Skipping over some chapters on heavy-duty economics we get to the heart of Boettke’s concerns with Chapter 9 “Hayek, Epistemics, Institutions and Change”. This is a heavy-duty chapter as well and it covers a lot of ground from teasing apart the concepts of incentives and motivation, through the function of institutions to provide information and incentives, to the downhill path from the scope of Adam Smith and the hubris of the central planners and macro-manipulators of the 20th century. And that is just the first five pages.
In the socialist calculation debate Mises and Hayek played a tag team game against assorted opponents with the intellectual targets being the assumptions of benevolence and omniscience on the part of the planners. Initially the Dynamic Duo left the benevolence assumption alone and focussed on the issue of omniscience and centralizing the necessary information.
Boettke explains that an important side-issue here is the way the socialist Lange ruled out discussion of incentives. At that point Hayek started to see that the very framework of economic analysis called for attention and the game was being lost at a level where their opponents would not go. “Debate in science, just as in all forms of debate, is productive only if the parties can agree on the terms of the debate” . The terms of debate had to be shifted just as the rising fashion in the philosophy of science ruled out the kind of shift that was required. Logical positivism dismissed as literally meaningless all the philosophical, metaphysical, moral and methodological issues including the “rules of the game” of science.
Next is a closely argued section on Knowledge Assumptions in Economic Models. BTW this helps to understand the function of models in the economics profession. The bottom line of this section is Hayek’s view that we need to understand the institutional conditions that facilitate the coordination of plans on the part of individuals (and firms). We also need to take account of the way individuals find and use the information that is required to coordinate their plans and especially how they learn by ongoing trial and error over time.
To be concrete about the institutional conditions that facilitate individual plans, consider the manager – worker situation. Management and the workers coordinate so the management gets production and the workers and their families get to eat. In the 1930s the British coal miner owners offered the workers a 15% reduction in pay to maintain economic viability. Individual miners might have accepted the deal and maintained coordination but the unions did not and so for some time the wheels of industry stopped and the mining communities suffered (lose/lose). In Keynesian language it would be interesting to calculate the additional demand generated by the 85% wage packets compared with the strike allowances. At the time nominal wages in Australia were reduced by 10% across the board but that was still a lot less than the fall in prices so people who remained employed for the duration did very well while tens thousands of others struggled with next to no work or income at all.
The next section is Public Choice and the Epistemic Turn. This introduces the Elinor and Vincent Ostrom team supporting Buchanan and Tullock to challenge the other leg of the central planners’ stool – the assumption of benevolence. In the hands of Buchanan that led to the constitutional level of analysis. The Ostroms took a rather different line to emphasise the function of “shared communities of understanding” for social cohesion and productivity. This process can be seen in the many ways that sporting teams, clubs and societies establish the desired sense of uniqueness, cohesion and a winning culture.
Boettke identified the capacity for learning as the common “epistemic” element in Hayek and Vincent Ostrom’s institutional analysis [244-5].
Shifting the focus to politics Boettke noted the difficulty of establishing agreement (coordination) among diverse groups of actors. John Gray addressed this with the idea of a modus vivendi, a minimal set of shared values in a community where different groups pursue very different ideals (Two Faces of Liberalism, 2000). The rules of the road provide an example where a minimum set of rules (keep to the left [or right]) will enable drivers to set out for different destinations at different speeds for many different purposes with a good chance of arriving safely.
The great underpinning principle that Hayek emphasised in that context is the rule of law.
The next section is The Epistemic Limits of Democracy and this raises so many interesting issues that it calls for a separate post.
To be continued…
UPDATE. Little or no posting until I return from Libertyfest in Brisbane Friday Saturday.
Wind and Other doing 7.5% of demand at 11.15. Wind in Tasmania 0.002.