HAYEK: ECONOMIST AND SOCIAL PHILOSOPHER

Also by Stephen F. Frowen

A FRAMEWORK OF INTERNATIONAL BANKING (editor)

BUSINESS, TIME AND THOUGHT: Selected Papers of G. L. S. Shackle (editor)

CONTROLLING INDUSTRIAL ECONOMIES: Essays in Honour of Christopher Thomas Saunders (editor)

FINANCIAL DECISION-MAKING AND MORAL RESPONSIBILITY (editor with Francis P. McHugh)

MONETARY POLICY AND ECONOMIC ACTIVITY IN WEST GERMANY (editor with A. S. Courakis and M. H. Miller)

MONETARY POLICY AND FINANCIAL INNOVATIONS IN FIVE INDUSTRIAL COUNTRIES: The UK, the USA, West Germany, France and Japan (editor with Dietmar Kath)

MONETARY THEORY AND MONETARY POLICY: New Tracks for the 1990s (editor)

THE GERMAN CURRENCY UNION OF 1990: A Critical Assessment (editor with Jens Holscher)

UNKNOWLEDGE AND CHOICE IN ECONOMICS: Proceedings of the George Shackle Conference (editor)

WELFARE AND VALUES: Challenging the Culture of Unconcern (editor with Peter Askonas)

Hayek: Economist and Social Philosopher A Critical Retrospect

Edited by

Stephen F. Frowen Honorary Research Fellow, University College London Senior Research Associate, Von Hugel Institute, St Edmund's College, Cambridge

palgrave macmillan

First published in Great Britain 1997 by MACMILLAN PRESS LTD Houndmills. Basingstoke. Hampshire RG21 6XS and London Companies and representatives throughout the world

A catalogue record for this book is available from the British Library.

First published in the United States of America 1997 by

ST. MARTIN'S PRESS, INC., Scholarly and Reference Division. 175 Fifth Avenue. New York. N.Y. 10010

ISBN 978-0-312-12902-6

Library of Congress Cataloging-in-Publication Data Hayek: economist and social philosopher - a critical retrospect / edited by Stephen F. Frowen. p. cm. Includes bibliographical references and index. ISBN 978-0-312-12902-6 I. Hayek. Friedrich A. (Friedrich August). 1899-2. Economists-United States-Biography. I. Hayek. Friedrich A. (Friedrich August). 1899- II. Frowen. Stephen F. HBI03.H3H39 1996 330' .092-dc20

Selection and editorial matter © Stephen F. Frowen 1997 Individual chapters © the contributor concerned 1997 Softcover reprint of the hardcover 1 st edition 1997

95-19325 CIP

All rights reserved. No reproduction. copy or transmission of this publication may be made without written permission.

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This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin.

10 9 8 7 6 5 4 3 2 1 06 05 04 03 02 01 00 99 98 97

DOI 10.1007/978-1-349-25991-5ISBN 978-1-349-25993-9 ISBN 978-1-349-25991-5 (eBook)

Dedicated to the memory of

Friedrich August Hayek

and

George L. S. Shackle

Contents

Acknowledgements List of Participants Notes on the Contributors Introduction by Stephen F. Frowen

Hayek, Marx and Keynes Meghnad Desai

2 The Connectionist Mind: A Study of Hayekian Psychology Barry Smith

Discussant's Comments: The Connectionist as a Conservative David A. Reisman

3 Constitutional Ignorance, Spontaneous Order and Rule-Orientation: Hayekian Paradigms from a Policy Perspective Manfred E. Streit

