Freedom and Society: Classical Liberalism in the Twentieth Century
A Course with Professor Thomas Patrick Burke
In the second half of the twentieth century it seems fair to say that the baton of the free society, and also of Austrian economics, passed from Mises to Hayek. Mises had provided a powerful argument based on the fundamental principles of economics for the thesis that the market, and with it society, should be free. Hayek begins also with markets and economics and develops out of that a broader philosophy of society, which provides explanations for many of its wider aspects, such as morality and law, and these explanations point to the ideal of the free society with free markets.
Hayek was born in Vienna, a cousin of Ludwig Wittgenstein, whom some consider the greatest philosopher of the twentieth century. He studied there under Friedrich von Wieser, one of the founders of the Austrian school of economics after Carl Menger, and also with Mises. In 1931 he joined the faculty of the London School of Economics and stayed there till 1950, when he took up a position at the University of Chicago, which however was unpaid: he lived on donations from some wealthy individuals. In 1962 he moved to the University of Freiburg in Germany, retiring in 1968. He received the Nobel Prize in Economics in 1974 for his earlier work in monetary theory. In 1991 he was awarded the Presidential Medal of Freedom by President George H.W. Bush. He died in Freiburg in 1992.
Hayek’s main writings for our purposes are:
The Road to Serfdom , published in London in 1944 during the Second World War.
The Constitution of Liberty, University of Chicago Press, 1960
Law, Legislation and Liberty, 3 vols., University of Chicago Press.
Vol. 1: Rules and Order , 1973
Vol. 2: The Mirage of Social Justice , 1976
Vol. 3: The Political Order of a Free People, 1979
New Studies in Philosophy, Politics, Economics and the History of Ideas , Routledge & Keagan Paul, London and Henley, 1982.
We will focus in this lecture on three of Hayek’s main ideas: ignorance and the dispersion of knowledge, spontaneous order, and the criticism of “social justice.”
- Hayek’s Point of Departure: Our Ignorance
For Hayek the most fundamental fact of our life together in society is our ignorance. On this he builds a sustained argument for the impossibility of successful governmental control of society and the market beyond the establishment of certain basic rules: an argument for a maximum of liberty.
Hayek emphasizes especially our ignorance of what others are going to do, but also our ignorance of the full circumstances surrounding our own and others’ actions; ignorance of our own and others’ future needs and wants; ignorance of the rules and motives guiding the actions of others; ignorance of the relative importance of people’s varied needs; and therefore ignorance of the true and full consequences of our own and others’ actions. In short, in very many respects we are ignorant of the good. This ignorance holds true not only of individuals but also of government. It has manifold implications for the conduct of society. It lies at the root of the institution of morality, and also of the law; and it sets definite bounds to what government can accomplish.
Hayek’s conception of society owes a great deal to his understanding of the market and of the common law. Both are built from the ground up, on the actions of individuals dealing with other individuals, in contracts and disputes, rather than from the top down. Individuals possess direct knowledge only of what they themselves are engaged in, but through the market they profit greatly from the knowledge of others. As Locke and Adam Smith pointed out, the simplest product we use, say a pencil, is the result of the cooperation in the market of many thousands of people who, without knowing anything about one another or about us, mined the graphite, grew the trees that produced the wood, built the ships that carried the graphite and the wood to the factory, etc. to produce what we need. The only information any of them possessed was what was necessary for his own actions, yet in the end all of them benefit, because they benefit from the knowledge of others.
A further concept that plays a prominent role in Hayek’s theory is that of Darwinian evolution, which shares with the market and the common law the feature that it grows from the bottom up. The changes that guide the process of evolution are the tiny alterations in living beings that give some an advantage over others in the struggle for existence. Out of these small changes in individuals grow the mighty species that guide the development of the living world.
“The Socratic maxim that the recognition of our ignorance is the beginning of wisdom has profound significance for our understanding of society. The first requisite for this is that we become aware of man’s necessary ignorance of much that helps him to achieve his aims. Most of the advantages of social life, especially in its more advanced forms which we call ‘civilization,’ rest on the fact that the individual benefits from more knowledge than he is aware of. It might be said that civilization begins when the individual in pursuit of his ends can make use of more knowledge than he has himself acquired and when he can transcend the boundaries of his ignorance by profiting from knowledge he does not himself possess… “
Civilization, like the market and the common law, is not the product of any overall knowledge or design, and so on a fundamental level we do not know what we are doing when we attempt to change it.
