Hayek and the Evolution of Capitalism

Hayek and the Evolution of Capitalism

by Naomi Beck

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Overview

Few economists can claim the influence—or fame—of F. A. Hayek. Winner of the Nobel Prize, Hayek was one of the most consequential thinkers of the twentieth century, his views on the free market echoed by such major figures as Ronald Reagan and Margaret Thatcher.
 
Yet even among those who study his work in depth, few have looked closely at his use of ideas from evolutionary science to advance his vision of markets and society. With this book Naomi Beck offers the first full-length engagement with Hayek’s thought from this perspective. Hayek argued that the capitalism we see in advanced civilizations is an unintended consequence of group selection—groups that adopted free market behavior expanded more successfully than others. But this attempt at a scientific grounding for Hayek’s principles, Beck shows, fails to hold water, plagued by incoherencies, misinterpretations of the underlying science, and lack of evidence. As crises around the globe lead to reconsiderations of the place of capitalism, Beck’s excavation of this little-known strand of Hayek’s thought—and its failure—is timely and instructive.

Product Details

ISBN-13: 9780226556147
Publisher: University of Chicago Press
Publication date: 06/21/2018
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 208
File size: 341 KB

About the Author

Naomi Beck is head of research and strategy at the Council for Higher Education in Israel.

Read an Excerpt

CHAPTER 1

The Road to Evolution

FROM THE NATURAL TO THE SOCIAL SCIENCES

Hayek came from a "truly biological family tradition." His grandfather, Gustav, was a secondary-school science teacher and biologist who wrote a number of monographs, and organized the first international ornithological exhibition in Vienna in 1881. His father, August, was a physician and botanist who published extensively on plant geography and taught at the University of Vienna. Though Hayek's father never obtained a university chair, he was highly respected by his fellows and, in Hayek's words (1994, 40), "had become a kind of social center for the botanists of Vienna," who met at regular intervals at the family's residence. Hayek's younger brothers continued in their father's footsteps: one became a professor of anatomy, the other a professor of chemistry. Hayek's children also chose to specialize in the natural sciences. His daughter pursued a career as an entomologist at the British Museum, and his son turned to research in medical microbiology. Though Hayek himself never received systematic scientific education, his family surroundings and his father's occupations provided him with a fair dose of knowledge in the natural sciences, specifically botany and biology.

Hayek's father owned a large herbarium, and for many years curated an organized exchange of rare specimens of pressed plants. Hayek was intrigued by this collection of various minerals, insects, and flowers. From about the age of thirteen to sixteen he helped his father, first as collector and then as photographer. He recalled that this newly acquired hobby took up most of his spare time. It even spurred him to start his own herbarium, and to begin a monograph on a specific type of orchid, Serapias cordigera. The study was never completed, because Hayek could not find a live specimen of this rare flower. He nonetheless declared in his recollections (1994, 43), "Systematic botany, with its puzzle of the existence of clearly defined classes proved a useful education." The issue of classification would indeed become paramount in Hayek's later work, though on a theoretical rather than empirical level, as we shall see in the next chapter.

After the failed attempt to write his botanical monograph, Hayek became interested in the study of the human psyche. He toyed with the idea of becoming a psychiatrist, and showed interest in public life and in politics. He credited an early attraction to economics to a high school logic lesson on Aristotle's ethics, with its threefold division into morals, politics, and economics. Hayek's father was quite alarmed when his son declared his intention to study ethics, and in order to convince the boy "what nonsense ethics was" presented him with four dense books by the philosopher Ludwig Feuerbach. The strategy proved effective, at least for a while. Hayek found Feuerbach "merely a bore," and admitted he "only much later gained access to serious philosophy" (1994, 47). He regretted being too young when his father suggested that he read August Weismann's essays on evolution, Vorträge über Deszendenztheorie (1902) (Lectures on the Theory of Descent). According to Hayek, the father recognized the son's "intellectual dissatisfaction with the taxonomic aspects of biology and longing for theory," but unfortunately the books proved too formidable a challenge for the pubescent boy. Hayek believed that had he returned to Weismann later in life, he would probably have become a biologist instead of dedicating his intellectual energies to the study of social phenomena. "The subject," he explained (1994, 43), "has retained for me an unceasing fascination, and work in that field would have satisfied my inclination for patient search for significant facts, an inclination which by the nature of the subject is permanently frustrated in economic theory and had to find its outlets in occasional dabbling in biographical, genealogical and similar amusements."