Discussant's Comments Norbert Kloten

4 Hayek and the Limitations of Knowledge: Philosophical Aspects Stephen D. Parsons

X

Xl

Xlll

xxi

9

31

37

59

63

Discussant's Comments: Parsons on Two Theses of Hayek 87 John Watkins

5 A Note on Hayek's Analysis of Scientism Karl Milford

95

Discussant's Comments: Hayek, Popper and Scientism 115 P. M. Rattansi

vii

11

viii Contents

6 Development in Hayek's Social Theorising 125 Tony Lawson

Discussant's Comments 149 Christopher T. Saunders

Discussant's Comments: Hayek and the Positivists 152 John O'Neill

7 Hayek III: The Necessity of Social Rules of Conduct 155 Steve Fleetwood

Discussant's Comments: Rules for Prices? 179 Jochen Runde

8 Hayek's Suggestion for Currency Competition: A Central Banker's View 185 Otmar /ssing

Competitive Currencies 194 Samuel Brittan

9 From Neutral Money to Competing Currencies: Hayek on Monetary Policy 195 Hansjorg Klausinger

Discussant's Comments 215 Roland Vaubel

10 Hayek, the Purpose of the Market and American Economic Institutionalism 221 Mark Perlman

11 Hayek and Keynes on Capital 237 G. R. Steele

Keynes and Hayek - Some Remarks on Capital 251 Jens Holscher

Contents ix

Comments on G. R. Steele. 'Hayek and Keynes on Capital' 256 Victoria Chick

Response by G. R. Steele to Victoria Chick 258

12 Hayek on Trade Unions: Social Philosopher or Propagandist? 259 Ray Richardson

Discussant's Comments 275 B. C. Roberts

13 Whatever Happened to Hayek? 281 E. F. M. Wubben

Discussant's Comments 305 Eamonn Butler

14 Tribute to the Life and Work of Friedrich Hayek 311 Sir Karl Popper

Name Index 313

Subject Index 317

Acknow ledgements

The idea of organising a Memorial Conference on the occasion of the first anniversary of the death of Friedrich August Hayek was first put to me by an old friend, the Austrian writer Dr Peter Marginter, at a chance meeting during a London reception. He was then Director of the Austrian Cultural Institute in London and able to offer extensive help - not least of a financial nature. Considering Hayek's original contributions in so many different disciplines during his long life, I at once agreed to follow up his ingenious suggestion and immediately started with the preparation of the Hayek Conference that took place at University College London from 28-30 April 1993 and was arranged in collaboration with both the Austrian Cultural Institute and the Goethe-Institute London. It was a great pleasure to have Dr and Mrs Laurence Hayek (Hayek's son and daughter­in-law) with us on this memorable occasion.

Without the financial support provided by the Austrian Cultural Institute and the Goethe-Institute London, and not least by Professor Norbert Kloten and the Fritz Thyssen Stiftung, Cologne, our Hayek Conference with speakers from Austria, Germany, Holland, the UK and the USA could never have taken place. However, their deep personal interest in our endeavour was to me of equal importance. I also wish to thank Melitta and Raymond Mew for the permission they have kindly given for reproducing Sir Karl Popper's 'Tribute to the Life and Work of Friedrich von Hayek'.

A book needs a publisher and in this respect I have been most fortunate in my close and long-lasting association and friendship with Mr. T. M. (Tim) Farmiloe, Publishing Director of Macmillan, whose enthusiasm but also strict eye is an inspiration to any author or editor. Mr Keith Povey's contribution as a meticulous but also kind and patient copy-editor cannot be praised enough. Collaboration with him has by now become an enjoy­able tradition.

I am also grateful to my colleagues in the Department of Economics at University College London for their encouragement, support and help, in particular to Professor David Ulph, the then Head of the Department, and Professor Victoria Chick, the Deputy Head. The secretarial staff have performed miracles in ensuring a smooth functioning of the conference and my special thanks are due to the past and present Departmental Secretaries, and Ms Anne Usher, the Departmental Administrator.

STEPHEN F. FROWEN

x

List of Participants

Mr Peter F. Askonas, Heythrop College, London Mr John Battalama, Vice President, Merrill Lynch Europe Ltd, London Mr Wolf-Riidiger Bengs, former Financial Counsellor, German

Embassy, London Dr Elmar Brandt, Director, Geothe-Indstitute, Rome Sir Samuel Brittan, Principal Economic Commentator, Financial Times Dr Eamonn Butler, Director, Adam Smith Institute, London Professor George Catephores, University College London Professor Victoria Chick, University College London The Rt. Hon. Professor Lord Desai, London School of Economics Mr T. M. Farmiloe, Publishing Director, Macmillan Press Ltd Andrew Farrant Dr Steve Fleetwood, De Montfort University, Leicester Professor Stephen F. Frowen, University College London and Von

Hugel Institute, St Edmund's College, Cambridge Dr Laurence Hayek, Dartington, Totnes, Devon Mrs Laurence Hayek, Dartington, Totnes, Devon Dr Charles Hoffner Dr Jens HOlscher, DAAD Senior Research Fellow in Economics at the

Institute for German Studies, The University of Binningham Professor Otmar Issing, Board Member of the Deutsche Bundesbank Professor Kurt Klappholz, London School of Economics Professor Hansjorg Klausinger, Vienna University of Economics and

Business Administration Professor Norbert Kloten, Former President, Land Central Bank in

Baden-Wurttemberg, Stuttgart Mr Joseph Labia Mr O. A. Ladimeji, Chan trey Vellacott, London Dr Tony Lawson, University of Cambridge Dr Charles R. McCann, University of Pittsburgh Dr Peter Marginter, former Director, Austrian Cultural Institute, London Dr Karl Milford, University of Vienna Dr Stephen Parsons, De Montfort University, Leicester Professor Gordon Pepper, CBE, Director, Centre for Financial Markets,

City University Business School, London Professor Mark Perlman, University of Pittsburgh Professor John Pheby, De Montfort University, Leicester

xi

xii List of Participants

Professor Piyo Rattansi, University College London Dr David A. Reisman, University of Surrey, Guildford Dr Ray Richardson, London School of Economics Professor B. C. Roberts, London School of Economics Dr Jochen Runde, Girton College, Cambridge Professor C. T. Saunders, CMG, University of Sussex Mrs Catherine (George L. S.) Shackle, MBE, Aldeburgh Professor Barry Smith, Department of Philosophy, State University of

