Using Hayek against free markets

Hey, is that first broken link to a review or commentary on the book?

If you want to have non-local exchange (i.e. properly competitive impersonal markets), you have to do so on the basis of universal standards.

You’re losing me here – what do you mean by “tacit” knowledge? Hayek’s argument against socialism was about the impossibility of a central planner to incorporate the vast knowledge to which the free market responds fluidly and immediately.

Universal standards are a product of a free market, not a predecessor.

“It is this blindness which gives The Road to Surfdom such a factitious air.”

Poor Tim Dunlop!

A lot of libertarian arguments depend on implicitly considering law to not be part of government. For instance, for pollution problems, libertarians often advocate ceasing to regulate and letting the courts handle pollution through torts and class actions. Of course, since *some* level of pollution is necessary, what you always end up with is a process of managing it, so all you get is a shift of the managerial burden from one set of governmental employees to another (and, of course, legislation and enforcement by judiciary).

Other common libertarian arguments depend on the creation of “property rights” to unreal property — often an overall expansion of government. If you create a tradeable market for pollution rights, say, there is no actual property being traded, there is just a communal decision about how much risk is acceptible and a regulatory scheme for setting the overall amount of pollution thought commensurate with that risk, and for running the system that sells permits to pollute. Of course, there must also be enforcement to make sure that people don’t pollute without a permit — it’s even worse than intellectual property enforcement, because the pollution just goes away, it doesn’t hang around in the form of copies. (Regulation often gets around this problem by regulating the type of equipment used.) Like many expansions of government to create markets, this actually lets people do some things more flexibly, so it’s a good approach in many cases. But there is no real philosophical difference between it and plain old regulation in terms of the size of government.

Yes, I mean just compare the cell phone markets in Europe and the United States.

Yes, funny how they are different, isn’t it, when compatible systems would be so much better for consumers. I wonder how it came about that they were so incompatible?

Tex – you’re wrong on a number of fronts here. Standardization precedes large scale impersonal markets – it’s more or less a necessary condition for them. Free markets don’t produce them, they’re produced by them. This is universally accepted by historians, including those who are sympathetic to the free market perspective (viz. Doug North. One of the major themes of late 18th/early 19th century economic thought was the need for the state to step in to set common national standards, so that markets could work more efficiently. In answer to your rhetorical question to Kieran, cellphone standards were incompatible (in the US) because the state didn’t step in; Europe did much better, at least in the first stage, because of government mandated standards.

I’m 99% sure that Hayek discusses this and 95% sure that he recognises it as a tension in his model. I know for a fact that Adam Smith’s version of free markets was based on a vision of local rather than multinational capitalism. I’ll look up a few things when I get home.

Can anyone offer a short account of what’s so good in Scott? I read it quickly awhile ago, from the perspective of early modern European statebuilding history, and thought it was pretty much crap, but I can’t for the life of me remember why I didn’t like it. Take notes take notes I know.

If possible, could you offer a compelling account of its strengths that still confirms that I think it is crap?

This has mostly been covered above, but I’ll just repeat that it’s scarcely as though Hayek opposed the kind of “standardization” you’re talking about, if you mean a framework of clear and neutral rules that provide a framework of market interaction. His argument, as I recall it, was that these were not hostile to but necessary for the transmission of local or tacit knowledge. To use a hackneyed analogy, a rule that establishes some signalling conventions for the highway (brake lights, turn signals) is obviously one form of standardization. But it preserves local knowledge in the way that wouldn’t be possible with, say, an elaborate walkie-talkie system with a batallion of operators at satellite-imaging consoles trying to coordinate the drivers.

“In answer to your rhetorical question to Kieran, cellphone standards were incompatible (in the US) because the state didn’t step in; Europe did much better, at least in the first stage, because of government mandated standards.”

Isn’t it kind of funny to use European cell phone standards as an argument that governmental standards are a good thing? The European mandated cell phone standards are awful and horrifically inefficient compared to current American standards.

