Abstract
It is commonly accepted that Hayek’s economic philosophy is based on the concept of social prosperity resulting from the selfish behaviour of individuals (a kind of consequentialism). However, he did not simply praise individual egoism or advocate laissez-faire based on it. Although the subjective motivations of individuals can include a variety of things, they do not directly create a society. Instead, society emerges as ‘unintended consequences’ of the interaction of subjective behaviours (‘spontaneous order’). In this sense, Hayek’s economic philosophy is unique in that it presupposes a variety of individual motives that are different from simple utility maximisation behaviour, while at the same time criticising reductionist social construction, including utilitarianism. On the other hand, it should be noted that Hayek harshly criticised the phenomenon in which individual optimisation actions that deviate from appropriate rules often become a political collective interest that distort the market framework. In particular, he has always warned that the motivations of individuals to defend their vested rights tend to collude in the name of ‘social justice’ and transform into ‘group selfishness’, thus distorting the framework of market and social order. Therefore, this chapter clarifies Hayek’s advocacy of his own institutional design as a preventive measure. Hayek’s theory of rules is designed to protect the diverse interests and freedoms of individuals from the threat of collective and uniform interests.
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Notes
- 1.
It has been noted by multiple theorists that Hayek’s thought changed direction several times over the years. For example, Vanberg (1986) noted that Hayek’s thought moved from methodological individualism to methodological holism, and that these are incompatible in nature and fragmented. In addition, Fleetwood (1995) asserted that from the perspective of critical realism, Hayek’s thought could be divided into three periods: Hayek I, strong empiricism in nature; Hayek II, strong subjectivism in nature; and Hayek III, strong realism in nature. These issues were generalised by Caldwell (1988, 2004) in ‘Hayek’s Transformation’ and are important for researchers—although we do not deal with them further here.
- 2.
Hayek criticised the image of a human as a ‘homo economicus’ who is always engaged in strictly rational behaviour, as imagined in neoclassical economics, and alluded to the arguments of Smith in the following:
It would be nearer the truth to say that in their (Adam Smith and his group: added by the quoter) view, man was by nature lazy and indolent, improvident and wasteful, and that it was only by the force of circumstances that he could be made to behave economically or carefully to adjust his means to his ends (Hayek 1949, p. 11)
Further, as can be seen in the criticism of Galbraith’s concept of ‘dependence effect’ (Hayek 1961), this does not remove the possibility of others’ influence in subjective formation, and instead, it is predicated on this sort of sociality of individuals.
- 3.
Kukathas (1989) declared that Hayek’s liberalism was ‘end-independent’ and was generally regarded as representative of ‘negative liberalism’. Although in the sense that his objective was a higher level of self-realization with freedom as a means, Hayek was a type of Kantian and belonged to a kind of ‘positive liberalism’. Further, he noted Hayek’s failure to balance a Humean empiricism (or consequentialism in a broader sense) and Kantian deontology and argued that the latter should be excluded to focus on the former. On the other hand, while Kley (1994) partly acknowledges the assertions of Kukathas, he regards Hayek as a consequentialist who disguised himself in a mask of Kantian. Moreover, he counters that Hayek was actually reticent about the facts of value objectives that should be strived for, by simultaneously negatively assessing Hayek’s eclectic attitude. A more detailed discussion of these interpretations cannot be given here—although we must acknowledge that Hayek placed a great distance between himself and simple Benthamist utilitarianism. See Yamanaka (2007, Chap. 2) for a more detailed discussion of this issue in Japanese.
I think that although these scholar’s arguments are worthy of attention, they overemphasised the division between the Humean and Kantian characteristics in an attempt to reduce Hayek to one or the other, which risks losing sight of the true value of Hayek’s uniqueness. Mounce (1999) argued that the characteristics of Hume’s naturalism were his considerations of thoroughly worldly aspects without any concept of God and his denial of a metaphysical foundation since he denied a reduction to simple experientialism or empiricism, giving this the significance of naturalism that is differentiated from materialism. I interpret Mounce’s assertion as fitting into the characteristics of Hayek’s natural law theory as discussed in Sect. 4. See Taishido (2003, 2005) for the relevant discussion in Japanese. On the other hand, the augment on Chap. 4 (Itai’s) of this book intends to go beyond the prevailing notion on Bentham’s utilitarianism.
