Positive Liberty

A few weeks ago, I asked the readers of Liberty & Power to recommend what was in their estimation the best original book on classical liberal themes in the last few years. The two contenders that emerged were Randy Barnett’s Restoring the Lost Constitution and Bruce Caldwell’s Hayek’s Challenge. What follows is a review of the latter.

I am not an economist by training, but I am a fan of economics. It sounds preposterous, but there you have it. And I am pleased to say that Hayek’s Challenge offered me more stimulating, thought-provoking, connection-making, oh-wow-economics-is-amazing moments than any book since I first discovered the subject as an undergraduate.

The work starts slowly, then builds, and builds, and builds. I kid you not; it reads like a good mystery. Libertarians be warned, however: The Hayek you encounter here may not be the one you expect. The Nobel prizewinning economist barely shows up for the first 130 pages, which are devoted instead to the intellectual origins of Austrian economics. The going is rough, and many of the topics explored will be difficult for the nonspecialist. Happily, things get much easier later on–and yet they also become more profound.

When Hayek finally does arrive, Caldwell’s focus rather surprised me: Our biographer scarcely discusses Hayek’s most popular work, The Road to Serfdom. When he does, he concentrates on its reception among economists, which was poor. Caldwell implies that on balance The Road to Serfdom hurt Hayek among the professionals and in turn set back the progress of economics itself, as the pros were reluctant to address the ideas of a “popular” and “right-wing” author.

Caldwell’s focus is fully justified by the rest of the tome, which bubbles over with fascinating ideas. If you have read little Hayek beyond The Road to Serfdom, I urge you to pick up Hayek’s Challenge–and to browse it as a menu for future study.

As I hinted above, the structure of Hayek’s Challenge is unconventional: The star of the story does not appear until nearly a third of the way through. Only the second (rather lengthy) section treats Hayek’s career properly speaking. Part three is half review and half prospectus: It considers how well Hayek’s ideas have fared in various fields–and where they might be going in the future. A thirty-page epilogue allows the author to indulge in some speculations about the future of Hayekian complexity theory, and four substantive appendices digress from the main narrative in further, though equally productive ways.

Hayek made his reputation as a theorist of complex systems, and Caldwell has paid him a fitting tribute by rendering a complex system of his own. Rather than summarize the narrative, I would like to discuss several of the topics that interested me most about Hayek’s Challenge. Other readers may well find entirely different aspects of the book more interesting; expansive as it is, my list is by no means exhaustive.

The Problem of Imaginary Goods: A common critique of capitalism runs as follows: In a market economy, the price of a good is often quite different from its actual value. Sometimes, goods are not really goods. Instead, these “imaginary goods” are nonuseful and incapable of satisfying human needs. Yet often they still fetch a price in the market, helped along by misleading advertising, false expectations, and plain human stupidity. Does this not prove that the market economy is bunk?

Here is Caldwell writing on Carl Menger, father of Austrian economics:

Menger’s system is brilliantly executed and logically complete. The fly in the ointment is the requirement that people correctly recognize the causal relations [between price and utility]. How should one deal with the possibility of error? Standard neoclassical analysis defines it out of existence by assuming fully informed agents… Pure subjectivists handle it by saying that good status depends, not on actual characteristics or needs, but on subjectively perceived ones, thereby eliminating the very possibility of imaginary goods… Menger takes a third path: he admits the possibility of imaginary goods but holds out the hope that “the progress of civilization” will gradually reduce their number [p 35].

Let’s put it in other words: The classicists assume that snake oil fools no one. The dogmatic subjectivists assume that snake oil may still have utility in the economic sense: After all, does it not make the buyer happy at the time of purchase? Menger, though, argues that imaginary goods can and will be discovered through the progress of civilization–an annoying cop-out that 19th-century thinkers employed all too often.