New York at Buffalo) Mr G. R. Steele, The Management School, Lancaster University Professor Manfred E. Streit, Director, Max-Planck-Institute for

Research into Economic Systems, Jena (Germany) Professor David Ulph, University College London Professor Roland Vaubel, University of Mannheim Professor J. W. N. Watkins, London School of Economics Professor G. E. Wood, City University Business School Dr Emiel F. M. Wubben, Erasmus University of Rotterdam

Notes on the Contributors

Samuel Brittan has been principal economic commentator on the Financial Times since 1966 and also assistant editor since 1978. He is an Honorary Fellow of Jesus College, Cambridge, an Honorary Doctor of Letters (Heriot-Watt University, Edinburgh), and a Chevalier de la Legion d'Honneur. He has been a Visiting Professor at the Chicago Law School, a Visiting Fellow of Nuffield College, Oxford, and an Honorary Professor of Politics at Warwick University. He has been awarded the George Orwell, Senior Harold Wincott and Ludwig Erhard prizes. He was a member of the Peacock Committee on the Finance of the BBC (1985-86). In 1993 he was knighted 'for services to economic journalism'. The most recent of his numerous books are A Restatement of Economic Liberalism (1988) and Capitalism with a Human Face (1995).

Eamonn Butler studied economics, psychology, philosophy and the natural sciences at the University of Aberdeen and St Andrews. He is author of Hayek: His Contribution to the Political and Economic Thought of our Time and books about other economists, including Milton Friedman and Ludwig von Mises. He is a member of the Mont P61erin Society, which Hayek founded, and Director of the Adam Smith Institute, a policy research foundation of which Hayek was the first Chairman. He writes and lectures internationally on economic policy.

Victoria Chick is Professor of Economics, University College London. She has also taught at McGill University and the Universities of Southampton (England), Aarhus (Denmark) and California at Berkeley and Santa Cruz when on leave from UCL, and part-time at the London School of Economics. She has been a Visiting Economist at the Reserve Bank of Australia and Federal Reserve Bank of New York, and a Visiting Fellow in the Universit6 Catholique de Louvain (Belgium). She has published four books: The Theory of Monetary Policy (1973): Macroeconomics After Keynes: A Reconsideration of the General Theory (1983); On Money, Method and Keynes (P. Arestis and S. C. Dow, eds, 1992); Recent Developments in Post-Keynesian Economics (with P. Arestis, eds, 1992); and numerous articles on monetary theory and Keynesian economics. She is a member of the Council of the Royal Economic Society and of the editorial boards of the European Journal of Political Economy and Metroeconomica.

xiii

xiv Notes on the Contributors

Meghnad Desai, Professor of Economics at the London School of Economics and Political Science, is currently Director of the Centre for the Study of Global Governance, LSE. Born in July 1940, he was educated at the University of Bombay. He secured his PhD from the University of Pennsylvania, USA. His forthcoming book is on Hayek. From 1984-1991 he was Co-editor of the Journal of Applied Econometrics. He was Chairman (1986-92) and is currently President of the Islington South and Finsbury Constituency Labour Party in London. He was made a peer in April 1991.

Steve Fleetwood spent most of his adult life as a professional bicycle racer in the UK and Europe. After becoming 'too old' to continue this line of work, he enrolled at Liverpool Polytechnic and took a first degree in social studies, followed by an MPhil in economics at Cambridge University. He remained at Cambridge, reading for a PhD under the super­vision of Tony Lawson. He took up a lectureship in economics at De Montfort University in October 1993.

Stephen F. Frowen, Honorary Research Fellow in the Department of Economics, University College London, Senior Research Associate, Von Hugel Institute, St Edmund's College. Cambridge, and External Professorial Research Associate, Institute for German Studies, The University of Birmingham, was formerly Bundesbank Professor of Monetary Economics in the Free University of Berlin. Prior to this appointment he was Visiting Professor of Monetary Economics at the University of Frankfurt and for many years held senior teaching posts at the Universities of Surrey and of Greenwich, following appointments as Research Officer at the National Institute of Economic and Social Research, London, as Economic Adviser to the Industrial and Commercial Finance Corporation (now 3i) and as Chief Editor of The Bankers' Magazine (now The Chartered Banker). In 1980-81 he served as Special Adviser to UNIDO, Vienna. He has published extensively in monetary and macro-economics and in banking. He is the editor of many collective works and sits on various editorial boards. In 1993 he was appointed a Commander of the Order of Merit of the Federal Republic of Germany and in 1996 was awarded a Papal Knighthood.