Steve,
I disagree that the Hayekian response would be a) “that the kinds of local knowledge being lost would be relatively minor.” Anyone who has read Sen or studied the imposition of new property laws knows that they created whole new classe — for instance, a class of lenders in India, a class of large Anglo landholders in Ireland, and a class of settlers in Canada and Australia — and a whole new system of food storage — and non-storage — that was implicated in millions of deaths from starvation that came in waves throughout the nineteenth century. To have the force to impose law led to the militarization of frontiers all over the world. Surely the Hayekian framework would, in some way, predict this — since the framework is very open to the idea that small changes in initial conditions can led to major changes in the system, a big Complexity Science trope.
So surely these aren’t minor changes. Freely contracting individuals gain that freedom on the ruins of previous cultures. That can be for the good or the bad — the destruction of the rural idiocy of peasant culture has realized the tremendous liberatory potential of those individuals — but Hayekians shouldn’t ignore the cost. It is a continuing cost. For instance: the idea that a cultural form might have value in itself — that, for instance, blue collar culture in the Midwest has a value such that the abracadabra of free traders, who urge individuals to become more mobile, entrepreneurial, and in general destroy the form of life that they have been raised in in order to realize an aggregate benefit from lower prices — brings out the contradictory impulses in the Hayekian scheme. Schumpeter, who begins with a similar premise to Hayek, recognized the possibility that capitalism might destroy the ethos of self sacrifice that makes it possible. A parallel logic of social action seems to be enacted in a lot of cases in which there are no constraints placed on the free contracting of individuals.

Hm. Two dozen comments on this thread and I haven’t seen the word “price” show up yet, in a discussion of Hayek.

Now, I should be chary of discussing economics with my betters, but let me focus specifically on the example of plots of land in the village when the village comes into contact with the larger nation (or world). From a Hayekian perspective, doesn’t that very contact change the information set? Frex, in the context of Life As It Has Been in the village, the small flat patch of land is agreed to be worth the larger, hilly patch, because the arability of the flat patch is superior. Farmer Bob will exchange his small flat patch for the entirety of Farmer John’s large hilly tract, but not for only a portion of same. In a money economy, Farmer Bob will not sell his land for less than farmer John would get for his.

Comes Peter Riegert from Glasgow looking at plots of land. He offers Farmer John twice what he offers Farmer Bob – he wants a vacation house, and in addition to the bigger area, Farmer John’s patch offers a lovely view of the sunset behind the next ridge. Farmer Bob may initially be offended, but the price system has just led to the exchange of information, despite the fact that Peter Riegert is ignorant of the local customs and mores and the villagers have heretofore paid little mind to Glasgow. Now Farmer Bob has been informed, via prices, that there are uses for the local land that the locals have not incorporated into their value system. Farmer John’s neighbors on the hill have learned likewise. Peter Riegert may have discovered that there are – for the moment – bargains to be had in hillside real estate. (Theory tells us the locals will incorporate the new info and the “bargains” will decline, right?)

A few things: the above example is simplified. It can happen that Peter Riegert discovers that he can have Farmer John’s plot for the price of Farmer Bob’s. The initial exchange of information is from Village to City. When Cityfolk show up in increasing numbers bidding on hill properties, THEN the Villagers learn about the differential valuation Glaswegians put on their properties. The example could also work the other way. Perhaps Farmer Bob and Farmer John have plots the same size, on the level, but John’s spring is nearly played out and locals consider Bob’s plot to be worth twice John’s. Peter Riegert offers them both the same amount – hey, flat land, same size – and Bob rebuffs him. Information has still been exchanged via price, but it’s Peter Riegert who does the immediate learning.

Note also that I realize I am leaving aside all sorts of ethical conundra that vex liberals especially, having to do with “exploitation” and such, and the fact that the exchange of info via price takes time and during that time can produce relative losers. That strikes me as outside the scope of the immediate discussion, which, as I understand it, centers on whether markets can aggregate and exchange information in the absence of “thick” national and international standards and cultural agreement.

Also note that I might have constructed an example involving not real property but some good produced in the village or elsewhere, but the land example was out there.

If you want to have non-local exchange (i.e. properly competitive impersonal markets), you have to do so on the basis of universal standards. But these standards fail to live up to the Hayekian ideal. Ergo, you can construct a Hayekian case against the creation of competitive impersonal markets, insofar as these markets involve the destruction of the kinds of tacit knowledge that are embedded in informal local standards.

