. 16.

    Cf. Hayek (1960, p. 70): “None of these conclusions are arguments against the use of reason, but only arguments against such uses as require any exclusive and coercive powers of government; not arguments against experimentation, but arguments against all exclusive, monopolistic power to experiment in a particular field—power which brooks no alternative and which lays a claim to the possession of superior wisdom—and against the consequent preclusion of solutions better than the ones to which those in power have committed themselves” and Hayek (1978, pp. 148–149): “As in the intellectual so in the material sphere, competition is the most effective discovery procedure which will lead to the finding of better ways for the pursuit of human aims. Only when a great many different ways of doing things can be tried will there exist such a variety of individual experience, knowledge, and skills, that a continuous selection of the most successful will lead to steady improvement.” See also Hayek (1960, pp. 365, 406–407).

  17. 17.

    I thank Mark Pennington for clarifying this argument to me. See Vanberg (1994a, b).

  18. 18.

    Hayek argues that synthetic systems of morals (especially act-utilitarianism) will fail to achieve their own goals, as such achievement presupposes knowledge that does not exist. But since Hayek does not agree with these goals, this should perhaps not concern him in itself. What Hayek (1948, p. 19, 25; 1960, pp. 64–65; 1973, chap. 1) does worry about is that attempts to implement systems of this kind will counteract his goal of liberty and, in fact, destroy the spontaneous order characterized by general and abstract rules.

  19. 19.

    Hayek (1973, pp. 45–46) does admit that “it is at least conceivable” that constructed or designed rules can result in a spontaneous order. Cf. Buchanan (1977).

  20. 20.

    In addition to the long quote above, an example of this “corner-solution” mindset can be found in Hayek (1952b, chaps. 8–9). De Vlieghere (1994) roots Hayek’s negative attitude towards piecemeal social engineering in the extreme view that a reformer has to have complete knowledge in order to be entrusted with institutional reforms.

  21. 21.

    The large body of empirical research in institutional economics, constitutional economics and public choice/political economics illustrates the plausibility of this intermediate position: some consequences of alternative rules can be ascertained in at least a probabilistic or tentative manner.

  22. 22.

    The epistemic positions can be related to the intuitive and critical levels of moral thinking outlined by Hare (1981). The intuitive level refers to the way we think morally in familiar and everyday situations without deeper reflection. Here, not much knowledge about effects is needed and rule-following is natural. The latter level refers to the way we think morally about non-familiar situations that are not part of our everyday life—more specifically, it refers to the selection of the best set of rules for use in intuitive thinking. At times, critical thinking can be used to evaluate and change the rules. Someone only engaged in critical thinking is called an archangel by Hare, and someone only engaged in intuitive thinking is called a prole. Hayek seems in this sense to regard every individual as a prole—but Hare (and Keynes) thinks that everyone uses both levels of thinking, in different degrees.

  23. 23.

    At times, Hayek himself admits that the evolutionary process is not perfect from the point of view of his own normative views—see, e.g., Hayek (1973, pp. 88–89; 1976, pp. 25–27; 1978, pp. 19–20; 1988, p. 27)—but it is not made very clear to what extent he approves of constructivist action on such a basis and, if so, what type of action would be acceptable. Hayek does speak of “evolutionary rationalism” (1973, p. 5) and about a wish to not bring about “an abdication of reason” (Hayek 1960, p. 69). Kukathas (1989) analyzes this tension in Hayek, as do Rowland (1988), Vanberg (1994a, b), and Denis (2002).

  24. 24.

    Cf. Buchanan (1959), Buchanan (1977), Barry (1982, pp. 31–33), Gissurarson (1987, pp. 169–170, note 18), Buchanan and Congleton (1998, pp. 3–5), van den Hauwe (1998), Posner (2003, pp. 287–289; 2005, p. 162), Berggren (2004, p. 81), and Schubert (2005). The specific idea of group selection as a key element of cultural evolution (Hayek 1967, pp. 66–81; 1979, p. 202; 1984, p. 318) is criticized by Vanberg (1986; 1994b, chap. 5), Sugden (1993), and Denis (2002).

  25. 25.

    This relates to Schelling (2006) and his analysis of ways to commit to future courses of action.