Jens HOlscher is DAAD Senior Research Fellow in Economics at the Institute for German Studies, Birmingham University. He previously taught at the Free University of Berlin and at the University of Wales, Swansea. His book Entwicklungsmodell Westdeutschland (development

Notes on the Contributors xv

model of West Germany) (1994) presents the postwar West German eco­nomic process of capital formation from the monetary-Keynesian view of the 'Berlin School'. He has published some articles on economic develop­ment and is also, as a member of the research project 'Conditions of Economic Development in Central-East Europe' , the co-editor of several coIlective works.

Otmar Issing is a member of the Board of the Deutsche Bundesbank and a member of the policy-making Central Bank Council. He is a former member of the German Council of Economic Experts (Sachverstandigenrat) and has been Professor of Economics at the University of Wiirzburg and before that at the University of Erlangen­Nuremberg. He has taught in the fields of monetary and international economics. He is the author of several books and numerous articles on monetary economics and a broad range of other topics. He is a full member of the Academy of Sciences and Literature (Mainz) and a member of the European Academy of Sciences and Arts.

Hansjorg KJausinger is Associate Professor at the Vienna University of Economics and Business Administration, Austria. His main fields of inter­est are monetary economics and history of economic thought. He has pub­lished a monograph and several articles on the theories of a monetary economy, with special regard to the works of Hayek and Keynes.

Norbert Kloten was President of the Land Central Bank in Baden­Wiirttemberg and an ex officio member of the German policy-making Central Bank Council from 1976-1992. He is now a member of the Academic Economic Advisory Council to the German Federal Ministry of Economics, Chairman from 1992 to 1996. Other activities include memberships of the Board of Academic and Non-Academic Associations and the Trilateral Commission. His Professorship at the University of Tiibingen (1960-76) was combined with membership of the German Council of Economic Experts (Sachverstandigenrat) from 1969-1976, being its Chairman from 1970-1976. He has published extensively on the principles of economic policy and in the area of monetary and interna­tional monetary economics, on theory and policy of transition and devel­opment, and on methodology of economics. He holds two honorary doctorates from the University of Karlsruhe (1980) and the University of Stuttgart (1993) respectively, and is the Bearer of the Commander's Cross with Badge and Star of the Order of Merit of the Federal Republic of Germany.

xvi Notes on the Contributors

Tony Lawson is a Lecturer in Economics in the Faculty of Economics and Politics at Cambridge University. He has published widely in the areas of industrial relations and change and, more recently, the methodology of economics. He sits on various editional boards, including the Cambridge Journal of Economics and the Journal of Economics Methodology, and is editor of the Routledge (book) series 'Economics as Social Theory'. He is coordinator of the Cambridge Workshop on Realism and Economics, and a joint research coordinator for the European Association for Evolutionary and Political Economy in the area of methodology.

Karl Milford is Assistant Professor, Department of Economics, University of Vienna. His main research interests are history of economic thought and philosophy of economics. He has published several articles in this field. A monograph on the epistemological and methodological position of Carl Menger was published in 1989 by the Austrian Academy of Sciences.

John O'Neill is Lecturer in Philosophy at Lancaster University. His research interests are in the foundations of economics, the history and phi­losophy of science, social and political thought, and environmental ethics and economics. His publications include Ecology, Policy and Politics: Human Well-Being and the Natural World (1993) and Worlds without Content: Against Formalism (1991).

Stephen D. Parsons is Principal Lecturer in Economics at De Montfort University. He has previously published in Economics, Philosophy, Politics and Sociology journals.

Mark Perlman is Professor Emeritus of Economics at the University of Pittsburgh. He was also the founder and long-term Managing Editor of the American Economic Association's Journal of Economic Literature. Professor Perlman was editor for two Cambridge University Press series, the Edward Elgar Press, the Joseph A. Schumpeter Society and the Journal of Evolutionary Economics. Among the several books and arti­cles he has written and edited are several on macroeconomics policies per­taining to industrial relations, popUlation, productivity, medical economics, trade and the evolution of economic ideas; in particular he contributed regularly to William Fellner's American Enterprise institute's Contemporary Economic Problems, and he served as impressario for the Institute's 1991 conference on the impact on American policy of the 1992 and beyond European economic integration programmes, held both in Washington and in Paris.

Notes on the Contributors xvii

P. M. Rattansi is Professor Emeritus and was Head of the Department of History, Philosophy, and Communication of Science at University College London. He graduated in Economics from the London School of Economics, but, stimulated by the lecturers of Sir Karl popper, switched to history of science for his PhD. He was Leverhulme Research Fellow and then Lecturer in the History of Science at Leeds University, before being invited to take up a Fellowship at King's College Cambridge, to do research on the Newtonian Manuscripts collected by Lord Keynes. He has taught at the Universities of Chicago and Princeton, and published widely on seventeenth century science and society and on the life and work of Sir Isaac Newton.