How does an economy “progress?” Although Caldwell nowhere makes this connection, much of Hayek’s work seems to offer an answer to this problem. To put it in colloquial terms, markets tend to gather information about snake oil; they distribute that information, and they use it to put inferior products out of competition. It isn’t a perfect system, but Hayek argued powerfully that it was likely to be the best we could do. Even when individual consumers have very bad information, so long as the basic rules of the market are followed, competition does a remarkably good job at weeding out the ineffective, the imaginary–and even the fraudulent.

To ask that no goods ever be imaginary, that no one ever find themselves later disappointed by something that once seemed a sound purchase, is to deny the market the very best method it has of information-gathering. It is to sacrifice knowledge for the dream of omniscience. Hayek castigated the socialists for falling into this trap, and with them the central planners, the market-managers, and all those who were tempted by a sort of greedy reductionism in the social sciences: Be cautious in your pronouncements, Hayek urged. The market is smarter than you are.

In Caldwell’s words, “The advance of civilization does not depend on humans being omniscient. Quite the contrary, it depends on accidents in the way that knowledge and attitudes, skills and habits, get combined. These accidents are a source of random variation; they permit new ways of doing things to get tried out (pp 294-95).”

Spontaneous Order: Caldwell returns again and again to the idea of spontaneous order, a central theme of Hayek’s work that has far-reaching intellectual consequences: “Had the market mechanism been invented, it would have been viewed as a marvel. But, because it came into existence spontaneously, many even today do not recognize that it exists. Indeed, the classicals themselves fully recognized its existence only after witnessing the adverse effects of well-intentioned attempts to interfere with its workings, interventions that were usually undertaken with the goal of trying to improve social conditions (p 197).”

The market is a spontaneous order, one whose rules and implications cannot be known in all of their complexity. The way to create a market is to set up general guidelines and to allow the agents within the system to interact freely. Doing more or less than this will not result in a satisfactory spontaneous order: Too many rules, and the market behaves inefficiently; no rules at all, and it becomes impossible to trust the other agents enough to trade with them. Between “too hot” and “too cold,” there is a region of “just right,” where infinite complexities exist.

But what we have described is also true of many other systems, and here is where Caldwell’s work really takes off: Just as we may create a market economy by establishing a few simple rules and by allowing agents to act under their aegis, so too, many other systems can be said to behave similarly, and to ascend from simple origins into levels of complexity that one might never have imagined at the outset.

For example, the common law operates on only a few basic principles, yet it is sufficiently flexible and discriminating enough to serve as a workable legal system even in a complex industrial economy. Only a few rules are really necessary to “grow” a common-law system, and from them all the rest eventually follows.

Languages and cultures behave similarly; so too with cellular automata in computer science, with pattern recognition in the brain–so too even with life itself. The market in economics turns out to be only the most recent of a wide array of multiply-nested complex systems.

Baffled? Caldwell gives one of the best summaries of the process I’ve ever seen. Note as you read them how the following rules might easily apply to markets, legal systems, languages, living organisms, and even the ecosystem itself:

1. Orders of various sorts exist in nature. An order occurs when the actions of various elements or members of a group are coordinated or brought into mutual adjustment.

2. Sometimes orders occur without anyone consciously designing them. Such spontaneous orders come into being as the result of the individual elements following rules, rules that do not aim at creating the resulting order as a goal.

3. We can say a number of things about the rules that can generate spontaneous orders:

a) Rules are often simple and often take the form of prohibitions.

b) Even if individuals are capable of speech, they need not know that they are following rules, and, even if they do know that they are following rules, they need not be able to articulate those rules.

c) Individuals often cannot say why they are following the rules that they follow, nor can they see what the actual results of following the rules are.

d) Not all rules lead to order, and, among those that may lead to an order in a given environment, the ability to do so may change as the environment changes (309-10).