“The misleading effect of the usual approach stands out clearly if we examine the significance of the assertion that man has created his civilization and that he therefore can also change its institutions as he pleases. This assertion would be justified only if man had deliberately created civilization in full understanding of what he was doing or if he at least clearly knew how it was being maintained. In a sense it is true, of course, that man has made his civilization. It is the product of his actions, or rather, of the action of a few hundred generations. This does not mean, however, that civilization is the product of human design, or even that man knows what its functioning or continued existence depends upon.”
Adam Smith argued that no human wisdom or knowledge could ever be sufficient to enable government to direct the actions of the members of the society properly for the good of the whole, and that this is far better achieved by allowing individuals the freedom to pursue their own interests in their own way. Hayek develops this argument further. Despite their radical ignorance, individuals do possess knowledge, but it is the product of their ongoing experience of trial and error in coping with the forces of nature and society. Consequently there is much in their knowledge of which they are only half aware, and which cannot be communicated to others or to government. The knowledge which enables any society to run successfully is thus irretrievably dispersed among its members.
We cannot predict what society will be like because the human mind itself alters in the process of creating it.
“The whole conception of man already endowed with a mind capable of conceiving civilization setting out to create it is fundamentally false. Man did not simply impose upon the world a pattern created by his mind. His mind is itself a system that constantly changes as a result of his endeavor to adapt himself to his surroundings. It would be an error to believe that, to achieve a higher civilization, we have merely to put into effect the ideas now guiding us. If we are to advance, we must leave room for a continuous revision of our present conceptions and ideals which will be necessitated by further experience. We are as little able to conceive what civilization will be, or can be, five hundred or even fifty years hence as our medieval forefathers or even our grandparents were able to foresee our manner of life today.”
This means that progress happens largely because of accidents. The society that will make progress is the one that leaves the most room for accidents, that is, the most freedom.
“Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”
This, then, is the outline of Hayek’s argument for liberty.
“…the case for individual freedom rests chiefly on the recognition of the inevitable ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depends.”
- Spontaneous Order
Hayek contrasts two different ways in which order can arise. The order of an army comes from an authority above which commands those below to obey. This is the order of an organization. It is a “made order.” But there is another kind of order which arises, like that of the market through the process of mutually agreed exchange, and like the order of the common law, which comes from the process of settling disputes in ways that can be generally recognized as reasonable, not from above but from below. He calls this “spontaneous order.”
“The enemies of liberty have always based their arguments on the contention that order in human affairs requires that some should give orders and others obey. Much of the opposition to a system of freedom under general laws arises from the inability to conceive of an effective co-ordination of human activities without deliberate organization by a commanding intelligence. One of the achievements of economic theory has been to explain how such a mutual adjustment of the spontaneous activities of individuals is brought about by the market, provided that there is a known delimitation of the sphere of control of each individual. An understanding of that mechanism of mutual adjustment of individuals forms the most important part of the knowledge that ought to enter into the making of general rules limiting individual action.”
“The orderliness of social activity shows itself in the fact that the individual can carry out a consistent plan of action, that, at almost every stage, rests on the expectation of certain contributions from his fellows… This orderliness cannot be the result of a unified direction if we want individuals to adjust their actions to the particular circumstances largely known only to them and never known in their totality to any one mind. Order with reference to society thus means essentially that individual action is guided by successful foresight, that people not only make effective use of their knowledge but can also foresee with a high degree of confidence what collaboration they can expect from others.”
“Such an order involving an adjustment to circumstances, knowledge of which is dispersed among a great many people, cannot be established by central direction. It can arise only from the mutual adjustment of the elements and their response to the events that act immediately upon them. It is what M. Polanyi has called the spontaneous formation of a ‘polycentric order’:
‘When order is achieved among human beings by allowing them to interact with each other on their own initiative — subject only to the laws which uniformly apply to all of them — we have a system of spontaneous order in society. We may then say that the efforts of these individuals are co-ordinated by exercising their individual initiative and that this self-coordination justifies this liberty on public grounds. The actions of such individuals are said to be free, for they are not determined by any specific command, whether of a superior or a public authority; the compulsion to which they are subject is impersonal and general.'”