David A. Reisman is Senior Lecturer in the Department of Economics at the University of Surrey. He is the author of Adam Smith's Sociological Economics, Richard Titmuss: Welfare and Society, Galbraith and Market Capitalism, State and Welfare, The Economics of Alfred Marshall, Alfred Marshall: Progress and Politics, the Political Economy of James Buchanan, Theories of Collective Action, Alfred Marshall's Mission, The Political Economy of Health Care and Market and Health.

Ray Richardson is Reader in Industrial Relations at the London School of Economics. He was Special Adviser to the Rt Hon. Harold Lever, Chancellor ofthe Duchy of Lancaster, from, 1974 to 1978. His many pub­lications have mostly been on aspects of labour economics and industrial relations, most recently on the causes of changing trade union popUlarity in Britain, changes in wage payment systems in the UK public sector, the consequences of reductions in the working week and the labour market implications of closer European integration.

B. C. Roberts is Emeritus Professor of Industrial Relations, London University, and an Honorary Fellow at the London School of Economics. He was the Founding Editor of the British Journal of Industrial Relations and was its Editor from 1963-1989. He was also President of the British Universities Industrial Relations Association (1962-65), the first President of the International Industrial Relations Association (1965-73), a member of the Council of Advisory Conciliation and Arbitration Service (1979-87), a member of the National Reference Tribunals for the Mining Industry, and a Consultant to the ILO, OECD and the EEC. His publica­tions include Trade Unions in a Free Society (1959), The Trades Union Congress, 1868-1921, National Wages Policy in War and Peace (1958), Industrial Relations in Europe (ed.) (1985), New Departures in Industrial

xviii Notes on the Contributors

Relations in the USA, Canada and the United Kingdom (with G. Lodge and H. Okomoto, 1988).

Jochen Runde is Fellow, Lecturer and Director of Studies in Economics, Girton College and Lecturer in Economics, New Hall, Cambridge. He was previously Lecturer in Economics at the University of the Witwatersrand in Johannesburg. He has published on the history and philosophy of proba­bility and decision theory, the methodology of economics and Austrian and Post Keynesian economics.

Christopher T. Saunders has been Visiting Fellow (honorary) of the Science Policy Research Unit, University of Sussex since 1984. He was a member of the UK Delegation of the Marshall Plan and worked in Whitehall as a Civil Servant first in the Ministry of Labour and then as Deputy Director of the Central Statistical Office (1945-57). He was Director of the National Institute of Economic and Social Research from 1957-1965, Research Director of the UN Economic Commission for Europe (1965-73) and finally Professor at the Sussex European Research Unit, University of Sussex from 1973 until 1984, when he took up his present honorary position. His professional interests are mainly empirical and are related to policies in the field of international economics and trade, east-west economic relations, wage and income distributions, national accounts, industrial policies and macroeconomics policies. In all these areas he has published extensively, with many of his writings appearing as official documents. He was appointed a CMG in 1953.

Barry Smith is Professor of Philosophy and a Member of the Center for Cognitive Science at the State University of New York at Buffalo. He has previously taught at the University of Manchester, and has held visiting and research positions in Sheffield, Erlangen, Graz, Paris, Irvine, Turku, Innsbruck and at the International Academy of Philosophy in Liechtenstein. He has published extensively on phenomenology, analytic metaphysics and cognitive science, and on a range of topics in Austro­German philosophy and intellectual history. He is editor of The Monist. An International Journal of General Philosophical Inquiry and author of Austrian Philosophy (1994).

G. R. Steele is Lecturer in Economics at Lancaster University and taught previously at the University of Ulster. He is the author of two books: Monetarism and the Demise of Keynesian Economics (1989) and The Economics of Friedrich Hayek (1993).

Notes on the Contributors xix

Manfred E. Streit is Founding Director of the Max-Planck Institute for Research into Economic Systems at Jena and Honorary Professor at the University of Jena. Until September 1993 he was Professor of Economics at the University of Freiburg. Germany, where he held the Chair of the late Nobel Laureate Friedrich A. von Hayek. Previously he taught and did research at the University of Reading. the University of Mannheim and at the European University Institute in Florence. He has published numerous books and articles, mostly on introductory economics, theory of economic policy. futures markets and case studies in economic policy. His major fields of research include economic systems analysis and related aspects. including competition theory and competition policy as well as constitu­tional economics. At present he serves as a member of the Academic Economic Advisory Council to the German Federal Ministry of Economics. as member of various committees of the German Economic Association and as member of the Academic Advisory Board of the Institute for World Economics in Kiel.

Roland Vaubel is Professor of Economics at the University of Mannheim. Germany. He has received a BA in Philosophy. Politics and Economics from the University of Oxford. an MA from Columbia University. New York, and a doctorate from the University of Kie1, Germany. He has been a staff member of the Institute for World Economics in Kiel. Professor of Economics at Erasmus University. Rotterdam. and Visiting Professor of International Economics at the University of Chicago (Graduate School of Business). He is a member of the Advisory Council of the Institute of Economic Affairs. London. and of the Board of Directors of the Mont Pelerin Society.