Vast Implications: Caldwell offers more, but we have plenty to chew on as it is. His formulation evoked for me not just Hayekian economics, but Darwin’s theory of evolution, Daniel Daniel Dennett on the interrelated origins of life, consciousness, and meaning, Stephen Wolfram’s A New Kind of Science, and virtually the entire discipline of complexity theory in mathematics (Wolfram cites Hayek only once in his massive tome, noting Hayek’s theories on the origin of free will; it is unfortunately not clear whether Wolfram grasped that Hayek’s ideas elsewhere had great applicability to his own project). Much to my delight, the third section of Hayek’s Challenge addressed all of these, though not, unfortunately, with reference to Wolfram or Dennett.

There is an immense explanatory power to these ideas, one that stretches across all of modernity–and that cuts both ways politically. Hayek was emphatically not a right-wing ideologue. He was a philosopher in the grandest sense of the word, one who would challenge the received ideas of any who approached him, and not with mere sophistry, but with a compelling worldview of his own.

In Hayek’s own words, “Belief that processes which are consciously directed are necessarily superior to any spontaneous process is an unfounded superstition (Hayek, cited in Caldwell, 251).” It is just this sort of superstition that leads many of us to believe that planned economies will do better than market economies. Intriguingly, this top-down, design-first thinking also leads many to believe that the observed biological order must have had a Creator, one who designed each one of us according to a minutely-detailed central plan. Both of these are superstitions, Hayek would argue; both set up an overly simplistic view of the world.

We must radically recast the history of thought to meet Hayek’s challenge, as it were: Adam Smith, discoverer of spontaneous order in the market, stands side by side with Charles Darwin, discoverer of spontaneous order in nature. But we have no room at all for Herbert Spencer. Not only is social Darwinism grossly unethical from a libertarian standpoint, but if Hayek is right, we could never acquire enough knowledge to make it work anyway. Social Darwinism is just another form of central planning–or of creationism.

Dare I say it, this conception of spontaneous order has some spark of the divine about it, too: Even while it rejects creationism, it makes the act of creation seem all the more miraculous. Once the idea is grasped, it is hard to imagine that God would create things in any other way. Wouldn’t the Creator have started by injecting a simple set of rules into the chaos? Physics begets life; life, intelligence; intelligence, society; and society begets language, law, and the market. Light from light, spontaneous order from spontaneous order.

Yet in real life I am an atheist, and a skeptic on many points besides. The most vulgar mistake in Darwinian thinking is to imagine that it exists for anything, or that evolution is moving toward anything. They amount to the same error, and it is an equally tempting error in the more rarefied regions of spontaneous order theory. It’s clearly time to throw a little cold water on the project.

And What of History? I must confess that as a historian, I am more than a little jealous of the internal logic possessed by economics. In all our work, we historians have nothing like it. We are often left speechless–or even incoherent–by really simple questions like “What is history?” Hayek’s Challenge left me wondering about questions of rule, order, and complexity in history, and I suspect that it would raise similar questions of readers in virtually any field. The trouble is, though, the answers to these questions might never be found.

Hayek above all urged caution when making predictions about the future of any complex order, and his argument may have even more relevance outside economics than within it. Caldwell writes, “When dealing with complex orders, often the best that we can do is to provide an ‘explanation of the principle’ by which they operate. Precise predictions will not be possible; only ‘pattern predictions’ about the range of the phenomena to expect will be available… As such, the theories that we develop to explain complex orders will forbid fewer events, and thus, will be less falsifiable, than those that deal with simple phenomena (p 310).”

Thus an economist may teach the laws of supply and demand, the concept of marginality, or any of various theories on money. He cannot, however, tell you just how many people will be unemployed over the next few years, not merely because it is exceedingly difficult, but because the system that he would seek to explain is itself more complex than the economist’s own mind. As spontaneous orders become more complex–not always through a direct intention of their own–they also become harder to study.

Like economics, history seeks to study something more complex than the mind itself. By Hayek’s reasoning, historians should never expect to predict the future with any great certainty; looking to history to forecast the headlines of the New York Times a year in the future is pure absurdity. Yet Hayek, in Caldwell’s rather sunny formulation of him, seems at least to hold out the hope that we could find “explanations of the principle” in complex systems like history. We might in short find laws analogous to those of supply and demand, laws that would allow us to make “pattern predictions” on the future of human events.

