Friedrich August von Hayek (1899- 1992) was one of the most preeminent members of the Austrian School of Economics. In his work he defended liberal democracy and free-market capitalism and rejected socialism and collectivism. Hayek made the greatest contributions to the concept of spontaneous order and it was he who applied the term "spontaneous order" to define "a system which has developed not through the central direction or patronage of one or a few individuals but through the unintended consequences of the decisions of myriad individuals each pursuing their own interests through voluntary exchange, cooperation, and trial and error" [[http://homepage.eircom.net/~odyssey/Politics/Liberty/Hayek.html Read more Hayek Quotes]] [[Sources| [3]]]. In 1974, Hayek reveiced the Noble Prize in Economics, which he shared with Gunnar Myrdal.
Friedrich A. Hayek has proven to be one of the most exceptional classical liberal political economists. His research incorporates the fusion between Politics, Philosophy, and Economics. As a philosopher he sought answers relating to the nature of the mind. While as an economist he sought to integrate technical economics and philosophy in order to explore the political behavior of free people.
Hakey's most important works are ''The Road to Serfdom'' (1944), ''Individualism and Economic Order'' (1948), ''The Sensory Order: An Inquiry into the Foundation of Theoretical Psychology'' (1952), ''Capitalism and the Historians'' (1954), ''The Constitution of Liberty'' (1960) ''Law, Legislation and Liberty'', 3 volumes (1973-79), ''The Fatal Conceit: The Errors of Socialism'' (1989)
[http://cepa.newschool.edu/het/profiles/hayek.htm More on Hayek 1] [[Sources| [12]]]
[http://en.wikipedia.org/wiki/Friedrich_Hayek More on Hayek 2] [[Sources| [13]]]
====Evolutionary Rationalism vs. Constructive Rationalism====
# '''BACKGROUND'''
#* Born on May 8, 1899 in Vienna
#* Earned doctorates from University of Vienna
#* Shares a Nobel Prize with Gunnar Myrdal
# '''CONTRIBUTIONS'''
#* '''Monetary Theory and the Trade Cycle:''' Reevaluated the capital structure of an economy and how it can be affected by credit policy and expansion.
#* '''Hayek-Keynes Debate:''' Monetary economics debate where Hayek expressed that understanding interest rates and capital structure play a key role in the market economy. He argues that Keynes focuses on how the economist examines the industrial structure rather than how free individuals would examine the structure.
#* '''Collectivist Economic Planning:''' Series of essays focused on the issues of socialism.
#* '''The Road to Serfdom:''' Redefining Liberal Society and the problems of socialism through observations of Nazi Germany.
#* '''The Counter-Revolution of Science:''' Collection of essays that explores philosophical trends, which prejudices individuals from efficiently analyzing systematic economy issues.
#* '''The Constitution of Liberty:''' Work in Classical liberal political philosophy that went against constructivist rationalism.
Hayek argues that '''[[rationalism]]''' can be both constructive and evolutionary, and that there is a rationally designed order associated with the constructive rationalism and a spontaneous order associated with the evolutionary rationalism. While constructive rationalism has proved efficient in less complex situations (i.e. designed orders like buildings, factories, cars, etc.) Hayek argues that it is a mistake to consider that institutions should solely be the product of human rationale, as human beings are unable to have a complete understanding of the intricacies of social institutions: ''"Human reason can neither predict nor deliberately shape its own future. Its advances consist in finding out where it has been wrong.''" [[http://homepage.eircom.net/~odyssey/Politics/Liberty/Hayek.html Read more Hayek Quotes]] [[Sources| [3]]]. Rather, Hayek advocates the importance of evolutionary rationalism, which is significantly more efficient that the rational design, in that it evolved over the course of human history and allow one to better understand the society in which we live. While both types of orders are employed in everyday life, it if the spontaneous order that takes precedence, as it can transmit information to players in a non-centralized way, and thus overcome the constraints of rational planning. In addition, spontaneous orders have the ability to evolve and thus overcome any inaccuracies they might have:
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''"If the enlightenment has discovered that the role assigned to human reason in intelligent construction had been too small in the past, we are discovering that the task which our age is assigning to the rational construction of new institutions is far too big. What the age of rationalism - and modern positivism - has taught us to regard as senseless and meaningless formations due to accident or human caprice, turn out in many instances to be the foundations on which our capacity for rational thought rests. Man is not and never will be the master of his fate: his very reason always progresses by leading him into the unknown and unforeseen where he learns new things"'' '''[[Sources| [8]]]'''
[[Hayek & The Socialist Calculation Debate]] || [[Friedrich A. Hayek]] || [[Ludwig Von Mises]] || [[What is Socialist Calculation Debate?]] || [[Critiques of the Socialist Calculation Debate]] || [[Knowledge Problem]] || [[The impact of Hayek's 1945 paper]] || [[Authors' View]] || [[Questions to Ask]] || [[Sources Cited]]
In Hayek's opinion, is not important for human beings to always rationalize and perfectly understand the rules they follow: ''"Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand"''[[http://homepage.eircom.net/~odyssey/Politics/Liberty/Hayek.html Read more Hayek Quotes]] [[Sources| [3]]]. Many human behaviors are inherited and followed for what they are-- humans adapt to rules not because they always understand them but because they find benefits for doing so. For example, a very small percentage of the population actually understands how the language they speak came into being (i.e. grammar, vocabulary, linguistic influences, etc). However, they all adopt the rule of speaking the same language as it brings them benefits.