True, but the problem changes shape when it becomes transposed to the modern period. If I remember Scott’s argument correctly, the standardisation of units and the universalisation of exchange is very much part and parcel of state-building and the ability of the state to effectively marshal and order its resources in an efficient manner at a time when state-formation meant that such means were necessary for war-making purposes – which played an essential part in establishing the modern state. Hence lost of examples about professional forestry to allow a taxable lumber industry, raw material for heavy industry and supplies for the navy to be built up over time frex. So, in this sense there can said to be a contradiction but in our period of late Capitalism and where the Westphalian states-system is pretty much the geo-political standard the ability of the state and more TNCs to codify and collect such ‘local knowledge has increased – some of this motivated by the desire for increased differentiation (and ironically a move away from standardised products) in the consumer sector which creates an opening for exotic’ types of marketing for various commodities – maybe Bodyshop’s range of natural products can be an example to more corporatised and state-centred forms of knowledge collection and classification. The programmes of various IGOs and states in collecting and maintaining gene banks is an example; the Indian govt has launched a scheme which allows ‘bio-mapping’ of many diverse and relatively isolated communities, many of them farming based to allow users access via remote-computer centres to store various bits of local knowledge on inter-breeding of planted crops, medicinal herbs etc. Many TNCs have started gene-banks and collection systems which seek to investigate the different uses of plant and animal species for any commercial application. Some of this has led to charges of bio-piracy as with the attempts to patent the properties of the Neem tree, turmeric and one particular case involving the cell-linings of one member of a Central American Amerindian tribe. But the point is with the increased powers of surveillance and ability to process information and the lesser need for standardisation and universalisation to legitimise certain forms of exchange as well as alternative basis of legitimacy to conduct state-building; it has become easier to maintain more flexibility in utilising/exploiting local knowledges in this fashion. To use Scott’s Foucauldian terminology; the abilities of the state and other collective agents of Capital have become more ‘capillary’ rather than ‘arterial’ and so can reach places they could not before.

Micha, hmm – two points.

1. I don’t believe in arguments that project my beliefs onto “most people”, since there are a lot of people in the world. However, I do believe that if you discussed, with almost any scientist, whether trees have a value in themselves apart from their use to humans, the scientist would answer yes. In fact, the idea that there is no intrinsic value in nature is what is wrong with libertarianism tout court, if you ask me.

Besides, there is something philosophically vacuous and ultimately solipsistic in your talk of “humans.” Humans exist as articulate, intelligent presences in specific contexts. Is there any mortal use for the humans that existed in 1001 to humans now? So why study history, or keep the monuments of those critters? Do humans born in the year 2075 exist? No.
However, Humans don’t exist as such radically foreshortened utilitarians. They weave great webs of sentiment around their environment, and their language, and their ways of doing things, and their pasts and their futures. And this is what makes them interesting.

2. Although my hostility towards economics is amusing, and I do my best to please, when cocktail hour is over I set it aside. However, I do have hostility toward the logic of value as you articulate it. When you make the point that “individual cultures have no value in and of themselves” but have value “value to both the individuals living within it and those living in other cultures” — that’s a good point, and it is my point. However, the actual valuing by these individuals (who do not usually think of themselves as individuals — they think of themselves as family members, as sexually this way or that way, as having this or that religious belief, etc.) doesn’t proceed along this kind of logic: 1. this culture is actually neutral. We could be living in another; 2., but I’ll arbitrarily chose this culture over other cultures. Only Rawlsian cosmonauts think like that. It is an empty point that human beings are the ones who endow culture with value, since, after all, where do human beings GET the thought of value? From their cultures. In fact, I’d argue that that is the main reason human being evolve cultures — as value bearers. No one culture is valuable in itself, but cultures are lived as though they are valuable in themselves — that sums up the paradox.

Be that as it may, the libertarian neutrality with regard to culture is coy, but not convincing. There is a definite cultural impact that results from adopting certain economic policies. These impacts are not separate in everyday life from the political economy. Obviously, the economic choices any ideology favors is a small part of the shape of the cultures that they will also have to favor. It is easy not to see this, because there is no standpoint from which one can predict all of the effects of adopting x economic policy. But that doesn’t mean it won’t have any cultural effects. There’s a word for this in the Hayekian vocabulary — self-organization. To give an example: you will make very large changes in a culture if, over time, you augment the consumer power of the children in that culture. I’m not saying the changes are good or bad, but they will definitely occur. And those changes are, contra vous, definitely about the value of a culture, since they are changes that challenge the way a culture is set up. And they will occur just as Hayek expected — not as planned social projects, but as a set of operations to the results of which the operators are, to a certain extent, blind.

Roger –

Re: “value” – an interesting philosophical question, as Micha says: what exactly is “value” without reference to humans? Let’s say we’re talking about saving all the trees in a forest and walling it off so that no one, ever after, can go there – not even to look. Even in that extreme case, the “value” is a human one (for some people, at least) – they would value the mere knowledge that such a place exists. Animals and trees can’t “value” anything, simply becasue they can’t form the concept – or at least, they can’t express it to us, and since they can’t, any values they might theoretically have must be translated into human values.

Environmentalists might imagine themselves as Loraxes who “speak for the trees”, but it’s not as if the trees took a voteand elected them…

Micha and Jimbo,
On value and use — the two shouldn’t be conflated. Surely, if I plant a tree, because I like to look at it, that tree has that “use.” But if one extends use to cover all human activity, than we have destroyed the usefulness of “use” as a term of art or science.