Near the end of my historical training, I must confess that I have not learned even a single generally-accepted law of this type. I’m fairly certain that with a few notable exceptions (like Jack Goldstone), historians aren’t even looking for them anymore. What “laws” we have are borrowed ad hoc from other fields–sociology, psychology, anthropology, and of course economics. They are used primarily to explain a single event, and may without blushing be employed in an entirely contradictory fashion somewhere else. Historians tend to scoff at those who appear overly sincere when they invoke the laws of history; usually, we even scoff at the search for the laws of history.

We historians are still smarting from our own nineteenth century, where we blathered hopefully about the laws of human nature and the progress of civilization, just as Carl Menger did. To make a long story short, it didn’t happen the way that we expected.

Here is the question that really bothers me: Does history not study a complex system, but rather just tell clever stories about one? At long last, are historians merely novelists? Or are the systems that we study even more complex than the ones that Hayek examined, subsuming law, language, market, and many others–and are they thus susceptible to virtually no generalization? If the latter is the case, Hayek holds out little hope for any great revolution in the study of history:

But if it is true that in subjects of great complexity we must rely to a large extent on such mere explanations of the principle, we must not overlook some disadvantages connected with this technique. Because such theories are difficult to disprove, the elimination of inferior rival theories will be a slow affair, bound up closely with the argumentative skill and persuasiveness of those who employ them. There will be opportunities for grave abuses: possibilities for pretentious, over-elaborate theories which no simple test but only the good sense of those equally competent in the field can refute. There will be no safeguards even against sheer quackery… It is not because of a failure to follow better counsel, but because of the refractory nature of certain subjects that these difficulties arise. There is no basis for the contention that they are due to the immaturity of the sciences concerned. It would be a complete misunderstanding… to think that [it is a] provisional and transitory state of the progress of those sciences which they are bound to overcome sooner or later.

In other words, we are stuck. Complexity demands no less–and yet we should be happy about it, because this fumbling, slow, tedious, all-too-humanness is the only path to knowledge in a complex system. Firm predictions belong to the Soviets or the creationists, but not to us, for knowing what we do not know is the start of wisdom.

Update on Herbert Spencer: I have been implored, in e-mail, in the comments below, and at Liberty & Power, to reconsider my negative opinion of Herbert Spencer. One commenter even suggested I was practicing “bigotry” by speaking ill of him above. I can hardly see how this could be the case, given that 1) I have not stereotyped Spencer according to a negative group evaluation and 2) at the very worst, I am merely misinformed about the content of his ideas. Bigotry in the strict sense would require (1); even bigotry in a much looser sense would require a good deal more than (2).

Roderick Long, a fellow blogger at Liberty & Power, has written in defense of Herbert Spencer here, here, and most notably here. Although I have great respect for Professor Long, I do think that Spencer deserves at least some small share of the criticism that he has received.

Audacious fellow that I am, I intend to prove it by using only those portions of Spencer that Professor Long himself has cited. I maintain that Spencer misunderstood the theory of evolution, and while he clearly disavowed racism, endorsed charity, and did not in general believe many of the things wrongly imputed to him, still Spencer’s misunderstanding laid the philosophical groundwork for much subsequent evil. I do not accuse Spencer of responsibility for this evil, of course, but I don’t intent to let him fully off the hook for his garbled characterization of evolution, either.

Let’s set up the balance sheet as precisely as possible. Spencer was a radical liberal, exactly as Long describes. He bristled at the very thought of eugenics, and during his life he despised the attempts already being made toward pseudoscientific racism. Here is Spencer, as cited in Long’s first article:

The desire to command is essentially a barbarous desire. … Command cannot be otherwise than savage, for it implies an appeal to force, should force be needful. … Command is the foe of peace, for it breeds war of words and feelings – sometimes of deeds. It is inconsistent with the first law of morality. It is radically wrong. … “You must do not as you will, but as I will,” is the basis of every mandate, whether used by a planter to his Negro, or by a husband to his wife (Spencer, Social Statics, cited in Long).

