Austrian Economics Forum Fall 2010 #1

August 25th was the kick-off to a new season of Austrian Economics readings! (Did you expect me to say football? Hardly!) This semester we are reading Friedrich A. Hayek’s Individualism and Economic Order. The first two readings were: “Individualism: True and False” (Chapter 1) and “The Facts of the Social Sciences” (Chapter 3).  (The book is found here: http://mises.org/books/individualismandeconomicorder.pdf)

There were about a dozen students attending the session. Professor Margolis and I were also there, but unfortunately Roy Cordato and his wife Karen Palasek were out of town. The session started slowly and found its footing as we got moving. I noticed that several of the students received their copy of the book when they arrived that afternoon, so I suspect that many of the students had not read the articles for discussion. I am hoping that the next session will have more student participation.

In the first chapter “Individualism: True and False,” Hayek begins by stating that there are really two definitions of individualism. At their root, they each have the word “equality” in common, but from this point the two branches of thought diverge and lead to positions that are not merely incompatible with each other, but are in direct conflict.

Readers of Hayek will recognize the first strand of thought as the traditional classical liberal view of the individual who has the same equal rights as any other individual. This individual has the liberty and the responsibility to chart his own life’s course. Such a position has been demagogued and characterized as one where the individual lives in isolation and must be completely self-sufficient. While some individuals choose to live this way, this lifestyle is not what Hayek is trying to explain. Hayek attacks this argument as the straw man for which it is. Instead, Hayek argues that in order for a society to work, individuals must be free to pursue their own goals. In fact, he contends that civilization itself would collapse if people were not able to freely choose their associations and their methods for achieving their goals.

The second strand of thought comes from the Descartes/Rousseau tradition. They exalt the individual and praise “Reason.” For them, “Reason” is superior to all other forms of human thought. As a result, we should be able to rationally plan society and free ourselves from many pitfalls. Hayek argues that before we start to tear down the institutions that hold society together, we must first understand their role.

A basic tenant in economics is to look beyond what is seen. The economist and social scientist must also look for and think about the unseen. In the unseen parts of institutions, there is knowledge and information that is essential to a well functioning society. To tear down these institutions also tears apart these unseen aspects. Hayek states, “the great lesson which the individualist philosophy teaches us on this score is that, while it may not be difficult to destroy the spontaneous formations which are the indispensable bases of a free civilization, it may be beyond our power deliberately to reconstruct such a civilization once these foundations are destroyed.”

My take on these two world views comes down to the manner in which we see ourselves. Do we see ourselves as fallen beings or as risen apes? When the Age of Reason was ascending, the Western world viewed mankind as fallen beings. “We are imperfect and each capable of great evil. This sinful side of our human nature needs to be checked and balanced.” Thus, the constitutional framers sought to prevent the gathering of power into any one institution’s or person’s hands.

The Descartes/Rousseau world view is that mankind is perfectible. With the rise of Darwinism in the 19th century, we see the push for a collectivism that is perversely (and paradoxically) based on individual reason. “Mankind grew up from the primordial ooze and rose above all other creatures. Why it only stands to Reason that there is no limit to the perfectibility of our nature and society. Every social ill can be cured if we put enough power into the hands of a person who has the ‘right Reasoning.’”

The second article was probably a little too technical for the students who did not have a chance to read it before hand. It wasn’t something that one could pick up as we went along. I found that the article fit well with Mises’ praxeology despite Hayek’s pleas to consider the empirical. I think that the characterization of the Praxeologist deducing the whole of economics from an armchair in an ivory tower to be a straw man. In praxeology, empirical observations are absolutely necessary. For example, we need to know if the society has money or a central bank. These assumptions are based on empirical observation.

In the course of the discussion of the article, there arose the point of whether we can know what another is thinking. And the answer is that of course, we cannot; but that is okay. I, as a social scientist, don’t have to know that person ate breakfast because he was hungry. I can reasonably infer that. In fact, technically, I don’t know that when I see the color red that another person also sees exactly what I see. All that is necessary for understanding is that we agree that the color is “red.” In the same way, I can never know what another is thinking, feeling or experiencing, but I can come “close enough.” In fact, if no one could ever come “close enough” then language would be impossible. The discussion then centered on: how an economist, as a social scientist, is supposed to do his job.

The next readings are Chapters 2 and 4 in the book: “Economics and Knowledge” and “The Use of Knowledge in Society.” These two articles have helped made Hayek famous to economists and social scientists. I look forward to this upcoming discussion group. I just hope that more people will be willing to discuss it.