WEBVTT NOTE 21. Friedrich August von Hayek’s Model of Society and His Theory of Cultural Evolution 1 00:00:00.000 --> 00:00:07.840 Chapter 21 – Friedrich August von Hayek's Model of Society and His Theory of Cultural 2 00:00:07.840 --> 00:00:11.880 Evolution In the Road to Serfdom, written in England 3 00:00:11.880 --> 00:00:17.120 during the Second World War, Friedrich August von Hayek outlined those fundamental ideas 4 00:00:17.120 --> 00:00:19.800 which would later become typical of him. 5 00:00:19.800 --> 00:00:24.880 He believed the development of our Western civilization was only possible because people 6 00:00:24.880 --> 00:00:28.300 submitted to impersonal market forces. 7 00:00:28.300 --> 00:00:33.340 No one consciously planned and organized this development. It came about spontaneously in 8 00:00:33.340 --> 00:00:39.500 the course of increasingly more complex exchange relationships on the path to a cultural evolution. 9 00:00:39.500 --> 00:00:44.420 The intent to change this structure in future and shape it with the help of ideas could 10 00:00:44.420 --> 00:00:49.700 be the only outcome of incomplete and therefore erroneous rationalism. 11 00:00:49.700 --> 00:00:55.220 No individual or government agency has anything approaching a complete overview. Authority 12 00:00:55.220 --> 00:01:01.140 over all of our lives cannot be assigned to anyone. Political planning and regulation 13 00:01:01.140 --> 00:01:07.020 would necessarily lead to a worsening of conditions and destroy personal freedom in the end. This 14 00:01:07.020 --> 00:01:12.140 fundamental notion, which became the leading idea of evolutionary economics, can be traced 15 00:01:12.140 --> 00:01:17.460 back directly to Carl Menger. In his Principles of Economics, he describes the nature and 16 00:01:17.460 --> 00:01:23.780 origin of money as the result of human actions but not of human design. In his Investigations 17 00:01:23.780 --> 00:01:28.380 Once into the methods of the social sciences, he expanded the application of this basic 18 00:01:28.380 --> 00:01:34.340 idea to a series of other social structures, which he understood to be law, language, the 19 00:01:34.340 --> 00:01:40.780 state, money, markets, prices of goods, interest rates, ground rents, wages, and a thousand 20 00:01:40.780 --> 00:01:45.620 other phenomena of social life in general, and of economy in particular. These were, 21 00:01:45.620 --> 00:01:50.920 to no small extent, the unintended result of social development. 22 00:01:50.920 --> 00:01:56.160 The road to serve them, probably Hayek's most popular work, was dedicated to the socialists 23 00:01:56.160 --> 00:02:00.520 of all parties. In other words, to everyone who was hoping that economic planning would 24 00:02:00.520 --> 00:02:06.360 lead to a new Jerusalem. Hayek demonstrated meticulously that socialism, in whatever form 25 00:02:06.360 --> 00:02:11.000 it manifests itself, is incompatible with the idea of freedom, and that the rise of 26 00:02:11.000 --> 00:02:16.200 national socialism was not a reaction to the socialist spirit of the times, but had instead 27 00:02:16.200 --> 00:02:22.200 in its inevitable consequence. Whether National Socialism or Soviet Communism, a controlled 28 00:02:22.200 --> 00:02:29.720 economy will always end in despotism. In contrast, a free society does not need first to be artificially 29 00:02:29.720 --> 00:02:34.520 constructed through violent revolution and subsequent re-education, but is attained in 30 00:02:34.520 --> 00:02:40.440 an evolutionary way through consistent adherence to market economy principles. Because these 31 00:02:40.440 --> 00:02:45.740 These principles had been progressively destroyed by socialist ideas. It is vital to restate 32 00:02:45.740 --> 00:02:51.800 them so as to clearly and tangibly instil the idea of freedom in people's consciousness. 33 00:02:51.800 --> 00:02:57.320 Individualism, based on traditions and conventions, which in principle affirms family values, 34 00:02:57.320 --> 00:03:01.240 cooperation between small communities and groups, and local self-government, is the 35 00:03:01.240 --> 00:03:03.400 foundation of a free society. 