With this I have no argument at all. Spencer vigorously opposed slavery, colonialism, sexual inequality, censorship, and a host of other evils. Long is right to note the importance of these positions, and to attack Spencer’s critics when they mischaracterize him.

I have considerably more trouble, though, with the following passage, where Long seeks to defend Spencer against the often-heard claim that Spencer opposed human charity:

Spencer praises the “far-seeing benevolence” of evolutionary selection, not because he wants to see the unfit weeded out, but because past selection has led to the emergence of beings with a moral sense advanced enough to moderate the operation of evolutionary selection now. In Spencer’s eyes, charity (at least of the judicious and voluntary kind) represents not a transgression against evolution, but rather a transcendence of one form of evolution in favor of a higher form: “And although by these ameliorations the process of adaptation must be remotely interfered with, yet in the majority of cases it will not be so much retarded in one direction as it will be advanced in another.” (Social Statics, pp. 291-2)

So yes, Spencer did approve of charity; he was no Ebenezer Scrooge. And yet…

The trouble that I have with this passage is that there is no “far-seeing benevolence” to evolution–not in any direction whatsoever. From an evolutionary standpoint, there is no uniformly “best” plan for an organism, for a species, or for a civilization–not any more than there is any one uniformly “best” good in a market. Spencer fails to be properly subjectivist here; he forgets for a moment that the complex system of evolution exists without concern for those individuals taking part in it.

It is a serious misunderstanding of evolution to think that natural selection aims toward any sort of goodness or perfection. If we may speak of aims at all, natural selection aims only at adaptedness to particular environments. It does not aim at The Good in any moral sense at all.

Natural selection does not point us toward charity any more than it points us toward government-sponsored eugenics programs. Evolution plays no favorites whatsoever–or to speak more rigorously, if evolution does play favorites, by sheer virtue of its complexity, we mere mortals could never tell just who those favorites should be–until, that is, they had already succeeded by wiping out all competition, a state of affairs which renders the question altogether moot.

From what I can tell, this error appears to have been ubiquitous in Spencer’s thought. Admittedly, I have only read a few extended passages of him, and I certainly consider the present debate a sufficient reason to go back and read more. Yet the error seems important enough already to raise some very serious concerns.

As coiner of the phrase “survival of the fittest,” Spencer seems to have taken the complex information-gathering system of evolution and stood it firmly on its head. Whatever his admirable political beliefs elsewhere, this is just bad philosophy. His four words imply that evolution is in some sense prescriptive, that it describes a model of how the future “ought to” operate. But on the contrary, natural selection describes only past events: As living beings, all creatures now in existence are survivors. We are all “the fittest,” fully and equally, from amoeba to human, with none being “higher” or “lower” than any other. By contrast, Spencer’s formulation does nothing but smuggle a lot of normativity into a system that ought not to have any. His talk of higher and lower forms, his universalizing of “fitness,” and his insistence on progress, are all affronts to proper complex-systems theory as found in Smith, Darwin, and Hayek.

This is where Spencer appears to deserve my criticism–no more and no less.

Notably, Charles Darwin himself never cared for the phrase “survival of the fittest,” in which he perhaps correctly noticed a moralizing or teleological undercurrent. His preferred short synopsis of evolution was to term it “descent with modification,” which he used consistently throughout the Origin of Species. We should note that these three words describe only a past process; as befits a proper Hayekian theory of complex systems, they are quite modest about any present or future implications, and they do not imply any judgment about the “fittest” creatures now in existence.

In short, I find that Spencer’s detractors have grossly misunderstood, misrepresented, or lied about his politics. But so far as I can tell, Spencer did make a crucial error in describing the system of evolution, one with far-ranging negative consequences. This error, however well-intentioned, opened the door for many unjust attacks on Darwin, on classical liberalism, and even on market economics. The lesson? In the grand play of ideas, you’d best get things right the first time.

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