  26. 26.

    It is not required for any argument in the present paper that all social informal institutions could be consciously rejected, only that some can be.

  27. 27.

    Cf. Buchanan’s (1987) discussion of moral anarchy.

  28. 28.

    Even if an immoralist argued that there should never be any social sanctions, it is extremely unlikely that more than an utterly small number of people would agree with him and follow his “instruction.” Hence, the immoralist program can de facto be predicted to be circumvented by the use of social sanctions.

  29. 29.

    Buchanan (1993) stresses that individuals tend to value autonomy or independence and that private property is conducive to this end. Within that private sphere, as delineated by the formal institution of property rights, people are free to make their own choices, for example in the realm of informal institutions, as they see fit—and they can more easily, by relying on what they own, endure social and economic sanctions initiated by those who dislike their choices.

  30. 30.

    See, e.g., Klein (2001), Berggren and Jordahl (2006), and McCloskey (2006).

  31. 31.

    Admittedly, Hayek (1978, p. 126) does not view favorably the “strong anti-clerical, anti-religious and generally anti-traditionalist attitude” of continental liberals—cf. Hayek (1973, p. 25), and Hayek (1948, p. 23) claims that “true individualism affirms the value of the family and all the common efforts of the small community and group.” See also Hayek (1988, chap. 9, p. 157).

  32. 32.

    See, e.g., Skidelsky (1983, chap. 6), Bateman et al. (1988), Moggridge (1992, chap. 5), Davis (1994), Backhouse and Bateman (2006), Baldwin (2006), and Raffaelli (2006).

  33. 33.

    Hawtrey (1951, p. 373) and Lawson (1989, p. 512) lend further support to the interpretation that Keynes did not reject all traditional rules.

  34. 34.

    This position is more pronounced in the latter Keynes, who had a greater distrust in the power of reason and in the good will of ordinary men. But as Baldwin (2006, p. 254) points out, there is no profound change of heart in Keynes (who continued to regard himself as an immoralist over the course of his life). Cf. Skidelsky (1983, pp. 143–145) and Moggridge (1992, p. 123).

  35. 35.

    Cf. Keynes (1972, p. 295), Cochran and Glane (1999, p. 291), Shearmur (2004, p. 98), and Buchanan and Wagner (2000, p. 80): “Personally, he was an elitist, and his idealized world embodied policy decisions being made by a small and enlightened group of wise people.” However, it bears noting that unlike the case of economic policy, where decisions by an elite necessarily affect everyone in an alike manner, the case of choosing informal institutions only involves making choices for oneself.

  36. 36.

    Hayek (1960, p. 155) stresses that no one, including (and perhaps especially) those who rule, should be allowed to deviate from commonly shared rules, including informal ones.

  37. 37.

    Skidelsky (2003, p. 74) points out the following about the Apostles, an exclusive society in Cambridge to which Keynes belonged: “One should never underestimate the effect of secrecy. Much of what made the rest of the world seem alien sprang from this simple fuel. Secrecy was a bond which greatly amplified the Society’s life relative to its members’ other interests”.

  38. 38.

    See van den Hauwe (1998) and Hayek (1976, p. 147).

  39. 39.

    Bateman et al. (1988, p. 1105), e.g., points out that Keynes was not a utilitarian.

  40. 40.

    There were genuine conflicts between Keynes and Hayek in other areas, most notably in macroeconomics. See, e.g., Machlup (1974), Hayek (1995), Cochran and Glane (1999), and Steele (2001).

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Acknowledgments

The author wishes to thank Bryan Caplan, Robin Douhan, Henrik Jordahl, Daniel Klein, Hartmut Kliemt, Mark Pennington, and two anonymous referees, as well as participants at the 2008 Public Choice Society Meetings in San Antonio, for valuable comments and suggestions and Stiftelsen Marcus och Amalia Wallenbergs Minnesfond for financial support.

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Berggren, N. Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism. Const Polit Econ 20, 139–159 (2009). https://doi.org/10.1007/s10602-008-9055-3

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Keywords

  • Institutions
  • Rules
  • Traditions
  • Morality
  • Liberty
  • Rule of law

JEL Classification

  • B25
  • O17
  • P48
  • Z13