36 00:03:03.400 --> 00:03:15.400 Such individualism, wrote Hayek in Individualism and Economic Order, has the advantage of establishing flexible but normally observed rules that make the behaviour of other people predictable in a high degree. 37 00:03:15.400 --> 00:03:30.400 In contrast to this is a socialist-inspired false individualism which wants to dissolve all these smaller groups into atoms which have no cohesion other than the coercive rules imposed by the State and which tries to make all social ties prescriptive. 38 00:03:30.400 --> 00:03:35.440 Genuine individualism is characterized by all forms of planning being carried out by 39 00:03:35.440 --> 00:03:41.200 a large number of individuals instead of centrally by a government agency. Only a plurality of 40 00:03:41.200 --> 00:03:46.960 individuals can make the best use of the entirety of possible knowledge. Practically every individual 41 00:03:46.960 --> 00:03:51.880 has some advantages over all others because he possesses unique information of which beneficial 42 00:03:51.880 --> 00:03:57.840 use might be made. Economic research claiming that an unequivocal solution comes about if 43 00:03:57.840 --> 00:04:03.520 all facts are known to an individual as nothing to do with reality. Instead, research needs 44 00:04:03.520 --> 00:04:08.200 to show how a solution is produced by the interaction of people, each of whom possesses 45 00:04:08.200 --> 00:04:13.320 only partial knowledge. To assume all the knowledge to be given to a single mind is 46 00:04:13.320 --> 00:04:18.440 to assume the problem away and to disregard everything that is important and significant 47 00:04:18.440 --> 00:04:23.400 in the real world. That economic research could become so blind can be explained by 48 00:04:23.400 --> 00:04:29.000 by its increasing orientation toward the natural sciences. Little by little, empirical methods 49 00:04:29.000 --> 00:04:33.480 conventionally used in the natural sciences had been formally imposed upon the social 50 00:04:33.480 --> 00:04:39.840 sciences which led finally to fiasco. To start here at the wrong end, to seek for regularities 51 00:04:39.840 --> 00:04:44.520 of complex phenomena which could never be observed twice under identical conditions 52 00:04:44.520 --> 00:04:51.120 could not but lead to the conclusion that there were no general laws, no inherent necessities, 53 00:04:51.120 --> 00:05:02.000 It was only with this abandonment of the appropriate methods of procedure that it began to be thought 54 00:05:02.000 --> 00:05:07.400 that there were no laws of social life other than those made by men and that all observed 55 00:05:07.400 --> 00:05:13.160 phenomena were all only the product of social or legal institutions. 56 00:05:13.160 --> 00:05:17.400 As we might observe that parts of biological organisms move in a manner suggesting that 57 00:05:17.400 --> 00:05:22.360 Their purpose is the preservation of the whole, Hayek wrote in the Counter-Revolution of Science 58 00:05:22.360 --> 00:05:27.960 Studies on the Abuse of Reason, 1952, that we can observe how the independent actions 59 00:05:27.960 --> 00:05:32.960 of individuals in spontaneous social circles will produce an order which is no part of 60 00:05:32.960 --> 00:05:38.480 their intentions. The way in which footpaths are formed in a wild broken country is such 61 00:05:38.480 --> 00:05:43.980 an instance. Certainly there exist social structures that have neither been consciously 62 00:05:43.980 --> 00:05:49.100 be planned by anyone in particular, nor whose functions are consciously maintained by anyone, 63 00:05:49.100 --> 00:05:53.980 but are nevertheless vastly beneficial for the attainment of human goals. According to 64 00:05:53.980 --> 00:05:58.960 Hayek, many of the greatest achievements are not the result of consciously directed thought, 65 00:05:58.960 --> 00:06:03.980 and still less the product of a deliberately coordinated effort of many individuals, but 66 00:06:03.980 --> 00:06:09.000 of a process in which the individual plays a part which he can never fully understand. 67 00:06:09.000 --> 00:06:13.660 They are greater than any individual precisely because they result from the combination of 68 00:06:13.660 --> 00:06:22.260 A collectivist who wants to understand social institutions objectively, said Hayek, will 69 00:06:22.260 --> 00:06:27.500 necessarily fail in his attempts to accurately define their nature and how they function. 