“…the task of the lawgiver is not to set up a particular order but merely to create conditions in which an orderly arrangement can establish and ever renew itself.” “Where the elements of such an order are intelligent human beings whom we wish to use their individual capacities as successfully as possible in the pursuit of their own ends, the chief requirement for its establishment is that each know which of the circumstances in his environment he can count on. This need for protection against unpredictable interference is sometimes represented as peculiar to ‘bourgeois society.’ But, unless by ‘bourgeois society’ is meant any society in which free individuals co-operate under conditions of division of labor, such a view confines the need to far too few social arrangements. It is the essential condition of individual freedom, and to secure it is the main function of law.”
Hayek repeatedly uses a number of terms in special senses. By “ends” he regularly means “particular, concrete effects”, in contrast to “values,” which are “general, abstract classes or kinds of events considered desirable.” Values represent a certain “kind of order.”
Related to this distinction is one between “commands” and “rules.” A command aims at a particular intended end. By contrast, a rule “refers to an unknown number of future instances, and merely states attributes such instances should possess.” Rules embody values. A spontaneous order is created by abstract rules embodying values.
- Justice versus “Social Justice”
“I have come to feel strongly that the greatest service I can still render to my fellow men would be that I could make the speakers and writers among them thoroughly ashamed ever again to employ the term ‘social justice’.”
Hayek recognized that during the twentieth century the principal motive inspiring governmental regulation and restriction of economic life has been the idea of societal “fairness” or “social justice.” One of his main achievements was to subject this idea to a devastating criticism. His first charge is that the concept is inherently meaningless, because there is no rule by which it can be implemented. Although it appears to be a form of distributive justice, there is no pattern of distribution by which the demand for it can be satisfied. “Equality” has different meanings that are mutually incompatible. [e.g. of possessions, of income and of treatment. TPB.] When a measure is demanded in the name of “fairness” or “social justice,” it invariably proves to be a demand for special treatment by government of one or more particular groups in society, to the detriment of other groups.
The rules of justice, he contends, have evolved over the centuries from a process of trial and error resulting from our ignorance because they serve the utility of the human race. They apply to human behavior, not to conditions of society. The concept of “social justice” contravenes everything that the rules of justice stand for.
Hayek builds up a very extended argument for this thesis, beginning from an analysis of the meaning and origin of rules in general. The rest of this paper is a summary of some of the main ideas he develops in the course of building up this argument.
It is because of our ignorance that we adopt rules. If we knew beforehand how other people were going to behave, there would be no need for rules of conduct. “Rules are a device for coping with our constitutional ignorance. There would be no need for rules among omniscient people who were in agreement on the relative importance of all the different ends.” Our ignorance is the “central problem.”
The “fundamental fact” is “the impossibility for anyone of knowing all the particular facts on which the overall order of the activities in a Great Society is based.” “…this crucial fact…alone makes the significance of these rules intelligible.”
Rules of behavior enable us to cope with our ignorance of the circumstances surrounding us by making it possible for us to predict within certain limits how others will behave.
The Great Society
In tribal societies individuals are valued primarily as members of the group, and their conduct can be organized to achieve a particular end. The “Great Society,” however, is one where individuals are valued for themselves, as individuals, and not only as members of a group. It is therefore “the open or humanistic society” where “universal rules of conduct can exist which are equally applicable to all responsible human beings.” In this society individuals have the freedom to choose their own purposes. Because they have this freedom, they can seek to acquire knowledge of the opportunities available around them, and they can use whatever knowledge they obtain to pursue their purposes. By doing this they exercise their abilities and develop as persons. They can also discover the opportunities that exist to serve others, and thereby obtain a return for their efforts.
The Great Society is superior to other kinds of society as a moral system, and at least since the Stoics and the rise of Christianity, Western society has been following the path to this kind of society.
The Common Good
The common good or public interest cannot consist in the satisfaction of private interests, because private interests can conflict with one another, and some private interests need to be frustrated; and also because no one can ever know all private interests and the circumstances determining them.