John Watkins has been teaching at the London School of Economics since 1950. He was Professor of Philosophy from 1966 to 1989. and now teaches part-time. His publications include Hobbes's System of Ideas (reprinted by Gower Publishing, 1989), Freiheit und Entscheidung (Siebeck. 1978) and Science and Scepticism (Princeton University Press and Hutchinson; translated into Chinese, German, Italian. Japanese. Polish and Portuguese). He has published numerous articles, many of them anthologised and translated, in Mind, The British Journal for the Philosophy of Science and other journals. He is currently working on a book entitled The Natural Freedom of Man.

E. F. M. Wubben is Assistant Professor of Strategic Management at the Erasmus University, Rotterdam. He graduated in General Economics

xx Notes on the Contributors

before joining the Tinbergen Institute, where he subsequently embarked on research within the field of the History of Economic Thought in 1988. In 1992 he taught philosophy and economic methodology at the University of Tilburg. He received his PhD degree in 1993 for research that resulted in an historical overview of the introduction of uncertainty into various schools within economics. He has published a number of articles on this subject.

Introduction Stephen F. Frowen

' ... clear and incisive in thought; the embodied principle itself of fol­lowing logic where it leads; the soul of scholarly generosity; Friedrich August Hayek is one of the outstanding sculptors of this age's thought.' (G. L. S. Shackle, 1981, p. 234)

The papers presented in this volume provide a critical assessment of the contribution made by Hayek in fields as diverse as economics, psychol­ogy, political philosophy, the philosophy of law and the history of ideas.

Hayek started off as an economist and first made his name in the 1930s as a leading exponent of the Austrian theory of business cycles. It was then that he published Prices and Production (1931), of which a new and exten­sively revised version appeared as a long chapter in Profits, Interest and Investment (1939), 'Economics and Knowledge' (Economica, 1937), The Pure Theory of Capital (1941) and 'Scientism and the Study of Society' (Economica 1942-4, various issues).

It was in the first half of the 1930s, when Hayek's book Prices and Production seized the minds of a number of young economists rapidly advancing to celebrity - among them G. L. S. Shackle. In the following years that ascendency was lost to another book whose appeal likewise sprang in part from its enigmatic and challenging difficulty: Keynes's The General Theory of Employment, Interest and Money. Four decades later, by the 1970s, the irony of history seems in some sense to have justified and re-echoed the Delphian warning of Hayek's book Prices and Production. And, indeed, the same applies to many of Hayek's major writings, especially when moving into the 1980s and 1990s. Whether the same will still apply to the early part of the new millennium, considering the distinct changes in political climate, remains to be seen.

Hayek himself abandoned economics after the Second World War and turned his mind to other subjects. However, following the Nobel Prize in economics which, in 1974, he shared with Gunnar Myrdal, he returned to mainstream economics and - true to his reputation as a libertarian, estab­lished through his highly successful and widely read book Road to Serfdom (1944) - he pleaded for free banking as a solution to inflation,

XXI

XXll Introduction

and generally acted as a leading critic of Keynesian economics in an economic and political climate ultimately moving towards Thatcherism.

In fact, Lady Thatcher - in her autobiography The Downing Street Years - refers to the inspiration she and the Tory Party received from Hayek's 'powerful Road to Serfdom, dedicated to "the socialists of all parties'" and states that the book not only provided 'crisp, clear analytical arguments against socialism, demonstrating how its economic theories were connected to the then depressing shortages of our daily lives; but ... also gave us the feeling that the other side simply could not win in the end' (Thatcher, 1993, pp. 12-13). And yet the other side did - but not until May 1997 after eighteen years of Conservati ve rule.

The introductory chapter by Meghnad Desai on 'Hayek, Marx and Keynes' discusses parallels between these three outstanding scholars and concludes that, while Marx tried but never completed his explanations of the dynamics of capitalism, it is Hayek's restless search for a key to capitalism which is still unfinished. To understand capitalism we have to look at both Hayek and Marx. To Keynes, Desai argues, we should turn 'if capitalism is ever to fulfill the promise of being a liberal free system'. But, then, according to Hayek's spontaneous order, any benefits would be un­intended consequences.

In Chapter 2, Barry Smith investigates the connectionist mind within the framework of Hayekian psychology, starting with a discussion of recent work in cognitive science. The main concern of his paper is a critical discussion of artificial intelligence and the free market order. His appeal to cognitive science is meant not only to serve clarificatory ends, but also to raise new questions. According to Hayek himself, in view of the complex phenomena of the social and psychological sciences, we cannot have exact prediction, but only 'qualitative' understanding.

