The Conservative Sensibility Read online

  There was, however, a remarkable confluence of events in three years early in the fourth quarter of the twentieth century. In 1978, Deng Xiaoping began his market-oriented reforms of China. In 1979, Margaret Thatcher became Britain’s prime minister, vowing to revive the sclerotic economy of the island nation where the industrial revolution first gained traction. In 1980, Ronald Reagan was elected with a mandate to lighten the weight of government in order to enlarge the sweep of market forces. In the first quarter of the twenty-first century, however, after economists failed to anticipate the Great Recession of 2008, and found it difficult to prescribe policies that would produce steadily brisk economic growth, the confidence and prestige of economists was diminished, again. It is time to get back to basics.

  The study of economics is, always and everywhere, first and foremost, the study of incentives. The study of economics, when it began in the eighteenth century, was called political economy and was first taught in America at the College of William and Mary. It is the study of production, distribution, and exchange as they are influenced by the laws and customs of particular nations or the international order. One reason the study of political economy came to be renamed “economics” was to suggest scientific rigor supplanting political calculations. But what is needed is scientific rigor about the alternative social contexts in which economic activity occurs. Economics is the science of efficiently allocating scarce resources for the achievement of myriad and competing ends. So economics can only take us so far. It is for the market to aggregate individuals’ preferences in determining the hierarchy of ends. Politics intrudes in this process in order to accomplish things: Democracy aggregates the desires of majorities, or of intense and compact and politically deft minorities, for collective actions.

  While allowing for enormous variations along the continuum from one economic model to the other, there are two basic economic models: voluntary market exchanges and exchanges administered by government commands and controls. The former, called capitalism, is what freedom looks like in economic affairs. It is the consensual pursuit of happiness between contracting or otherwise cooperating individuals or groups of them. The most elegant and enduring affirmation of this is almost a quarter of a millennium old, and its publication coincided with the birth of the nation in which capitalism would most spectacularly succeed.

  In 1776, in The Wealth of Nations, Adam Smith argued that “the sovereign”—for our purposes, the government—has no “duty of superintending the industry of private people, and of directing it towards the employment most suitable to the interest of society.” The government has no such duty because in attempting to perform such a duty it “must always be exposed to innumerable delusions, and for the proper performance of which [duty] no human wisdom or knowledge could ever be sufficient.”45 In the twentieth century, Friedrich Hayek explained why this is so.

  In 1945, with World War II having been won by prodigious feats of industrial mobilization, the prestige of government was at an apogee, and so was the confidence of many intellectuals in the possibility and advisability of “economic planning.” So, in the September issue of The American Economic Review, Hayek responded with “The Use of Knowledge in Society,” his sobering thoughts about what he would come to call “the fatal conceit.” The irremediable impediment to governments successfully constructing what Hayek calls “a rational economic order”—an economy organized and administered by central planning—is this: “The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” His point was that markets are mechanisms for generating and collating information that only market processes can produce: “Fundamentally, in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.” He cited “the marvel” of the market’s response to the scarcity of a raw material: Without any government directive being issued, without more than a few people knowing the cause of the scarcity or the response to it, innumerable thousands of people, who are unknown to each other and whose identities could not be discovered by exhaustive investigation, are caused to use the scarce material more sparingly.46

  Hayek said he used the word “marvel” in order to “shock the reader out of the complacency with which we often take the working of this mechanism for granted.” Unfortunately for the reputation of markets, their misfortune is that they are “not the product of human design.” So “the people guided by it usually do not know why they are made to do what they do.” That is, markets are denied the prestige that accrues to human designs, including those that accomplish less marvelous things than markets routinely accomplish in allocating scarce resources. Hayek approvingly quoted a contemporary philosopher, Alfred North Whitehead, expressing the conservative sensibility. “It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking [about] what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.” Mankind, Hayek said, “stumbled upon” the price system, meaning the working of a free market, without understanding it.47 This did not matter because the market will communicate information anyway, without market participants’ understanding. At least it will when not afflicted by what Smith delightfully called “impertinent obstructions”: “The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers [sic] its operations.”48