- 4.
Petsoulas (2001) is representative of research on the relationship between the Scottish Enlightenment and Hayek’s thought. However, she asserts that the theories of Mandeville, Hume and Smith did not directly precede Hayek’s spontaneous order, which was a pillar of ‘social evolution through a process of selection’. According to Petsoulas, while those three thinkers were biased toward the role of human intelligence in response to the explanations of the establishment of various rules and systems, Hayek took too lightly the role of human rationality in response to the appearance of explicit rules and systems through trial and error. However, these arguments by Petsoulas seem to underestimate the role of ‘immanent criticism’ in Hayek’s arguments (Hayek 1976, p. 118). As is the case with the important role of judges in the legislative process, which we see in Sect. 4, Hayek does not completely deny the role of rationality in social evolution. Hakkonsen’s interpretation of Hume given in footnote 13 has much in common with Hayek’s thought and is a more legitimate interpretation.
Some critics have pointed out a certain level of affinity between Hayek’s view of the individual and communitarian arguments. For example, Gissurarson (1987, pp. 193–194), Kukathas (1989, p. 222) and McCann Jr. (2002, pp. 355–356). Based on those arguments, Doi (2008) suggested the surprising closeness between the thought of Hayek and Alasdair MacIntyre, who is one of the representatives of communitarianism. The emphasis on sociality behind these agents is a distinguishing feature of Hayek’s liberalism.
- 5.
Lavoie (1985) pointed out that the outcome over the economic calculation controversy in 1920–30 played a major role in the development of Hayek’s thought and provided important implications for subsequent research on him.
- 6.
Hayek harshly criticised existing welfare states but did not deny the importance of general welfare policies, instead thinking of them as major elements in the ‘Constitution of Liberty’. Hayek uses a great deal of space in the third part of the book of that same title (Hayek 1960) to discuss this topic in detail, including the minimum income guarantees and public pension system. For detailed arguments for this, see Taishido (2011). Further, unlike the logical positivists whom Hayek also harshly criticised, he did not deny the significance of moral or ethical concepts, or the concept of justice itself, and did not take the standpoint of moral relativism, as seen here:
The freedom to pursue his own aims is, however, at least as important for the complete altruist as for the most selfish. Altruism, to be a virtue, certainly does not presuppose that one has to follow another person's will. But it is true that much pretended altruism manifests itself in a desire to make others serve the ends which the 'altruist' regards as important. (Hayek 1973, p. 56)
- 7.
Hayek thought that distribution based on standards such as ‘desert’, ‘merit’, and ‘need’ through states with a centralised authority was arbitrary and could not be true justice (Hayek 1976, p. 84). The reason was that there were no clear limitations to demands based on ‘social justice’, as well as the fundamental difficulty of measuring those demands. Thus, in the end, such decisions on distribution could not help but be arbitrary. Moreover, such a system brings about human rankings based on a single, arbitrary standard and a strict meritocracy, placing pressure on freedom. Thus, Hayek criticized attempts by states and society to directly create justice as ‘anthropomorphism’ (Hayek 1976, p. 64).
- 8.
Carl Polanyi, an opponent of Hayek’s, understood the emergence of socialism and fascism as resistance movements in response to ‘self-regulating markets’, although both he and Hayek were aware, to some extent, that market order did not arise naturally, but that it is artificial, and thus unstable. However, Polanyi was negative toward prolonging ‘self-regulating markets’ by means such as welfare policies, and aimed at creating an alternative social order, a kind of socialism, while Hayek viewed such attitudes as movements for ‘social justice’ or ‘atavism’ that would lead society to collapse. This marked a clear divergence in the views of the two. See Stanfield (1986) for more information on Polanyi.
- 9.
In addition, Hayek argues for the importance of financial policies, rule-based eminent domain for and public objectives, anti-monopoly measures, and inheritance taxes. With regard to monetary policies, Hayek later proposed a theory for liberalising the issuance of currency (the denationalisation of money); given the difficulty that central banks face in executing policies, even when the principle of monetary policies according to rules has been maintained.