Chapter 3, by Manfred E. Streit, is entitled 'Constitutional Ignorance, Spontaneous Order and Rule-Orientation: Hayekian Paradigms from a Policy Perspective'. Having stated the paradigms, he then analyses the scope of competition policy as one of the few coercive functions assigned by Hayek to government. Industrial policy is discussed in some detail from a Hayekian viewpoint. The chapter ends with reflections on the Hayekian view that the formal and informal institutions that constitute the infrastructure of a market economy system are principally the outcome of cultural evolution. The topical question then arises whether such an infra­structure would be able to transform former socialist systems.

In his comments on Streit, Norbert Kloten compares the Hayekian view of economic and social order resulting from spontaneous processes with the belief of the Freiburg School (Walter Eucken) in the virtues of

Introduction xxiii

order-shaping state activities. According to Kloten, any effects of transi­tory processes now in progress in Central and Eastern Europe have to be interpreted as deriving partly from the interactions of deliberate political measures and partly from spontaneous forces of society.

Stephen D. Parsons devotes Chapter 4 to the philosophical aspects of Hayek's limitations of knowledge. The argument that each individual within society possesses only a limited knowledge of the social totality is probably one of Hayek's most celebrated observations, utilised in rejecting the viability of any centrally planned economy, and, concomitantly, the endorsement of a liberal political order - the limited knowledge theory.

Given Hayek's claim that a central aspect of his analysis shares an 'obvious' affinity with that offered by Kant, the paper seeks to establish the nature of this relationship. It is argued that the neo-Kantian philosophy of Rickert provides the most useful guide to Hayek's work. Hayek, like Rickert, seeks to establish the logical limits of concept formation in the natural sciences. Hayek's arguments against the possibility of a centrally commanded economy is related to his rejection of the generalising methods of the natural sciences, which cannot deal with the unique and particular. Consequently, Hayek's writings suffer from the same problems discernible in Rickert. Although the analysis concentrates primarily on Hayek's early work, it is suggested that, in his later work, Hayek moves closer to Rickert's position through delimiting a sphere of valid values.

Commenting on Parsons, John Watkins seeks to keep Hayek's 'limited knowledge' thesis, which is judged sound, separate from his thesis concern­ing the uniformity of human minds, which is deemed to have originated in a questionable assumption concerning the intelligibility of other minds, and which is falsified by empirical facts even in a later, modified version.

Chapter 5, by Karl Milford, discusses Hayek's analysis of scientism by looking first at his methodological analysis and secondly at his historical analysis of that position. The two issues are interrelated in the sense that the results achieved in the discussion of the first one are applied in the second. It becomes clear from Milford's detailed analysis that Hayek's work on scientism is part of a long and critical tradition. He concludes that, by taking a Popperian perspective, additional knowledge may well be acquired with regard to the development of the methodological and epis­temological positions held in economics, and specially with regard to scientism. P. M. Rattansi, in his comments on Milford, explores the diver­gences between Popper's and Hayek's understanding of scientism and assesses them within the framework of certain contemporary sociological theories. This is followed by an evaluation of the significance of the Popper-Kuhn debate.

XXIV' Introduction

In Chapter 6, Tony Lawson challenges the conventional premise that Hayek's social theorising after the late 1930s is an unchanging if expand­ing project. Hayek in 'Scientism and the Study of Society' espouses a non­positivist approach to social theorising, but the position is that of hermeneutic foundational ism, a conception not very different from the positivism Hayek was attempting to transcend. It is in later works that we find the realist position usually identified as Hayek's philosophical perspective. Some of Lawson's details of the historical story about Hayek, especially about his relation to positivism, are challenged by the discussant, John O'Neill.

Steve Fleetwood devotes Chapter 7 to 'Hayek III: The Necessity of Social Rules of Conduct'. Hayek paid increasing attention to social rules of conduct after 1936, culminating in his 1960 The Constitution of Liberty. In the earlier Hayek (Mark II), the role of price movements in coordinat­ing economic activity was overstated, while later (Mark III) the rules of conduct step in where prices fail to do the job. As to the latter point, Jochen Runde expresses the view in his comments that rules of conduct should be regarded as complementary to, rather than a substitute for, Hayekian price signals.

Hayek's suggestion for currency competition from a central banker's point of view is evaluated by Otmar Issing in Chapter 8. He critically con­trasts Hayek's denationalization of money with independence of a mono­polistic central bank designed to discipline fiscal policy. The view held by Issing - not surprisingly as a Board Member of the Deutsche Bundesbank - is that an independent monopolistic central bank 'with a good reputation and thus with the backing of the population will be better able to discipline fiscal policy makers than numerous private issuing institutions'. Issing also sees dangers to stability posed by private currency competition.