It appears, however, that other circumstances drew Hayek's attention to the study of social phenomena. In March 1917, when he was eighteen years old, he joined the field artillery regiment in Vienna, and after a few months' training was sent to the Italian front, where he stayed for a little over a year. He traced his interest in economics to "the great disturbances of war" (1994, 44), though from his own description, politics rather than economics was the main attraction (48): "I think the decisive influence was really World War I, particularly the experience of serving in a multinational army, the Austro-Hungarian army. That's when I saw, more or less, the great empire collapse over the nationalist problem. I served in a battle in which eleven different languages were spoken. It's bound to draw your attention to the problems of political organization. It was during the war service in Italy that I more or less decided to do economics." Hayek also mentioned Carl Menger's Grundsätze der Volkswirtschaftslehre (1871) (Principles of Economics) as a decisive influence (see Caldwell 2004a). In later years, he evoked (1967, 101) the affinity between Menger's theory of the spontaneous emergence of social institutions, such as money, and the theory of evolution in the biological realm. Menger's work, Hayek explained (1994, 57), was particularly appealing because it beautifully depicted how the spontaneous generation of institutions results in cooperation.

Hayek's mature comments concerning the reasons that led to his choice to study economics were more than likely tainted by a desire to bestow a certain prescient quality onto the development of his thought. He confessed (1994, 51) to have been equally fascinated by psychology, but because "[psychology] died out by natural death during the wartime"— with its main figures either too old (e.g., Adolf Stöhr) or victims of the war — he chose to focus on economics. Hayek nonetheless opted to pursue a degree in law for practical considerations related to the prospects of finding a job, and continued in parallel to attend as many courses as possible in the other two disciplines. Indeed, when the University of Vienna closed down in 1920 due to a particularly harsh winter and fuel shortages, Hayek traveled to Zurich to spend a few months in the laboratory of the brain anatomist Constantin von Monakow. There, he attempted to trace the transmission of sensations (neural impulses) to the brain, and their transformation into perceptions.

Hayek's research was inspired by Ernst Mach's work Beiträge zur Analyse der Empfindungen (1886) (Contributions to the Analysis of Sensations) and the claim that perceptions (and more generally knowledge) derive from sensations. The experiment proved unsuccessful, convincing Hayek that Mach was wrong: pure sensations cannot be perceived. Interconnections in the brain must be made — that is, some sort of classification that can relate past to present experience must take place. Hayek started writing a paper on his findings, entitled Beiträge zur Theorie der Entwicklung des Bewusstseins (1920) (Contributions to a Theory of the Development of Consciousness), and even sent a draft to the psychologist Alfred Stöhr and to the German philosopher Alois Riehl, who both encouraged him to complete his work. But Hayek abandoned this study until approximately twenty-five years later, when he returned to the investigation of how the mind works, which culminated in the publication of The Sensory Order (1952b) (see the next chapter). In the meantime, the philosophical aspects of Mach's thought attracted his attention more keenly.

Mach is mainly known for his contribution to physics through the study of optics and supersonic movement (the unit of measurement of the speed of object relative to the speed of sound is named for him), but he was also highly influential in the philosophy and history of science. Mach claimed that all knowledge comes from sensations, and that any phenomenon, in order to be treated scientifically, must be empirically verifiable. This staunch empiricist position meant a rejection of metaphysics and Kantian-type categories of space and time. Though Hayek did not have the privilege of studying with Mach (the latter held a position at the University of Prague and died in 1916), he recalled (1994, 49) that Mach's philosophy "dominated discussion in Vienna." In a symposium that took place in 1967 to mark the fiftieth anniversary of Mach's death, Hayek stated (1992, 174), "One might say that for a young man interested in philosophical questions who came to the University in Vienna right after the war ... and for whom orthodox philosophy was not appealing, Mach offered the only viable alternative" (on Mach's influence on Hayek, see Ivanova 2016).

