Boettke on Hayek. It’s the institutions, stupid!

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” [234]. 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.

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13 Responses to Boettke on Hayek. It’s the institutions, stupid!

  1. Rafe Champion

    Thanks Lizzie, you know I am here to help!

  2. Elizabeth (Lizzie) Beare

    Keep on posting about Hayek, Rafe. Many of us have an interest, even though sometimes such an overwhelming output can mean its hard to find where to enter and pluck up courage to pitch a comment.

    I really like that Hayek was curious enough to do what Marx did, but which Marx did badly: to take his vision wide to the circumstances of human collectivities, the anthropoligical base. Coming at it from economics is difficult if you don’t have the base of the giants of the social sciences to draw on: thinking here of Weber, Simmel, Veblen. An economist would have to discover some paths anew. I don’t currently have the time to make good my deficits on Hayek by reading tomes, but appreciate your guidance here.

  3. Tintarella di Luna

    Thanks Rafe, I must say this blog was where I wanted to learn about economics, I must say Rafe so far with your post I can understand the commas, and the full stops, but I think if I read it a few more times I’ll get the gist.

    The only thing I could remember from my commerce lessons it has something to do with supply and demand. And what I learned when I started my own business I learned that I could only start employing people when I started to make a profit and thus it was for forty years.

  4. Top Ender

    Title needs an apostrophe!

    Apostrophes are good for you….

  5. Rafe Champion

    Thanks Top. Fixed:)

  6. faceache

    It’s too late Rafe. Isn’t it?

  7. Rafe Champion

    Only if we all accept it.

    Who thought Marxism had a future when Marx was brooding in the British Museum?

  8. Rafe Champion

    Little or no posting until I return from Libertyfest in Brisbane Friday Saturday.

  9. Iampeter

    This is just the usual conventional, claptrap we see everywhere today as those who don’t understand the fundamentals of politics try to talk politics using things like road rules as examples.
    Yes, with roads we have clear rules because we know WHAT the purpose of the road is and can make rules in order to achieve that purpose.
    But with politics nobody in the mainstream seems to know WHAT the purpose of a government should be and so no one has the first clue what “rules” are needed. Nobody outside of different leftist groups that is. I know Boettke and you Rafe, think you’re fighting socialism, but you have no alternative ideas. Not even in theory.
    So you’re left with statements conveying no information like “it’s the instititutions, stupid”. What is? What does that mean?
    Or “the great underpinning principle that Hayek emphasised in that context is the rule of law.” In what context? Road rules? You realize Nazi Germany and North Korea are examples of states that have “rule of law” but something tells me that’s not what you’re advocating but then, what ARE you advocating?
    It’s not clear from Boettke certainly.

    The fundamentals are as follows:
    Human beings are individuals that need to think and act in order to live.
    They can be prevented from thinking and acting by other human beings using force.
    Therefore, if humans are going to live among each other they need an institute for the sole purpose of protecting their individual rights to think and act. This is called a government. Such a government is restricted by a constitution or charter or equivalent document to only run the courts, the police and the armed forces. This is called a Republic. All property is privately owned and operated. This is called capitalism. This system is based on human life as the standard of value. Not the group, not institutions, not family, not gods, not nation, not race, nor any other collectivist or mystical notion.

    These are the fundamentals that Hayek never understood, to him it was “spontaneous order” instead.

    If you’re genuinely interested in this stuff and specifically Hayek along with why he is good at economics and why he is awful at everything else and why that awful everything else then undercuts what was good about his economics, then I would recommend this as a starting point
    This is not really for beginners but for any honest reader it will at least get you asking the right questions and looking for the right answers. This is not possible reading Boettke who has nothing of value to contribute as he has all the same confusions and more, as Hayek did.

  10. .

    You realize Nazi Germany and North Korea are examples of states that have “rule of law” but something tells me that’s not what you’re advocating but then, what ARE you advocating?

    No.

    You have no idea of what you are talking about and don’t belong on a politics blog. What are you doing here anyway?

  11. JohnA

    Iampeter #2825837, posted on September 27, 2018, at 4:41 pm

    This is just the usual conventional, claptrap we see everywhere today as those who don’t understand the fundamentals of politics try to talk politics using things like road rules as examples.

    Ye gods, what a mess!

    I agree with Dot, but as I have a day’s work to go to now, I will have to wait until this arvo (on this most stupid of government-mandated public holidays in Victoria) to respond.

  12. Iampeter

    JohnA, I look forward to it.

  13. Iampeter, thanks for contributing, some more to read..

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