Hayek's idea of competing currencies in which not governments but the market would give the lead to monetary union received renewed promi­nence when in 1989 the then UK Chancellor of the Exchequer, Nigel Lawson, devised a proposal, based on Hayek's idea, which he presented at the meeting of European Community Finance Ministers as an alternative approach to European Monetary Union (EMU). Considering the centralist model adhered to by most of the EC countries, its purpose was mainly tactical, according to Lady Thatcher (Thatcher, 1993, p. 716), 'in order to slow down discussion of EMU within the Community'.

Another paper analysing Hayek's views on monetary issues is provided by Hansjorg Klausinger in Chapter 9. He admits that Hayek's social phi­losophy is nowadays often considered the centrepiece of his famous and wide-ranging work, but stresses the importance of his earlier work on

Introduction xxv

monetary economics which has gone unnoticed. Yet Hayek's later monetary writings, making his name a household one during the 1970s until well into the 1990s, were, according to Klausinger, firmly based upon foundations built in the 1920s and 1930s. This view was challenged by Roland Vaubel, the discussant, who maintains that Hayek's monetary thought was characterised by fundamental changes rather than continuity and that his change of mind was in line with his general philosophy and development. 'By making his competition his overarching principle', Vaubel maintains, 'he [Hayek] finally achieved consistency between his monetary position and his general philosophy'.

In Chapter 10, Mark Perlman looks at Hayek's view of the purpose of the market and the difference between Hayek's position and American economic institutionalism. He argues that Hayek's analysis was based more on Kant while the institutionalists' analysis was more Hegelian and pragmatic.

In Chapter 11, G. R. Steele evaluates Hayek's and Keynes's view on capital. The first part provides a brief summary of Hayek's complex theory of capital, his criticism of Keynes on this subject, and shows the develop­ment of Hayek's thoughts and place within the Austrian capital theory. There is also an example by Steele exploring the technical ability of capital to produce output. The final part of Steele's contribution provides a critical view of Keynes's theory of capital in The General Theory of Employment, Interest and Money. Steele's views are challenged by two discussants. Jens Holscher and Victoria Chick. the latter stressing that Keynes created a monetary theory of production with the profit incentive determining the course of action. By contrast, in Hayek, production is determined by the amount of capital and the existing technology. Steele, in his brief reply to Chick's criticism, again states Hayek's view that aggre­gate demand does not directly determine production.

Ray Richardson tackles Hayek's view on trade unions in Chapter 12, questioning whether Hayek is a social philosopher or more of a propagan­dist by blaming trade unions for the decline of the British economy. He covers in some detail Hayek's theory of trade unions and feels in sym­pathy with much of Hayek's underlying position, yet cannot help feeling that Hayek has been 'in the grip of powerful emotions' in his writings on this subject.

B. C. Roberts, the discussant, agrees with Richardson that the degree of blame which is attributed by Hayek to the trade unions as the prime cause of unemployment, unnecessarily-wide wage differentials, the main reason for the decline of the British economy and the biggest obstacles to raising the living standards of the British working class, goes beyond what he has

xxvi Introduction

demonstrated in his writings. Nevertheless, Hayek's analysis of the adverse effects which unions have had on the British economy, on members of unions and the general public is broadly correct, he claims, and has become widely accepted in his view as valid. Hayek was deeply concerned at the extent to which unions were aided and abetted to abuse their power by the law and the management of the economy. His aim was to influence public opinion and public policy so as to bring about much needed change in these respects. Hayek's polemics had considerable influence on the determination of Lady Thatcher when Prime Minister to reform labour law and to reduce union bargaining strength in Britain. Much of the changes that were brought about in British in(tustrial rela­tions during her period of office are now accepted by all three major political parties, including New Labour, as reforms that were essential, and are unlikely to be reversed.

Chapter 13, by E. F. M. Wubben, concludes this volume's critical assessment by looking more closely at Hayek as an economist who related theories to the lives of free agents rather than how economics might be used to approach practical problems. Understanding human behaviour was quite clearly more important to him than useful models or highbrow econometric techniques. Eamonn Butler - in his comments and referring to 'the clear predictions of the mechanical macroeconomic modellers' politicians want to hear - puts the question: 'Is it any wonder that Hayek remained eclipsed for so long, until the Keynesian approach was itself revealed as too dismally inadequate?' Will we now, in a changed political climate, see a reversal of this process or will at least some of Hayek's structural and theoretical thoughts remain firmly embedded in whatever new political and economic system may emerge? One must hope that the latter will be the case.

It seems more than fitting that this volume, devoted to the thoughts of Hayek, should end with Sir Karl Popper's moving 'Tribute to the Life and Work of Friedrich Hayek' at a meeting held in his memory at the London School of Economics in September 1992.

References

Shackle, G. L. S. (1981) 'P. A. Hayek, 1899-', in D. P. O'Brien and 1. R. Presley (cds), Pioneers of Modern Economics in Britain (London: Macmillan; Totowa, New Jersey, USA: Barnes & Noble Books), pp. 23~1.

Thatcher, M. (1993) The Downing Street Years (London: HarperCollins).