Hayek was a registered student when one of Mach's most important followers, the German physicist and philosopher Moritz Schlick, joined the faculty at Vienna. Schlick was appointed professor of philosophy of the inductive sciences in 1922, and soon thereafter became the leader of a group of Viennese intellectuals known as the logical positivists. They met, at first, for informal discussions conducted by Schlick, and in 1928 founded a philosophical association known as the Verein Ernst Mach (Ernst Mach Association), with Schlick as its chairman. In 1929, the logical positivists published a manifesto, "Scientific Conception of the World," under the collective name by which they have become known since then: Wiener Kreis (Vienna Circle) (see Stadler 2001; Uebel 2007). Opposing any type of knowledge that is not based on experience, the members of the Vienna Circle aimed to spearhead a unification of science, which would harmonize the achievements of individuals working in various fields. The Vienna Circle was very active during its decade of existence — from 1928/9 until the beginning of the war in 1939 — with congresses held in different cities around Europe, and various publications that appeared in its collections: Einheitswissenschaft (Unified Science) and Schriften zur wissenschaftlichen Weltauffassung (Monographs on the Scientific World-Conception). Hayek was not in Vienna during most of this time (he left for a position at the London School of Economics in 1931). He was nevertheless influenced by Schlick's teaching during the previous decade, and claimed that Schlick was the first philosopher after Mach who convinced him that "philosophy could make sense" (Hayek 1994, 64). His attitude toward logical positivism was far less favorable, as we shall soon see.

That Hayek was predominantly interested in economics and psychology was in part due to the atmosphere in Vienna in the years immediately after the war. He recalled that the two chief subjects of discussion among students at that time were Marxism and psychoanalysis. Professing to have made a conscious effort to study both doctrines, Hayek arrived at the conclusion that they were "thoroughly unscientific because they so defined their terms that their statements were necessarily true and unrefutable [sic], and therefore said nothing about the world" (Hayek 1994, 49). This criticism echoes Karl Popper's view, as Hayek himself acknowledged, though he contended he had arrived at similar ideas independently:

I remember particularly one occasion when I suddenly began to see how ridiculous it all was when I was arguing with Freudians, and they explained, "Oh, well, this is due to the death instinct." And I said, "But this can't be due to the death instinct." "Oh, then this is due to the life instinct." Naturally, if you have these two alternatives available to explain something, there's no way of checking whether the theory is true or not. And that led me, already, to the understanding of what became Popper's main systematic point: that the test of empirical science was that it could be refuted, and that any system which claimed that it was irrefutable was by definition not scientific. I was not a trained philosopher; I didn't elaborate this, but when I found this thing explicitly argued and justified in Popper, I just accepted the Popperian philosophy for spelling out what I had always felt. Ever since, I have been moving with Popper, although we had not known each other in Vienna. ... On the whole I agree with him more than with anybody else on philosophical matters. (51)

Hayek was one of the early readers of Popper's seminal work Logik der Forschung (1934) (The Logic of Scientific Discovery, 1959), first published in the collection Schriften zur wissenschaftlichen Weltauffassung of the Vienna Circle. In this book, Popper rejected the main claim of the logical positivists by arguing against the heavy reliance on the inductive method. He maintained that no amount of observation will ever give certitude to general scientific laws, and proposed a different criterion of demarcation between scientific and pseudoscientific theories: falsifiability. According to this criterion, a theory should be considered scientific only if it is falsifiable, that is, only if it can be subjected to tests that may refute it.