A private interest is an end, and in a large society, general agreement regarding ends is impossible. But agreement is possible regarding means, namely the conditions which will enable individuals to pursue their own ends. The common good, therefore, consists in an order which facilitates the pursuit of unknown individual purposes. This kind of order is created by rules of conduct. The mothers of sick children waiting the see the doctor will not agree on which child should see the doctor first, but they can agree on an impartial rule, such as drawing lots, to determine in what order they are to see the doctor, even if in the end their child is treated last. “Individuals can agree on a rule precisely because its particular effects for individuals cannot be foreseen.” Peace in society depends on the discovery that there is a method of collaboration which requires agreement only on means and not on ends.
“The most important of the public goods for which government is required is thus not the direct satisfaction of any particular needs, but the securing of conditions in which the individuals and smaller groups will have favourable opportunities of mutually providing for their respective needs.”
In an uncertain world, individuals must mostly aim not at some ultimate ends but at procuring means which they think will help them to satisfy those ultimate ends. “The immediate purpose of a man’s efforts will most often be to procure means to be used for unknown future needs…” This is the attraction of money. Individuals’ selection of immediate ends, which are merely means for their ultimate ends, but which are all that they can definitely decide upon at a particular moment, will be determined by the opportunities known to them. Any change in conditions is likely to create new opportunities, which someone will act on. At any given moment, the position of each individual in society is the result of a past process of tentative exploration.
The Rules of Conduct
The rules of individual conduct are a tool, to enable individuals to achieve their own particular purposes. Of necessity these rules must be abstract. For our actions are largely guided, not by knowledge of concrete particular facts, but of abstract facts, namely, of the kind of activity that is appropriate in certain kinds of circumstances. If we visit a part of our own country where we have never been before, the particular facts are all different, but it will be familiar because many abstract rules are the same. For “…all that is truly social is of necessity general and abstract…” In order to accomplish anything we need a certain kind of order, which consists not of agreement on particular ends, but of agreement on abstract rules.
The chief function of these rules of conduct is to prevent conflict. For this reason they are mostly negative, in that they prohibit certain kinds of actions. The rules that are effective in this way are discovered through trial and error. A rule can be effective in settling a dispute if there is agreement on the rule once it is stated, even though initially there is no agreement on the merits of the case. It is not necessary that the rule have been stated explicitly beforehand. What is necessary is that once it has been stated, it is recognized that it corresponds to general usage, and that it is applicable to the case in hand.
The rules of conduct are multi-purpose tools, based on the experience, gained through trial and error, that certain kinds of situation, especially certain kinds of conflict, are likely to occur with various degrees of probability, and that certain kinds of principles can be agreed upon to prevent or settle them. They are the outcome of a process of evolution. “We adapt more and more, not to the particular circumstances, but so as to increase our adaptability to kinds of circumstances which may occur.”
This is a cumulative process. New rules are developed only within an order that is already functioning more or less adequately, and the expediency of a rule can be judged only in relation to such an order. Thus rules have a function within an operating system, but they do not exist to achieve a particular purpose.
The development of a new rule in this way is as much a discovery as any discovery of science — “even though, like the latter, it will often be only a better approximation to what it aims at than anything that had been stated before.”
“Our whole conception of justice rests on the belief that different views about particulars are capable of being settled by the discovery of rules that, once they are stated, command general assent. If it were not for the fact that we often can discover that we do agree on general principles which are applicable, even though we at first disagree on the merits of the particular case, the very idea of justice would lose its meaning.”
Rules as Ultimate Values
The rules of just conduct are adopted because they have been discovered by trial and error to have beneficial effects in furthering the public good in a majority of cases. It is possible, however, that in a particular case their effect may be harmful. As Hume remarks, a single act of justice is frequently contrary to the public interest. Despite this, it is essential that the rules of just conduct be treated as absolute values which admit of no exception, because what is at stake is the creation and preservation of an ‘abstract order, a timeless purpose which will continue to assist the individuals in the pursuit of their temporary and still unknown aims.”
“…rules which have been adopted because of their beneficial effects in the majority of cases will have these beneficial effects only if they are applied to all cases to which they refer, irrespective of whether it is known, or even true, that they will have a beneficial effect in the particular case.”