Hayek argues that people interpret the events they experience through the light of a preexisting system of classification, which is built through a process of cultural evolution and individual learning. The experiences people pass through have a crucial influence in them building a “growth of knowledge” process, which will define their future responses to various situations they will be facing. It is thus misleading to believe that humans can simply design a set of rules and impose it upon their environment, as is it the environment in which they live that shapes their behavior. Hayek considers that humans did not adopt laws and institutions because they were able to foresee the benefits these would bring. Rather, their adoption was due to spontaneous order, as they evolved through a process of the logic of choice. People’s behavior follows patterns that have previously been accepted by their society; this allows them to not only pursue their own means but the means of others as well.
Hayek argues that spontaneous rules are a result of human action but not human design and evolve through a process of cultural evolution, whose outgrowths lie between instinct and reason [[Sources| [9]]].
''“I want to call attention to what does indeed lie between instinct and reason, and which on that account is often overlooked just because it is assumed that there is nothing between the two. That is, I am chiefly concerned with cultural and moral evolution, evolution of the extended order, which is on the one hand…beyond instinct and often opposed to it, and which is, on the other hand…, incapable of being created or designed by reason.......Just as instinct is older then custom and tradition, so then are the latter older than reason: custon and tradition stand between instinct and reason – logically, psychologically, temporally"'' [[Sources| [22]]].
====The Market as a Spontaneous Order====
Hayek considers that the market economy is a clear example of spontaneous order. The market is not simply a guide or a communication tool, but a complex mechanism which allows participants to spontaneously adopt their actions to circumstances and events they previously had no knowledge of. The market is not a social institution but a “value-free result of the Logic of Choice” [[Sources| [24]]], which not only makes use of the existing knowledge market participants have but continuously generates new knowledge. Thus, although market players might employ rationalism to plan their actions, they cannot coordinate their actions solely on previously planned strategies; rather, they have to adapt to the actions of the other players in order to gain the highest payoffs. The market operates as a mode of coordination and information is being transmitted through a series of general mechanisms (i.e. the price mechanism).
Hayek agues that the role of the government and other legal institution has to be limited solely to implementing legislation that allows the market to work efficiently (i.e. laws of property, contract and tort). Any other intervention might result in '''[[unfavourable outcomes]]'''. Hayek thus strongly advocates the fact that rules constructed through the process of spontaneous order are significantly more effective than those constructed through a rational process:
''“It is unlikely that any individual would succeed in rationally constructing rules which would be more effective for their purpose than those which have been gradually evolved”'' [[Sources| [23]]].
He strongly disapproves with the idea of central economic planning adopted by communist countries, which he calls a "fatal conceit", as no one can have enough information to successfully plan the economy or make decisions regarding production [[Sources| [1]]]. It is impossible for resources to be justly allocated as economic rewards are part of an unplanned plan, Hayek argues, and are determined by one's effort, skill, and merit but also by luck or unforseeble events [[Sources| [1]]]. The notion of "social justice" is misleading, as the only efficient way for distributing resources among the members of the society is through the process of spontaneous order.
====Hayek on the Use of Knowledge in Society====
Hayek considers that the problem of a rational economic order comes from the fact that one cannot obtain “knowledge of the circumstances of which we must make use” [[Sources| [25]]]. in a concentrated or integrated form but in dispersed bits of information from various perspectives, which often come in conflict with one another. The “economic problem” of the society is not a matter of how to distribute the given resources; rather it is a problem caused by the fact that not all the members of the society are being given equal amount of information, which makes it hard for them to coordinate their actions. Unfortunately, Hayek considers, this fundamental problem has been mostly disregarded by modern economic theory and misconceptions about the economic problem of the society are causing controversies about the proper economic policies that should be implemented. Planning refers to the way available resources should be allocated. Efficient economic systems often fail to be achieved due to the fact that information regarding the planning process is not directly given to planners but to intermediaries who later convey it to those in charge of planning—the way in which information is being transmitted is not always accurate, so planners are often given incomplete accounts, which result in unfavorable outcomes.