70 00:06:27.500 --> 00:06:32.740 He will be driven to imagine these to be the creation of one ingenious mind, and will finally 71 00:06:32.740 --> 00:06:37.140 make the political demand that all forces of society be made subject to the direction 72 00:06:37.140 --> 00:06:39.260 of a single mastermind. 73 00:06:39.260 --> 00:06:45.500 It is the individualist who recognizes limitations of the powers of individual reason, and consequently 74 00:06:45.500 --> 00:06:50.260 advocates freedom as a means for the fullest development of the powers of the inter-individual 75 00:06:50.260 --> 00:06:52.260 process. 76 00:06:52.260 --> 00:06:57.940 Collectivist thinking opens the gates to despotism. Based on misunderstood rationalism, it paves 77 00:06:57.940 --> 00:07:03.220 the way for dangerous irrationalism. This can only be prevented to the extent that conscious 78 00:07:03.220 --> 00:07:07.940 reason acknowledges the limits of its own capabilities. As individuals, we should bow 79 00:07:07.940 --> 00:07:13.100 allow to forces and obey principles which we cannot hope fully to understand, yet on 80 00:07:13.100 --> 00:07:16.940 which the advance and even the preservation of civilization depends. 81 00:07:16.940 --> 00:07:21.300 Historically, this has been achieved by the influence of the various religious creeds 82 00:07:21.300 --> 00:07:26.380 and by traditions and superstitions which made men submit to those forces by an appeal to 83 00:07:26.380 --> 00:07:29.460 his emotions rather than to his reason. 84 00:07:29.460 --> 00:07:33.820 The most dangerous stage in the growth of civilization may well be that in which man 85 00:07:33.820 --> 00:07:38.620 Hayek has come to regard all these beliefs as superstitions and refuses to accept or 86 00:07:38.620 --> 00:07:44.460 to submit to anything which he does not rationally understand. The rationalist, whose reason 87 00:07:44.460 --> 00:07:49.320 is not sufficient to teach him those limitations of the powers of conscious reason, and who 88 00:07:49.320 --> 00:07:54.340 despises all the institutions and customs which have not been consciously designed, 89 00:07:54.340 --> 00:07:57.820 would thus become the destroyer of the civilisation built upon them. 90 00:07:57.820 --> 00:08:02.960 There is only one alternative to control by arbitrary rule, wrote Hayek in the Constitution 91 00:08:02.960 --> 00:08:09.260 of Liberty, 1960, universal submission to formal laws. This means that individuals, 92 00:08:09.260 --> 00:08:15.140 because of deeply rooted moral convictions, voluntarily comply with certain guidelines. 93 00:08:15.140 --> 00:08:20.200 Freedom therefore requires responsibility, but it must be clear that the responsibility 94 00:08:20.200 --> 00:08:25.260 of the individual extends only to what he can be presumed to judge, that his actions 95 00:08:25.260 --> 00:08:55.260 The Theory of Money and Credit 96 00:08:55.260 --> 00:09:04.260 Freedom has economic significance for the reason that it allows room for the unforeseeable and unpredictable. 97 00:09:04.260 --> 00:09:10.260 Since one cannot know which experiments with procedures, products or services will prove to be successful, 98 00:09:10.260 --> 00:09:13.260 maximum freedom to develop is most expedient. 99 00:09:13.260 --> 00:09:19.260 It is because every individual knows so little and, in particular, because we rarely know which of us knows best, 100 00:09:19.260 --> 00:09:32.380 In his Fieburger Studien, Hayek writes that coercive government measures should be limited 101 00:09:32.380 --> 00:09:37.620 to the enforcement of universal rules of conduct exclusively. Government should not have specific 102 00:09:37.620 --> 00:09:42.500 objectives. This is because a market-based system is not based on some common objective 103 00:09:42.500 --> 00:09:48.080 but instead on reciprocity, that is, on the balance of different interests to the mutual 104 00:09:48.080 --> 00:09:56.480 In a free society, terms such as the common good or public interest should only be understood 105 00:09:56.480 --> 00:10:01.760 in abstraction. This alone offers any randomly singled out individual