- 10.
The foundation of such thinking by Hayek was the importance of the value judgement as ‘freedom’. As long as that was his basis, it seems that there are not necessarily any inconsistencies between the theory of market design in contemporary economics and Hayek’s thought. ‘Design’ strives to create a market framework and make it efficient by skilfully coordinating the parts of a system; in contrast, the ‘construction’ criticised by Hayek directly leads in the direction of a specific society. On the other hand, as was noted by Saint-Paul (2011), the recklessness of methods that lack value principles (such as the importance of freedom) and simply use the outcomes of behavioural economics or neuroeconomics for governance (such as libertarian paternalism) are forms of reductionism, and the accumulation of designs based on ‘nudges’ may result in a suppression of liberty.
- 11.
The dispute between Keynes and Hayek is generally well known—although research in the future will likely examine characteristics and the intellectual foundation shared between the two. As for their intellectual exchange, see Ebenstein, (2001) and Wapshott (2011). If we were to outline a few points of argument, the first one would be the position of these two men as being in resistance to a ‘collapse of liberty’ in the mid-war period, particularly as advocates for protecting Western civilization or a certain type of moral philosophers, instead of understanding the thoughts of Keynes and Hayek as a dichotomy. Second, both criticised the theories of equilibriums of mainstream neoclassical economics and were heretical economists who emphasised the imperfection of the knowledge of economic agents, as well as their sociality and inter-subjectivity when establishing that knowledge. On the premises of such assumption, the differences between Keynes and his unique macroeconomic assertions and Hayek and his opposition to them may also become apparent. Third, both laid emphasis on the customs for maintaining ‘civilisation’ or historical social order, and thus they both showed their strong devotion to British thinkers such as Hume and Burke. Of course, there are differences between the two. Hayek placed his hopes in the continuously accumulated customs and stability of market order based on ‘nomos’ as the law of liberty, while Keynes emphasised the uncertainty and baselessness (typically shown in the Keynesian beauty contest) of people’s beliefs upon which customs are based, as well as the significance of a certain degree of government intervention. I owe a lot to Mamiya (2006) on these points.
- 12.
Much research already exists on natural law interpretations of Hayek’s thought, for example, the literature noted below. While Covell (1992) rejected transcendental natural law theory (Platonism and modern rationality), he regarded the jurisprudence of Hayek as a kind of natural law that pre-exists positive law as ‘formal, procedural principles’. However, I think that Hayek’s natural law goes beyond the ‘formal, procedural principles’ espoused by Covell. van Dun’s (1994) work is an interpretation that emphasises the similarities with Humean natural law, and Roos’s (1994) work is an interpretation that emphasizes the similarities with Kantian natural law. Cliteur (2000) defined the characteristics of natural law as (1) the existence of legal restraints; (2) adherence of positive law to a ‘higher law’; and (3) naturalism. Hayek’s theory of law is thought to be a developmental natural law theory that meets all of these definitions. See Taishido (2005) for the discussion in Japanese. Angner (2007) also viewed the basis of Hayek’s theory of spontaneous order as the superiority of natural law over artificial law.
- 13.
Although the relationship between the thoughts of Hume and Hayek cannot be treated enough here,— See Taishido (2003, 2005) for discussion in Japanese—I think Haakonssen’s perspective has much in common with Hayek. Haakonssen (1981) says the following about Hume’s theory of justice.
the particular boldness in Hume is that he uses it (the idea that many social phenomena are the unintended consequences of human actions: added by the quoter) in accounting for one of the traditionally most central, and in a way most ‘sacred’, elements in social life, namely fundamental law itself, our very ‘sense of justice’. It is of the most important parts of his philosophical justification for replacing traditional natural law with a secular and empirical conception of fundamental law…it does, in common view traditional natural law theories, find roots of justice beyond any rational human deliberations, and far beyond our present society (Haakonssen 1981, p. 21).
- 14.
Honohan (2002, p. 8) classified republicanism into two categories, calling the proactive type that focuses on participation in the government space ‘strong republicanism’ and calling the type that places importance on individual liberty and the theory of institution as a foundation for that liberty ‘instrumental republicanism’.