A second problem, Hayek believes, comes from determining whether planning is to be done centrally, by one authority or whether it is to be split among many individuals, who can later bring their work together. While many consider scientific knowledge to be the “sum of all knowledge”, and thus argue in favor of suitably chosen experts being given the responsibility to “command all the best knowledge available” [[Sources| [25]]]. Hayek opposes this viewpoint as he believes that not all knowledge is supposed to be given. It is misleading, Hayek argues, to assume that all knowledge should be given to a single mind (i.e. a centralized economic system), as efficiency cannot be achieved. Hayek considers that common individuals—and not just the intellectual elite—posses unique information (“knowledge of the particular circumstances of time and place” [[Sources| [25]]]., which can only be made of use to the whole society if these people are given the opportunity to actively get involved in the economic process. Thus, people who would be categorized as “inferior” can actually perform certain functions at significantly higher levels than those considered to master all the knowledge. Hayek thus considers that a fundamental problem lies in how to make, the “knowledge of the particular circumstances of time and place” [[Sources| [25]]]. widely available, as it is so broadly dispersed. It is impossible, he argues for this type of knowledge to be translated into statistical form by a central authority.
Since all the players in the market are part of a larger puzzle, and knowledge is distributed among them, a central system running the economy could never achieve the same efficiency as a free market. Hayek believes that the challenge the economic system faces lies in finding a way to incorporate people, each of who has partial knowledge, in the economic system. Thus, planning has to be done is such a way so that ultimate decisions are left to the “man on the spot”, people who are familiar to the circumstances they're dealing with. Hayek argues that in a free market, the way in which players can “communicate” is through the price system, which can inform people of the supply and demand of various resources in the economy. Thus, participants do not need to have a comprehensive understand of the economic system in order to take the right decisions, as the price system can provide them with the adequate information they need in fulfilling their transactions. Spontaneous order thus will make optimal use of knowledge and market efficiency will be attained.
====Spontaneous Order and the Rule of Law====
Hayek believes that the rules that we inherit are 'learnt rules' which have been transmitted through a process of cultural evolution. Laws should promote a free society in which individuals can freely and peacefully "adapt to changing circumstances, use their local knowledge, pursue their individual purposes, and engage in exchanges and voluntary cooperative relations with other people" [[Sources| [26]]]. Such a society does not need a hierarchy of ends or purposes [[Sources| [26]]]. The rule of law should not be seen as a destination but a means through which individuals can achieve their purposes.
The process of adapting to changing conditions happens spontaneously, and cannot be achieved through constructive rationalism. Thus, spontaneous systems of rules are significantly more efficient than any other rules (i.e. rules selected by reason) in fulfilling the needs of people, as they were shaped through an evolutionary process, which selected the appropriate rules and institutions [[Sources| [23]]],
Hayek thinks that the rule of law ''“means that a government in all its actions is bound by rules fixed and announced beforehand -- rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances, and to plan one's individual affairs on the basis of this knowledge”''''[[Sources| [27]]]. The government should be limited to enforcing rights of ownership, bind legal contracts and punish those who do not respect the law. Under no circumstances should a government abuse the power it has.
Hayek makes a clear distinction between the rule of law and the policies governments implement for the accompishment of a predetermined goal. He argues that the "universal rules of just" that comprise the rule of law should be implemented by a specifically designed legislative body, which does not follow the interests of certain individuals or political parties [[Sources| [1]]].
Hayek himself recognized that it is really as old as the ancient Chinese classic of Taoism, the Dao De Jing, which says that every attempt to control affairs actually results in the worst outcome. The Taoist view was that there was a great source of natural order, called the "Way" (Dao), which would take care of everything perfectly if only we leave it alone to do so. In the Twentieth Century, when tens of millions of people have been murdered by politicians and leaders trying to control history, the idea of leaving things to a natural order must begin to seem more sensible and humane. That we now have great theories of how even human affairs, let alone the history of life on earth, are governed by spontaneous natural order, should be a source of great hope for the future.
Friedrich A. Hayek has proven to be one of the most exceptional classical liberal political economists. His research incorporates the fusion between Politics, Philosophy, and Economics. As a philosopher he sought answers relating to the nature of the mind. While as an economist he sought to integrate technical economics and philosophy in order to explore the political behavior of free people.
BACKGROUND
Born on May 8, 1899 in Vienna
Earned doctorates from University of Vienna
Shares a Nobel Prize with Gunnar Myrdal
CONTRIBUTIONS
Monetary Theory and the Trade Cycle: Reevaluated the capital structure of an economy and how it can be affected by credit policy and expansion.
Hayek-Keynes Debate: Monetary economics debate where Hayek expressed that understanding interest rates and capital structure play a key role in the market economy. He argues that Keynes focuses on how the economist examines the industrial structure rather than how free individuals would examine the structure.
Collectivist Economic Planning: Series of essays focused on the issues of socialism.
The Road to Serfdom: Redefining Liberal Society and the problems of socialism through observations of Nazi Germany.
The Counter-Revolution of Science: Collection of essays that explores philosophical trends, which prejudices individuals from efficiently analyzing systematic economy issues.
The Constitution of Liberty: Work in Classical liberal political philosophy that went against constructivist rationalism.