the best chances to 106 00:10:01.760 --> 00:10:07.200 successfully employ his skills for his personal objective. Government measures ostensibly 107 00:10:07.200 --> 00:10:11.980 serving the common good, such as progressive taxation, for example, wherein the majority 108 00:10:11.980 --> 00:10:17.200 burdens a minority against a minority will, are nothing but cases of arbitrary discrimination 109 00:10:17.200 --> 00:10:21.600 that destroy personal freedom. Governments should therefore refrain from influencing 110 00:10:21.600 --> 00:10:27.200 income distribution in favour of social equity. A person can only develop in an optimal way 111 00:10:27.200 --> 00:10:32.360 within the framework of a regulatory system based on law and tradition and largely removed 112 00:10:32.360 --> 00:10:37.720 from the grasp of rulers. Constant competition in such a system would always favour behaviours 113 00:10:37.720 --> 00:10:42.320 that had proven successful. It is impossible to predict where competition which can be 114 00:10:42.320 --> 00:10:56.320 will ultimately lead. Yet it is plain that those societies which draw on competition for this purpose know more, and thus ultimately generate more wealth for everyone. 115 00:10:56.320 --> 00:11:11.320 Such a regulatory system which one could also call spontaneous order, and which has always, wherever it appeared, made use of the market and of private property, always leads to a great or open society on an advanced civilization. 116 00:11:11.320 --> 00:11:21.320 In the original German, Offene or Große Gesellschaft in italics was obviously borrowed from Karl Popper, The Open Society and Its Enemies, 1945. 117 00:11:21.320 --> 00:11:27.320 In English, the term appears for the first time in Hayek's Law, Legislation and Liberty, 1981. 118 00:11:27.320 --> 00:11:33.320 The Greeks called an order created by humans taxes and a spontaneously created order cosmos. 119 00:11:33.320 --> 00:11:40.320 According to Hayek, cosmos comes into being from regularity in the behavior of the elements of which it is made up 120 00:11:40.320 --> 00:11:45.080 and therefore has no particular objective or purpose. It is an endogenous system, growing 121 00:11:45.080 --> 00:11:52.000 from the inside, or, as the cyberneticists say, a self-regulatory or self-organising 122 00:11:52.000 --> 00:11:57.620 system. On the other hand, taxis, as a decree or an organisation, is determined by an efficacy 123 00:11:57.620 --> 00:12:04.540 outside the system and is therefore exogenous or imposed. Since in a taxis all knowledge 124 00:12:04.540 --> 00:12:09.940 at individual's disposal has to be first channeled to a central organiser, that knowledge 125 00:12:09.940 --> 00:12:16.340 will always be more limited compared to that at the disposal of individuals within a cosmos. 126 00:12:16.340 --> 00:12:21.260 Rules and norms created within the framework of the cosmos are to be called nomoi, the 127 00:12:21.260 --> 00:12:26.500 meaning of nomos being a universal rule of just behaviour which applies equally to all 128 00:12:26.500 --> 00:12:31.160 people for an unknown number of future cases to which the objective circumstances described 129 00:12:31.160 --> 00:12:36.580 in the rule pertain regardless of the consequences brought on in a specific situation by adhering 130 00:12:36.580 --> 00:12:37.980 to the rules. 131 00:12:37.980 --> 00:12:42.500 These rules limit protected individual spheres by letting every person or organized group 132 00:12:42.500 --> 00:12:47.140 know which means they may employ in pursuit of their goals without the actions of the 133 00:12:47.140 --> 00:12:52.460 various people coming into conflict with each other. By contrast, the rules and norms created 134 00:12:52.460 --> 00:12:57.900 within the framework of a taxis are to be called theses, the meaning of thesis being 135 00:12:57.900 --> 00:13:04.060 such a rule which is only applicable to certain persons or which serves the aim of rulers. 