  Hayek was enthusiastic about markets, but not because of utopian expectations. He was enthusiastic because markets comport with what he called the Tragic View of the human condition. Human beings are limited in what they can know about their situation, and governments composed of human beings are limited in their comprehension of society’s complexities. The simple, indisputable truth is that everyone knows almost nothing about almost everything. Fortunately—yes, fortunately—this is getting more true by the day, the hour, the minute. As humanity’s stock of knowledge grows, so, too, does the amount that, theoretically, can be known but that, practically, cannot be known. As Hayek wrote, “The more men know, the smaller the share of all that knowledge becomes that any one mind can absorb. The more civilized we become, the more relatively ignorant must each individual be of the facts on which the working of civilization depends.”49 So, in a sense, ignorance really is bliss because so many other people, who also are ignorant of almost everything, are knowledgeable about something, and we can make use of their knowledge. People who travel by air as routinely as earlier generations traveled by bus do not need to know anything about how planes are built or flown or, for that matter, why they fly. Advancing scientific and technological sophistication constantly multiplies the number of things we do not need to think about because others are doing this for us. This division of labor into ever more minute bits liberates us to get on with our lives.

  Matt Ridley wonders why, “If life needs no intelligent designer, then why should the market need a central planner? Where Darwin defenestrated God, [Adam] Smith just as surely defenestrated Leviathan.”50 In a sense, the natural sciences begin where the social sciences should begin, with awed appreciation of the emergence of complex yet undesigned systems, be they animal organisms or markets based on voluntary exchange. In his 1974 lecture accepting the Nobel Prize in Economics, titled “The Pretence of Knowledge,” Hayek noted that the general public had granted to economics “some of the dignity and prestige of the physical sc
iences.” This, he thought, was a mistake because economics deals with “essentially complex phenomena,” such as markets, “which depend on the actions of many individuals” whose circumstances “will hardly ever be fully known or measurable.” Economics, like other social sciences, deals with “structures of essential complexity,” involving “relatively large numbers of variables,” which means that the observing scientists can never know “all the determinants” of the particular social order. “This means that to entrust to science—or to deliberate control according to scientific principles—more than scientific method can achieve may have deplorable effects.”51

  Hayek was warning against the “scientistic” frame of mind, which involves extravagant hopes for “a more scientific direction of all human activities and the desirability of replacing spontaneous processes by ‘conscious human control.’” The public had been dazzled by advances in physical sciences where “explanation and prediction could be based on laws which accounted for the observed phenomena as functions of comparatively few variables.” We need “a theory of essentially complex phenomena” to “safeguard the reputation of science” from injury done by importing into the social sciences procedures superficially similar to those in the physical sciences.52

  Hayek illustrated “the inherent limitations of our numerical knowledge” by considering a sport played by “a few people of approximately equal skill.” If we know not only the players’ general abilities but also know precisely “their state of attention, their perceptions and the state of their hearts, lungs, muscles, etc. at each moment of the game,” we should be able to know the outcome. But of course such comprehensive knowledge is impossible, and hence the game’s outcome is “outside the range of the scientifically predictable.”53 Which, as the saying goes, is why they play the games. Hayek’s point was that a society’s relevant variables are immeasurably more numerous than those of a game between teams. The variables are numerous enough to defeat certitude in predictions. To pretend otherwise, to ignore the market’s “efficient mechanism for digesting dispersed information,” is to tread a path to “charlatanism and worse” in an attempt to subject not only our natural but also our social environment to our will:

  To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the over-confident because their experiments may after all produce some new insights. But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims.54

  The most succinct summation of Hayek’s thinking is in two sentences from his last book, the title of which firmly embedded a phrase in our political lexicon: The Fatal Conceit. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naïve mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions, and that a division of authority will actually extend the possibility of overall order.”55 Adam Smith preceded Hayek in reaching the conclusion that Hayek came to concerning any government official who thinks he has mastery of society’s variables: “He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces on a chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”56

  “We,” said Benito Mussolini in 1929, “were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become.”57 Leave aside the characteristic grandiosity and falsity of his boast: Woodrow Wilson and others had said similar things, although sometimes they purported to be modernizing the idea of freedom. What makes Mussolini’s formulation interesting is that it is the opposite of an insight that Hayek would soon have: The more complex society becomes, the more government should defer to the spontaneous order generated by the voluntary cooperation of freely contracting individuals.