Michna’s argument seems to be:
1. humans create value
2. value is an function of use.
3. that value is a function of use is the way those terms are used among all economists. In fact, Michna is kind enough to prod me to do some research, since obviously I haven’t mastered the corpus, as she has. Well, let’s look at how one economist talks about use and value. Not Marx, but Adam Smith. In his lectures of 1762, which preceeded the Wealth of Nations, he ponders the difference between the cheapness of water and the dearness of diamonds and makes the parenthetical remark that “their real use seems not yet to be discovered.” Smith’s theory is that the difference in price is explained by supply, which explains the differential. If value and use were synonymous, Smith’s parentheses wouldn’t make sense. Smith expanded on this lecture in Wealth of Nations, where he writes:

“The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called “value in use”; the other, “value in exchange.” The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use.”

As to the value of trees in themselves? It is in their being trees. It would be an odd society that thought that the value of trees was simply in their being good for fuel and timber. Luckily, that society has not yet appeared.

Roger,

You have misread my argument. I never equated value and use. In fact, I specifically mentioned that economists recognize “existence value” as a legitimate value. And I also said, as an example, “We study history because we find it useful or interesting, or for any other reason that pleases us.”

Also, my name is spelled “Micha” and I am male.

As to the value of trees in themselves? It is in their being trees. It would be an odd society that thought that the value of trees was simply in their being good for fuel and timber. Luckily, that society has not yet appeared.

“In their being trees” is not an argument; it is simply a repetition of your claim. Trees are not only valuable for fuel and timber, but for asthetics, oxygen production, and so on. What trees are not valuable for is anything independant of human value.

Micha, sorry about the name misspelling.

It is true that saying we value trees because they are trees is not an argument. That is because it we don’t need an argument, here. We simply need to observe how people do their valuing. Long before there were tribes of utilitarians, there were tribes that worshipped trees. Societies appeal to transcendent entities all of the time — the Gods, or Liberty, or Efficiency, etc. etc. If, by saying all values are human values, you are saying all the values that we know about are the ones that are discussed in human language by humans, that is a position of respectable nominalism. As I say, I think “humans” don’t make the values, but humans in relation one with another – in cultures, institutions, societies – do. This is another form of nominalism, actually. However, it should be noted that this is a minority view – most humans think values come from insights into how the universe is. However, I don’t see all of this as immediately pertinent. To say that trees are valuable because they are trees is not to speak for trees, or to imply that trees mystically make up values in communion with a tree god, but to say that respect for trees should constrain human acts with regard to trees. As, for instance, creating a monoculture of a few trees by letting the variety of trees disappear via extinction, even if saving species of trees means a sacrifice of wealth by some humans. You can interpret this to mean, Roger, a human, not a Lorax, thinks there is a human value in having a variety of trees. Cool. As long as respect for trees is preserved, I could get down with your way of expressing it.

I do think that it is rather funny to start out with a nominalistic attitude towards values, and end up with an idealistic attitude towards social action – which is what you get when you say that humans really represent human values when saying things like, Woodman, spare that tree. I think they just mean, woodman, spare that tree. To use a term from old Adam Smith, I’d call it trans-species sympathy.

PS — Aristotle, to mention one person who had no time for the human being as supreme good argument, thought that it was a sign of a vulgar mind to be too concerned with human beings at all. Much better to contemplate the Gods.

Rich,

I wouldn’t go so far as saying that ecological value is separate from economic value. The question still remains: why are well-run natural systems valuable apart from the value humans recieve from them?

And you’re right that this is a non-theist position; whether or not the person doing a cost-benefit analysis believes in God, he cannot point to God as a source of additional value above and beyond humanistic value if he expects his analysis to be generally accepted and used by others. The same is true with scientific experiments.

As for the cost of wiping out the human species, this seems somewhat similar to the question of suicide. From a utilitarian perspective, suicide is not infinitely costly; we can easily imagine situations where it is more painful to remain alive than it is to end the pain. So too, if ever there came a point where there was no hope for the future and the entire human species was suffering untold misery, perhaps wiping out the human species would be a net benefit, and not a cost at all.

jimbo, there was nothing “airy” about my statement about ecological value. I wrote that “Trees have ecological value that is independent of their economic value or to the value that humans place on them; i.e. they are part of a natural system that would not run as well if they were not present.”, to quote my full sentence. The statement that ecologies would not run as well as they do without trees is a simple statement of scientific fact. I didn’t mean that this necessarily implied economic value — though in reality it indirectly does, since we wouldn’t have an economy without an ecosystem — but that there is another meaning of the word “value” that might be confusing the discussion.