The necessity of forbidding a certain kind of action absolutely follows from our ignorance of the consequences it will have in particular instances. We frequently know that a certain kind of action will often be harmful, but neither we nor the acting person will know whether that will be so in any particular instance. So all we can do is to prohibit the class of actions we expect will have harmful effects, even though in some cases they may not.
This is the reason for statements such as “the end does not justify the means,” and “fiat justitia, pereat mundus.”
The rules of just conduct are not concerned with the protection of particular interests, and all pursuit of particular interests must be subject to them. This applies as much to the tasks of government.
The Long Run
In contrast to the rules of organization, which aim at short term results, the rules of conduct and the spontaneous order must always aim at results in the long run.
“Hence the conspicuous difference in outlook between the administrator, necessarily concerned with particular known effects, and the judge or law-giver, who ought to be concerned with the maintenance of an abstract order in disregard of the particular foreseen results.”
Consistency of the Rules
The rules of conduct must be consistent. All real moral problems are created by conflicts of rules, mostly by uncertainty about the relative importance of different rules. But the consistency required is not primarily logical, but practical. Consistency here means that “…the rules serve the same abstract order of actions and prevent conflict between persons obeying these rules in the kind of circumstances to which they have been adapted.” Whether rules are consistent depends on the “factual conditions of the environment,” and so rules that are inconsistent in one society may be consistent in another. Rules that are logically inconsistent may be made compatible in practice if one is recognized as subordinate to the other. “The ultimate test is thus not consistency of the rules but compatibility of the actions of different persons which they permit or require.”
The Kantian criterion of universalizability is a test of consistency with the rest of the system.
The test by which we can judge the appropriateness of a particular rule will always be some other rule which for the purpose in hand we regard as unquestioned. The basis of criticism of any one product of tradition must always be other products of tradition. We can question any particular value, but we cannot question all values at once. Thus the only criticism possible of a rule of conduct is “immanent criticism,” criticism from within the tradition.
The Impossibility of Rational Construction
It follows from this that the rules of conduct cannot be constructed or reconstructed rationally, starting as it were from scratch. For “they are based on experiences we only partly know, and serve an order we only partly understand.”
Although we must treat the rules of conduct as absolute values, morality is in a certain sense relative to the society, because the consequences of our actions depend on the rules other people follow, and so an action or a rule which produces good consequences in one society may produce bad ones in another. “There can, therefore, be no absolute system of morals independent of the kind of social order in which a person lives.”
Utility and Utilitarianism
The rules of just conduct have their origin and their justification in their utility. They are “tools, instruments,” for the creation of a spontaneous order which will enable individuals to achieve their own purposes. This does not mean, however, Hayek goes to some pains to stress, that his theory is a form of classic utilitarianism, which he unconditionally rejects. The classic utilitarianism of Bentham, summarized in the principle that we should act in such a way as to produce the greatest good for the greatest number, assumes that we can know precisely what we do not and cannot know, namely what the consequences of our actions will be. Utilitarianism “completely eliminates the factor which makes rules necessary, namely our ignorance.”
“Man has developed rules of conduct not because he knows but because he does not know what all the consequences of a particular action will be.” Therefore “they consist of rules to be obeyed irrespective of the known effects of the particular action.” “…there would be no need for rules if men knew everything…”
It is necessary to make a distinction “between the usefulness of something for known particular ends,” which is the kind of utility espoused by the classic utilitarians, and “its usefulness for various kinds of needs expected to occur in a kind of environment or in kinds of likely situations,” which is the kind of utility Hayek embraces.
“Like all general purpose tools, rules serve because they have become adapted to the solution of recurring problem situations and thereby help to make the members of the society in which they prevail more effective in the pursuit of their aims.” “The only ‘utility’ which can be said to have determined the rules of conduct is thus not a utility known to the acting persons, or to any one person, but only a hypostatized ‘utility’ to society as a whole.”