Popper's epistemology of science was a fierce attack on empiricism, defined as the unwarranted faith in observations as the source of knowledge. It was also an attempt to replace current-day positivist views with a new method for the development of science. Popper termed it critical rationalism, since it relied on falsification rather than verification. Hayek adhered to Popper's position, but took issue with his view of physics as a paradigmatic science in terms of methodology, and with his criticism of evolutionary theory, as we shall soon see. At the time, however, during the 1930s, he was busy doing research in the narrower and strictly economic domain of monetary theory.

We shall not tarry on Hayek's contributions to technical economic analysis, as they are not the emphasis of the present study and have been examined by better-appointed scholars. For our purposes, suffice it to say that the impetus to conduct research in monetary economics and in business-cycle theory is closely connected to Hayek's encounter with the man who bequeathed him an unflinching faith in the free market: Ludwig von Mises. Though Hayek emphasized his intellectual debt to Mises later in his career (1978a), the first meeting between the two was somewhat lackluster. After obtaining a degree in law from the University of Vienna in 1921, the twenty-two-year-old Hayek presented Mises with a letter of recommendation from his university professor, Ludwig Wieser. Mises was at the time one of the directors of the Abrechnungsamt, a temporary government institute responsible for settling prewar private debts between nations according to the stipulations of the 1918 peace treaty. In his autobiographical reflections, Hayek recounted (1994, 67–68), "I can still see him [Mises] before me, reading Wieser's letter of introduction, looking at me. 'Wieser says you're a promising young economist. I've never seen you at my lectures.'" Hayek admitted that while a student, he went to only one lecture by Mises and felt an immediate dislike for the man. This early impression was to change radically after Hayek joined the Abrechnungsamt and started working closely with Mises, who shortly thereafter published his first important book: Die Gemeinwirtschaft: Untersuchungen über den Sozialismus (1922) (Socialism: An Economic and Sociological Analysis, 1936).

Mises's main critique of socialism concerned the provenance of knowledge necessary for establishing a rationally planned economy and an efficient allocation of resources. He argued that in the absence of freely adjusting prices in a competitive market economy, there can be no way to compare the costs of production or to evaluate revenues or detect scarcities. As a result, the data required for economic calculation — What to produce? How much to produce, and in what manner? — would simply be unavailable. Socialism, Mises concluded, is bound to fail. Hayek was deeply impressed by Mises's critique. It convinced him, once and for all, to abandon his youthful "Fabian" inclinations, and to realize that he was "looking for improvement in the wrong direction" (Hayek 1992, 127, 136). Thus began his lifelong crusade to promote the free market. But while Hayek found himself in agreement with Mises's conclusions, he was not fully satisfied with the arguments put forward by his mentor.

In Hayek's view (1992, 142), Mises had offered a "masterly critique" of socialism, yet one that had not been entirely compelling because of its overreliance on rationalism and on a priori principles. In particular, Mises failed to distinguish between, on the one hand, the logic that guides individual action and explains rational choice, and on the other, the market processes that coordinate the actions of many individuals. The former can be given an a priori definition, which Mises himself would later develop in his most famous work, Human Action: A Treatise on Economics ([1940] 1949). The latter cannot. According to Hayek, Mises's rationalist-utilitarian analysis of economics was incompatible with both a rejection of socialism (explanation to follow) and a defense of capitalism. Here lies one of the reasons Hayek would come to employ the evolutionary concept of group selection. He wanted to shift the focus away from the decision-making process of individuals to the rule-selection process that occurs at the group level. This would become his unique way for advocating free market politics against interventionist policies. The free market, Hayek would argue, evolved as an unintended consequence in a group selection process. But this mode of argument was a later development. Back in the 1930s, Hayek explained the reasons motivating his criticism via an examination of the concept of equilibrium in a landmark lecture given in 1936 under the title "Economics and Knowledge" (1948) (see Caldwell 1988; 2004a, chap. 10).

(Continues…)


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Table of Contents

Introduction: F. A. Hayek the Avant-Garde Conservative 1. The Road to Evolution 2. From Complexity to Order 3. Believe and Prosper 4. Economic Progress and Its Discontents Conclusion: The Battles of Yesterday

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