  IT’S EASY TO RAISE SNAKES

  The economist John Cochrane, who blogs as The Grumpy Economist, says economics is “perhaps best described as a collection of funny stories about unintended consequences.” One such explains Cochrane’s career choice: “I became an economist one day very young, reading a newspaper story about a program to get rid of poisonous snakes. The government had offered a bounty on each dead snake. Guess what happened. Hint: It’s easy to raise snakes.”58 The law of unintended consequences is: In a complex society, the unintended effects of government interventions that are intended to tame and regulate processes are apt to be larger than, and opposite to, the intended effects. This is another reason for practicing what is called “Hayekian humility.” Hayek’s career was a long summons to epistemic humility, epistemology being the field of philosophy concerned with the nature and limits of human knowledge. A free market, which is a mechanism for generating knowledge by aggregating information, is a design—an artifact, a political construct, a choice. It is a deliberate arrangement by a central government to enable a policy of decentralizing decision-making. It is a social choice to have government facilitate social change by getting out of the way of the market. One of the great truths about society is that most of the cumulative results of conscious human choices are not the result of any human design. Most of what makes up society, and most of what is most important in society, is the result of choices too numerous to count, not the planned intention of any individual or group of individuals. Hence the law postulated by Robert Conquest, the historian and poet: Everyone is conservative about that which he or she knows the most about. This is so because when one knows something well, one knows its complex antecedents and evolution.

  Hayekian humility in the face of social complexity contrasts with the statist hubris that doomed what Hayek devoted his life to opposing: socialism. The fundamental cause of the collapse of the Union of Soviet Socialist Republics was ignorance. That is socialism’s systematic problem. Socialism, in which government planning supplants market signals, must be ignorant of almost everything, such as: how much bread should cost. Socialism cannot know, because it cannot know what flour and other ingredients should cost, or what labor, packaging, transportation, or advertising should cost. Markets are mechanisms for generating billions, even trillions of bits of information daily. Markets thereby produce reasonable allocations of wealth and opportunity. Make the market illegal in an industrialized society and what you get is what the Soviet Union was: “Upper Volta with ICBMs.” That is, a Third World economy with pockets of modernity. Communism’s prodigious achievement was to keep a potentially rich nation poor. The Soviet economy remained substantially a hunter-gatherer economy based on extraction industries—furs, oil, minerals, caviar (eggs extracted from fish).

  Eventually, and too late, Communist Party officials, supposedly the vanguard of the proletariat, noticed that their nation was foundering in the wake not only of Western industrial societies, which had had a head start, but also of Taiwan, Singapore, and other Asian economies of the information age. To repeat: Markets produce many things secondarily, from shoes to trucks to novels, but primarily they produce information, in torrents that no government is intel
ligent enough to comprehend or nimble enough to respond to. Americans’ intuitive understanding of this helps to explain why, even in extreme distress, they were impervious to economic statism: In 1932, three years into the shattering, terrifying experience of the Depression, the Socialist Party’s presidential candidate, Norman Thomas, received fewer votes (884,885) than the 913,693 that Eugene Debs won in 1920, when, thanks to the wartime hysteria Woodrow Wilson fomented, Debs was in jail.

  The American government, however, then succumbed to its incontinent desire to bring even small economic entities into obedience with its commands, as Jacob Maged discovered. In 1934, the tailoring and cleaning establishment at 138 Griffith Street in Jersey City, New Jersey, belonged to Maged, a Polish immigrant who was then forty-nine. With his responsibilities as a father of four, Maged should have shunned a life of crime. Instead, he advertised his criminal activity with a placard in his shop window, promising to press men’s suits for thirty-five cents. This he did, even though President Franklin Roosevelt’s New Dealers, who thought that they knew an amazing number of things—his economic aides were pleased to be called a “Brains Trust”—were sure that they knew the proper price for pressing a man’s suit: forty cents. The National Recovery Administration said so. This, the first NRA, was the administrative mechanism for the National Industrial Recovery Act of 1933, which envisioned regulating the economy back to health by using, among other things, codes of “fair competition.” The theory, involving a whopper of a non sequitur, was: In a depression prices fall; therefore the way to cure a depression is to force prices to rise. So, competition, which leads to price cutting, should be sharply curtailed by government edicts. The cartelization of labor should be promoted by encouraging unions, and the cartelization of industries should be promoted by codes that would inhibit competition. So prices would be propped up and prosperity would return.