136 00:13:04.060 --> 00:13:09.380 The distinction between nomoi, the universal rules of behaviour, and theses, the rules 137 00:13:09.380 --> 00:13:14.460 of organisation, is comparable to the classical distinction between civil law, including penal 138 00:13:14.460 --> 00:13:18.800 law, and public law, constitutional and administrative law. 139 00:13:18.800 --> 00:13:23.820 It is instructive to remember that the idea of law in the sense of nomos, that is, an 140 00:13:23.820 --> 00:13:29.060 abstract rule independent of any concrete individual will, applicable regardless of consequences 141 00:13:29.060 --> 00:13:34.620 to Individual Cases, a law that could be found and was not created for particular foreseeable 142 00:13:34.620 --> 00:13:39.540 purposes, together with the idea of personal freedom existed and continue to exist only 143 00:13:39.540 --> 00:13:44.260 in countries such as ancient Rome and modern England, where the advancement of civil law 144 00:13:44.260 --> 00:13:49.380 was based on precedent and not on written law, where it lay in the hands of judges and 145 00:13:49.380 --> 00:13:55.020 jurists and not in the hands of legislators. In addition to the closely linked concept 146 00:13:55.020 --> 00:14:02.180 of Cosmos, Taxes and Nomos, Theses, Hayek distinguished between values and goals. Values 147 00:14:02.180 --> 00:14:07.940 originate in cultural tradition and are what guide human action for a lifetime, whereas 148 00:14:07.940 --> 00:14:14.260 goals determine human action only in particular instances. An open and free society is based 149 00:14:14.260 --> 00:14:20.620 on its members sharing common values. Conversely, the possibility of freedom disappears when 150 00:14:20.620 --> 00:14:25.520 When we insist there should be a united will issuing orders that direct members to its 151 00:14:25.520 --> 00:14:31.820 certain goals, those values or rules of just behaviour that have decisively contributed 152 00:14:31.820 --> 00:14:38.120 to the emergence of an open and liberal society, had already, Hayek wrote in Law, Legislation 153 00:14:38.120 --> 00:14:43.160 and Liberty, the mirage of social justice, been formulated by the Scottish philosopher 154 00:14:43.160 --> 00:14:50.500 and economist David Hume, 1711, 1776. Hume called them the three fundamental laws of 155 00:14:50.500 --> 00:14:55.380 of Nature, that of stability of possession, of its transference by consent and of the 156 00:14:55.380 --> 00:15:00.300 performance of promises. In civil law systems these principles were later summarized as 157 00:15:00.300 --> 00:15:05.460 freedom of contract, the inviolability of property and the duty to compensate another 158 00:15:05.460 --> 00:15:11.020 for damage due to his fault. Historically abstract rules and spontaneous order developed 159 00:15:11.020 --> 00:15:16.820 in mutual dependency. For just as the mind can only exist as part of a system which exists 160 00:15:16.820 --> 00:15:22.520 independently of it, a system can likewise only develop because millions of minds constantly 161 00:15:22.520 --> 00:15:28.380 absorb and modify parts of it. According to Hayek, man did not adopt new rules of conduct 162 00:15:28.380 --> 00:15:34.220 because he was intelligent, he became intelligent by submitting to new rules of conduct. What 163 00:15:34.220 --> 00:15:40.620 ultimately made humans good was neither nature nor reason but tradition. There is not much 164 00:15:40.620 --> 00:15:46.040 common humanity in the biological endowment of the species, nor did human beings develop 165 00:15:46.040 --> 00:15:51.180 in the context of freedom at all. As members of small hordes, which they had to cling to 166 00:15:51.180 --> 00:15:56.860 if they wanted to survive, they were anything but free. Freedom is an artifact of civilization 167 00:15:56.860 --> 00:16:01.700 which liberated humans from the shackles of the small group. It became possible by the 168 00:16:01.700 --> 00:16:06.400 gradual evolution of the discipline of civilization which is, at the same time, the discipline 169 00:16:06.400 --> 00:16:12.360 of freedom. Ultimately, we have to admit that modern civilization is possible by and large 170 00:16:12.360 --> 00:16:19.400 only by ignoring indignant moralists. This fact, Hayek points out, was formulated by 171 00:16:19.400 --> 00:16:26.560 the French historian and sociologist Jean Bechler, 1905-1983, as follows. The expansion 172 00:16:26.560 --> 00:16:31.480 of capitalism owes its origins and raison d'être to political anarchy.