- 15.
Nevertheless, Hayek sent the following praise for Pocock’s The Ancient Constitution and the Feudal Law (1957) for his consideration of English common law and its incorporation in his own arguments.
I would like to make amends here for inadvertently not referring to this excellent book in The Constitution of Liberty, 1960, for the final revision of which I had much profited from Mr. Pocock’s work. (Hayek 1978b, p. 256)
- 16.
On this point, it seems that there are major differences between the liberalisms of Hayek and Frank Knight. There are two main points, based on the differences in their views of ‘discussion’ and ‘social justice’. To Knight, the concepts of freedom and human rights are more or less products of historical coincidence, and because of this, public ‘discussions’ play important roles when setting rules that advocate for the ideals of a free society. In addition, gaining consensus requires discussions on ‘social justice’, where there are individual and specific views on issues such as poverty measures and taxation, etc. Based on this perspective, Knight criticised that Hayek rejects ‘social justice’ and, for the most part, does not rely on the political process of discussions, instead entrusts the fate of the growth of liberal society to the extremely unstable process of natural selection. However, Hayek thought, as noted in this chapter, that distribution under the concepts of ‘social justice’ is arbitrary and can never be true justice. In a ‘great society’ made up of countless people with diverse values, the issue of distributive justice as to who gets how much cannot be solved through ‘social justice’ or the ‘emotions of a tribal society’, which are only the norms for certain small groups and organisations. A framework of abstract rules separated from ‘social justice’ is required to create a multidimensional society that is not controlled by specific value standards. See Kern (1985) and Emmett (2007) for more information on Knight’s criticism of Hayek.
- 17.
Pettit himself regarded Hayek not as a representative of ‘freedom as non-domination’ theory, but as that of ‘freedom as non-interference’, and attempted to differentiate it from his own argument (Pettit 1997, p. 89). Through this differentiation, Pettit emphasised the differences between the concepts of negative liberalism in the general sense—particularly those of Hobbes and Bentham—and his own republican liberty, bringing into relief the uniqueness of the latter. However, I think that Pettit not paying attention to Hayek’s argument as differing from negative liberalism in a narrow sense is problematic. Even Isaiah Berlin, the father of the dichotomy of negative liberalism and positive liberalism did not make a goal of value relativism in simply praising the former and treating the preferences of all individuals equally (Berlin 1969). Rather, he acknowledged the incommensurability of individual values and emphasised pluralism, the goal of which is not the relativism of indifference to the values and ideals of others, but the mutual recognition and tolerance of them. Berlin’s negative liberalism assumes this sort of pluralism.
- 18.
Although these arguments of Hayek, in terms of whether the establishment of a liberal society is legitimised through the ‘evolutionary’ process, which he relied upon in later years, have often been criticised (e.g. Vanberg, 1986), his thought on a theory of knowledge, criticism of constructivism, and advocacy of progressive social development extended beyond a political standpoint had a certain impact on various parties, including leftists in the modern British Labour Party (Griffiths 2014). In addition, Sciabarra (1995) saw commonalities between Marx’s criticism of utopian socialism and Hayek’s criticism of constructivism because both criticised that utopianism has internalised the significance of an anti-historical abstraction of human possibility. Further, Sciabarra interpreted that both were ‘radical practitioners’ and that the positions of both, ostensibly on opposite ends of the spectrum, as being complementary.
- 19.
In the study of the history of ideas, the consideration of the relationship between the natural law tradition and the republican tradition is controversial. While Pocock (1981) distinguished between them and insisted on the autonomy of the latter (especially civic humanism), Skinner (1998) was critical of this and considered the neo-Roman ‘Liberty before Liberalism’ as the fusion of these two traditions. Similarly, Robertson (1985) emphasised the unity and inseparability of these traditions.
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Taishido, M. (2021). An Institution to Reconcile Self-interests: Hayek on the Notion of the Economic Agent and the Establishment of Appropriate Rules. In: Egashira, S., Taishido, M., Hands, D.W., Mäki, U. (eds) A Genealogy of Self-Interest in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-15-9395-6_14
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