Classic utilitarianism is “act” utilitarianism: every individual action we perform should be directed towards producing the greatest good of the greatest number. In order to salvage their theory from just the kind of criticism Hayek has levelled against it, many utilitarians have opted instead for “rule” utilitarianism: we should follow general rules of conduct which produce the greatest good of the greatest number. Hayek argues, however, that this position is not consistent, because it requires an appeal to other rules which are not justified by their utility. The effects of the rule depend on its being always observed, on the other rules observed by the acting person, and on the rules followed by all the other members of the society.
Only “act” utilitarianism “can claim to be consistent in basing the approval or disapproval of actions exclusively on their foreseen effects of ‘utility,’ but… at the same time in order to do so, it must proceed on a factual assumption of omniscience which is never satisfied in real life and which, if it were ever true, would make the existence of those bodies of rules which we call morals and law not only superfluous but unaccountable and contrary to the assumption…” “…strict act-utilitarianism of course must lead to the rejection of all rules.”
[A Different Theory?
As we have just seen, the whole drift and force of Hayek’s theory is to base the rules of just conduct on their utility, if on a special understanding of that concept. It is somewhat surprising, then, to find him apparently holding at the same time a very different theory about the source of moral obligation, namely a kind of argument from fairness: since we benefit from the spontaneous order created by the rules of conduct, we have an obligation to obey them. “The obligation incumbent upon us,” he states, “to follow certain rules, derives from the benefits we owe to the order in which we live.” It is true that Hayek expresses this view in only the one sentence, and in what appears to be almost an aside, and perhaps too much stress should not be placed on it. It is not easy, however, to reconcile it with the rest of his theory.]
Critique of Mises and Hayek
Both Mises and Hayek have developed philosophies of great intellectual force, which have provided powerful support for the ideal of the free society with free markets. For this they deserve our heartfelt thanks. Yet there are certain features of their accounts that are troubling, and render their achievement in fundamental ways flawed and ultimately unsatisfactory as they stand. I will call these features their utilitarianism, their determinism and their materialism. All three features are the product of their reliance upon the narrow horizons of the science of economics for their deepest insights into human nature and existence.
In the history of Western philosophy, many thinkers have pointed out a fundamental opposition between considerations of utility or expedience and considerations of ethics or justice. Considerations of utility are concerned with a possible gain or loss to the individual. But considerations of ethics, and especially of justice, concern what is of benefit to others. In the Judaeo-Christian tradition, and even in the prior tradition of Stoic thought, the worthy and noble human life is not one that sets out to maximize benefits to itself, but one that is concerned above all for the well-being of others. Cicero, for example, draws a very sharp line between doing what is right and doing what is expedient. For both our esteemed authors, however, the ultimate explanation of human behavior, even in its ideal forms, is to be found in considerations of utility. The concept of “the right,” as something distinct from utility and superior to it, does not really occur in their writings. Yet from a broader human perspective nothing could be more important for the cause of freedom.
Equally problematic is their assumption of determinism and their rejection of belief in free will. This is particularly paradoxical in writers whose main concern is to defend human freedom. They wish to defend the free society, because it gives people the freedom to choose, but they do not believe that on the deepest level individuals possess the power of free choice. Mises states in one place that the question whether we possess free will is metaphysical and therefore cannot be answered either way, yet not long after saying this he states explicitly that we do not possess free will! In the long run, however, a philosophy that can find no place for the power of free choice is not going to be a strong defender of the free society.
Thirdly, both authors are entirely secular in their approach and see no positive role in human life or in the defense of the free society for religious belief of any kind. On the contrary, they are inclined to view the cause of religion as inherently opposed to that of the free society. But this seems unnecessary and short-sighted. The ideal of the free society has grown up only on the soil of the Judaeo-Christian tradition, which has affirmed the transcendent dignity of the individual human being. Ultimately a strong conviction of that human dignity must lie at the foundation of any viable theory of the free society. This was something that Locke, for one, saw.
These three deficiencies are not, in my opinion, a necessary and unavoidable part of liberalism. A true and fully developed liberalism, of the kind we should be striving for, will be able to go beyond the ground of utility to incorporate the concept of the right. It will defend free will as the foundation and goal of human freedom in society. And it will recognize that it can draw a unique strength from the dimension of human life that transcends our material needs.
Wealth, Bk 4, Ch. 9, conclusion. In the system of natural liberty, where “every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way,” “the sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society.”