Julian L. Simon 301-951-0922 110 Primrose Street Chevy Chase, Md. 20815 CLINTON NEEDS THE IDEAS OF OUR GREATEST MIND On March 23, 1993 I'll light a candle for Friedrich Hayek, who died a year ago at age 92. His ideas are especially needed now during the Clinton administration. Hayek was arguably the greatest social scientist of the twentieth century. By the time of his death, his fundamental way of thought had supplanted the system of John Maynard Keynes - his chief intellectual rival - in the battle since the 1930s for the minds of economists and the policies of governments. And his ideas continue to gain power. Hayek's ideas, which won him a Nobel prize in 1974, influ- enced Ronald Reagan's supply-side policy and Margaret Thatcher's privatization program. He (along with Milton Friedman) was the economist most respected in Eastern Europe in the 1980s and 1990s. The Clinton administration has turned its back on the Hayekian road, however. Hayek's ideas have been confirmed by events. His analyses of socialist as well as non-socialist societies have been proven astonishingly correct by the breakup of communist Eastern Europe. Hayek's influence has gone far beyond economics, however. During the past few decades, his system of thought - building upon the ideas of David Hume, Adam Smith, and other Scottish thinkers of the eighteenth century - has seeped pervasively into scholars' writings. He has influenced not only contemporary economics, political science, and philosophy, but also sociology, psychology, and anthropology. And this influence grows larger each year. [In the 1940s and 1950s, Freud and Keynes were the names to conjure with -- literally. No mainstream scholar doubted the basic validity of their systems. Those few writers who argued that the Keynesian or Freudian ideas are theoretically flawed, or lack validation by empirical test, were considered cranks. It then seemed unthinkable that by the 1980s either Freud or Keynes would be largely discredited. Yet that turnaround has occurred.] [[Hayek joked that when Keynes died in 1946, he expected to assume the mantle of best-known economist in the world. Instead, he immediately went into a two-decade decline in professional estimation.]] [Luckily he lived to a ripe old age -- the word "ripe" perfectly fits the still-productive Hayek, who was born in 1900 -- long enough to enjoy the renaissance of his ideas and reputation, still on their upswing.] Hayek's great work all flows from the fundamental vision of classical economics and political science which Hayek terms "spontaneous order." This evolutionary principle (originally enunciated in 1705 by Bernard Mandeville) ascribes the develop- ment of society and economy to what Adam Ferguson - colleague of David Hume and Adam Smith - called "human action but not human design," but more commonly known as Smith's "invisible hand." Hayek flexibly and pragmatically adapted this principle to various conditions of modern everyday life. And he derived from this principle the corollary that because every set of circum- stances is different, setting general policies from afar is usually inferior to decisions made on the spot by interested parties. On these insights, together with his rock-bottom value of personal liberty under law, Hayek consistently builds his system of politics and economics. Hayek's central point with respect to policy is that econom- ic activity cannot be effectively planned and coordinated from a central bureau. Socialism inevitably founders on the impossibil- ity of even the largest computers effectively collecting and analyzing data about individual and group preferences, abilities, and perceptions of their circumstances. Only a system of decen- tralized decision-making and exchange-induced cooperation -- the "invisible hand" -- is feasible in a modern complex economy. Hayek taught that progress arises from an evolutionary process of "discovery" wherein diverse firms and consumers exper- iment with a variety of profit-seeking activities. Most innova- tors fail in the marketplace, to their private cost. But some succeed, to the benefit of the public. [Journalists routinely applied the label "conservative" to Hayek. But one of his most trenchant writings is entitled "Why I Am Not A Conservative." He said that conservatives are against change, but not he. He said that conservatives enjoy authoritar- ianism, but not he. Instead, he -- like Milton Friedman -- preferred the label "liberal," with the connotations it had in Great Britain in the early nineteenth century. Hayek was pragmatic and undogmatic, and his judgments were generally moderate. The main exception was his assertion that a country cannot be "just a little bit" socialist, and that there is no "middle way" between socialism and free enterprise. He believed that any element of socialism tends to spread its tenta- cles until it entirely corrupts a society. This anecdote illuminates Hayek's subtlety of thought. I wrote him about his belief that we should respect custom and authority, and asked: If you came to a red light in the early morning when the streets were deserted, and no car was to be seen, would you proceed on through the light? He wrote back that if the property were private, he would not proceed. But if it were public property he did not know what he would do. Would any other human make this distinction? Indeed, most people would think it ridiculous. But Hayek felt the need to separate his responsibility to a person from his relationship to an impersonal state. He also is disinclined to force every difficult decision into a general rule. Hayek's judgment proved sound in most respects. His 1930s assessment of socialism's prospects has proven exactly correct. Happily, Hayek lived to see this confirmation of his analysis in Eastern Europe. A difficult element in Hayek's thinking is his apparent condemnation of planned policy change. But Hayek was not against all self-conscious social change. Indeed, he considered the framing of broad-ranging, even-handed, law-based rules for human conduct to be perhaps the most important and challenging task in a society. He simply wanted us to be leery of making a social change until we inspected the matter exceedingly closely, and have done our level best to determine whether there are subtle hidden benefits from apparently dysfunctional or irrelevant customs or systems. Following Hume, Hayek told us that we can never know why many valuable and important customs and systems evolved. Hence he hoped that we give vestigial practices the benefit of our doubt, and perhaps a bit more. His view may be summed up in a phrase attributed to Robert Frost: Never pull down a fence until you know why it was put up. [Hayek's generosity with his energy and reputation are noteworthy. He has participated actively in many policy argu- ments, especially the rent-control fights in Austria in the 1920s. Sometimes he has even been too generous, such as giving a blurb to a textbook that had a generally sound outlook on econom- ics but that was not very competently done.] A typical bit of Hayekiana to close: After receiving the Nobel prize, Hayek wrote that the prize should not be awarded in economics. His reason? Once a person receives the prize, he or she is inevitably asked by journalists about subjects outside his or her special knowledge. And too often the laureate responds to such questions. The answers have a good chance of causing damage are taken as statements of expert knowledge even though they are nothing more than uninformed opinions. Hayek's personal modesty, reflected in this view of the Nobel prize, is part-and-parcel of his abhorrence of the "fatal conceit" -- the title of his 1989 book -- that the reasoning powers of clever people are capable of successfully remaking society at will. This is a lesson we especially need now, when Bill Clinton seems determined to reinvent society root and branch. Julian L. Simon teaches business at the University of Maryland and is an adjunct scholar of the Cato Institute. He is the author of books on population economics. page 1 article8 hayek93 March 10, 1993