Epstein’s Critique of Hayek (Part 1)

We recently attended Richard Epstein’s lecture at George Mason University on “The Continuing Relevance of Hayek’s The Constitution of Liberty.” (Disclosure: we are big fans of Epstein’s book “Simple Rules for a Complex World.”) In his lecture, Epstein delivered several devastating blows against Hayek’s body of work. Among other things, Epstein spotted an internal inconsistency in Hayek’s thinking. Let’s start with Hayek’s greatest contribution to the field of political economy: his counter-intuitive notion of “spontaneous order.” In his famous paper on “The Use of Knowledge in Society,” for example, Hayek explains why decentralized markets produce greater levels of peace and prosperity than centralized “command-and-control” systems do. Simply put, when people are free to decide for themselves what things to buy and sell, their choices spontaneously generate high levels of social coordination without any intentional design or central planning. In Hayek’s own words: “The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver.” (Hayek, 1945, p. 522.) Hayek’s main point is that all these “deliberate adjustments” and “new dispositions” are made voluntarily by millions of individuals and firms acting independently of each other, and yet, in spite of the lack of centralized control, this chaotic process produces a wide array of complex goods and services that people want to buy. So, where’s the inconsistency?

The inconsistency in Hayek’s work appears later–in Hayek’s classic book “The Constitution of Liberty.” In short, markets do not exist in a vacuum. Markets require some kind of legal framework–a set of rules–one that respects people’s property rights and enforces their contracts. But where do we get legal frameworks and rules from? In the case of the United States, we have a Constitution, which is the supreme law of our land. But isn’t a constitution (and law generally, for that matter) a textbook example of human design and not of spontaneous order? Professor Epstein also criticized Hayek’s conception of coercion, and we will discuss Epstein’s critique in a future blog post. Suffice it to say for now that coercion poses a fundamental problem in political philosophy: under what circumstances is the state justified in using coercion?

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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7 Responses to Epstein’s Critique of Hayek (Part 1)

  1. Regis Servant says:

    In The Constitution of Liberty, Hayek acknowledges that “the Americans themselves were very conscious of the unique nature of their undertaking, and in a sense it is true that they were guided by a spirit of rationalism, a desire for deliberate construction and pragmatic procedure closer to what we have called the “French tradition” than to the “Bri tish. “33 This atti tude was often strengthened by a general suspicion of tradition and an exuberant pride in the fact that the new structure was entirely of their own making. It was more justified here than in many similar instances, yet still essentially mistaken. It is remarkable how different from any clearly foreseen structure is the frame of government which ultimately emerged, how much of the outcome was due to historical accident or the application of inherited principles to a new situation. What new discoveries the federal Constitution contained either resulted from the application of traditional principles to particular problems or emerged as only dimly perceived consequences of general ideas.”

    However, Hayek’s answer raises, I think, some difficulties. If the American constitution is actually not an example of constructivist rationalism because of the fact that the frame of government which ultimately emerged was very different from any clearly foreseen structure, then it seems we could say the same thing about, for example, the American Welfare State. And therefore, such a Welfare State is not an example of constructivist rationalism?

    Régis Servant.

    • enrique says:

      Thanks for sharing your comments with me. It’s been a long time since I read “The Constitution of Liberty” but I do remember the precise passage you mention.

  2. Pingback: Epstein’s Critique of Hayek (Part 2) | prior probability

  3. Pingback: Why won’t Richard Epstein update his priors? | prior probability

  4. cardiffkook says:

    I think it is important to remember that Hayek was himself a part of a decentralized, cumulative, knowledge generation process. He wasn’t an oracle or prophet. He — like Smith, Mill, Darwin and Mises before him — had some brilliant ideas which lead us to even more brilliant ideas and insights. And hopeful others will build on our advances and throw out our errors.

    I concur with Epstein’s critique (advance?) as you have presented it here. There is immense value in decentralized complex adaptive problem solving systems. These systems can themselves emerge spontaneously or via design or more likely through some mixture of the two. It isn’t the fact that it was spontaneous which makes it good, as bad ideas can emerge in a decentralized spontaneous fashion, and good ideas are possible via foresight and design.

    I would present the framework as thus:
    1)There is great value in decentralized networks of problem solving (I will avoid elaborating for brevity).
    2) There can be limits and dangers, and benefits and values to any type of problem solving (decentralized/voluntary or centralized/command).
    3). Both can work in the proper circumstances.
    4). People tend to default to a centralized and command heuristic. This is well documented.
    5). This is a mistake or limitation and leads to all kinds of problems and shortsightedness.

    • enrique says:

      Thanks for sharing your framework with us … Also, I really like your overall point that the process of knowledge-creation itself is mostly a decentralized process.

  5. Pingback: Critique of the price system (part 1) | prior probability

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