Hayek and the Evolution of Capitalism

"There’s something that’s been missing so far in all these books that I’m identifying. It’s unfortunate, and it’s something that really jumps out at me. It’s that Hayek in the 1930s, and certainly by the 1940s, decided that the enemy with regard to theorizing society was the natural scientists. That’s why he wrote this strange book in that period, the Counter-Revolution of Science . Nobody reads this now, but I think it’s important. At first, he has this impression that neoclassical economics is wrong because it smells too much like mechanics. I have some sympathy with this proposition, because my first book was about how neoclassical economics is really copying 19th-century physics. That explains a whole lot about why it employs the maths that it does and how it portrays people. That’s another reason why I enjoy reading Hayek, because in some ways, he and I start from a very similar position, in that we both think neoclassical economics is wrong. But what Hayek then says is, ‘Well, we can pretend that it’s still okay to do that kind of economics, because once we understand what a market really is, we’ll understand that all that stuff about equilibrium is not very important.’ This is where he innovates the idea that the market is really an information processor: that it knows stuff that no individual can know and see on their own. That also explains his hostility to human rationality, because individual reason doesn’t matter very much, because we’re all stupid anyway, relative to the market. That’s why, for Hayek, we must submit to political deference to the market. There’s a logic to this, because it’s the market that knows what’s going to happen and what the true consequences are, and we don’t. But then the issue is whether this situation has always been the case. He realizes that, no, obviously, there’s been social change going on, and we’ve developed beyond static tribalism. That’s why, from the 1940s onwards, he became more and more dependent on evolution to explain why society must become more deferential to the market over time. The curiosity here is that when he makes this move, he’s contradicting his own mid-century position, that the natural scientists are always the culprits. Now, instead, he’s going to want his own version of science to justify why we have to have the kind of politics that he advocates. I think the really interesting point here is that he learned a lesson from his early-to-mid years, that you couldn’t blame all this favorability towards socialism on scientists. If you just keep insisting science is the problem, and rationality is a problem, you’re just not going to get anywhere as a political project. You have to have some kind of appeal to nature and the natural yourself. In the second half of his life, he constantly hammers on these appeals to evolution to explain why our politics must be deferential to the market. It’s weird because does Darwinian evolution say anything like that? Mostly not. It’s true that there once was a version of social Darwinism, but this is a problem for him, too. He’s got to coquette with social Darwinism, but deny that he’s doing it. He wants a version of evolution that dictates that there’s only a certain kind of politics that’s going to be coherent with the market. We don’t really totally know what that is, but evolution is going to instruct us. This is why the Beck book is so important. We really need to take apart this move that he’s making to solve his own sticky intellectual problem, which is to promote his relationship to nature and natural science in order to argue for a certain kind of politics. Beck goes into great detail about when he does this, why he does this, and how he struggles with his continued commitment to so-called methodological individualism. For instance, Beck points out that he really isn’t an individualist. He has a mid-career attempt to describe something called true individualism and false individualism. True individualism is British, but it’s evolutionary, whereas false individualism is French and interventionist. Somehow, he wants to claim that society is not a bunch of isolated individuals as it is portrayed, for example, in neoclassical economics and so forth, but that society itself forms spontaneously. And in this spontaneous development, human reason and intention are not a major force. This is the part that I don’t think gets stressed enough. You begin to see that this is his way to get around the idea that people need to make their own politics. He thinks that’s wrong; they just need to pledge their allegiance to the market. If they understood how evolution worked, they would simply go about their business and they wouldn’t try to remake society in some way. Beck’s very good on this, and all the ways in which his biology attempts to fit into his epistemology. At least in his version, people don’t need to think because somehow there’s this supra-personal force that’s guiding them towards progress. He equates economic success with progress, and by the way, he says that that’s what evolution selects for. Beck points out that although he seems to be appealing to natural science, he’s really not, because Darwin never claimed that evolution always leads to success. If anything, it’s the opposite, much of the time. Hayek’s line is that evolution always leads to success. So we just have to be politically passive in the face of it. This faith in markets as evolutionary computational or cybernetic entities actually starts getting more and more real as we get close to the present in the following sense: if you treat markets more like algorithms, then you know these algorithms can find wisdom that people can’t. That is the predominant nature of modern mathematical microeconomics. Yes, because it says that he has had an impact on formal economics too, in ways that I don’t think Hayek himself necessarily perceived. A lot of people who code automated trading systems or work in market design—which is the hot area among formal mathematical economists these days—are subscribing to a position not so wildly different from Hayek’s, that markets can find the truth and supersede politics. This is why I think he’s way more intellectually important than those who sneeringly say that Hayek wasn’t a real economist. Ultimately, I think he changed the way our culture thinks about markets now. Of course, he’s not alone. I want to be clear about that. He simply happened to be writing simultaneously with the rise of the computer and the effects that’s had on our culture. In that sense, he’s way more important than the economists who get remembered because they’re so formally perceptive, like, say, Ken Arrow or Gérard Debreu. Nobody gives a damn about general equilibrium anymore, honestly. It’s a story that caught on in World War Two. It doesn’t have legs. Hayek’s thought inadvertently has legs because on this very specific point, he’s influenced these areas of market design in contemporary microeconomics. My book with Eddie is not entirely about Hayek. It’s about market design, mostly, and the effect of computers on economic theory. But we point out that almost all of these people end up bending a knee to a greater or lesser extent to Hayek. It behoves us to understand why that is. It isn’t just because they have right-wing politics, although lots of economists do. The image of the market has been changed so dramatically that what it means to intervene in the economy has changed. Intervention in the market used to mean something like changing price incentives or extending government subsidies. That’s not what it means anymore. Now, we can actually change the algorithmic character of the market to produce outcomes never dreamt of in previous economic theories. And Hayek, even though he’s supposedly anti-interventionist, created the possibilities to imagine this kind of intervention."