 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Aaron Ross Powell, editor of Libertarianism.org and a research fellow here at the Cato Institute. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Steve Horwitz is the Charles A. Dana professor and chair of the Department of Economics at St. Lawrence University. He's the author of the forthcoming book, Hayek's Modern Family, Classical Liberalism and the Evolution of Social Institutions, which will be released in September. So we're talking today about Friedrich Hayek and maybe we can just start with some biography. Well, Hayek was born in 1899 and grew up in Austria, fought in World War I briefly and then returned to Vienna where he pursued then – well, it's a law degree. It was the way you studied economics. It's interesting. His father was a scientist, a natural scientist. And Hayek always had an interest in botany and biology, which I think as we talk will become important in thinking about evolution and science and some of those things. But he got the law degree and then he went back and studied more economics. And then the key was, of course, that he became an informal student, not ever official student, but an informal student of Ludwig von Mises, became part of Mises's circle in Vienna in the 1920s. And it was Mises Hayek's as who converted him away from Hayek's Fabian socialism towards a kind of classical liberalism. He then worked for Mises for a while and then had, by that point, sort of established his own identity as an economist. Hayek ended up – he was in the United States for a while in the 1920s where he was studying U.S. monetary theory and the early operation of the Fed. So a lot of his business cycle theory work that we may talk about in the 30s, the 20s and 30s and 40s came out of him actually having been in the United States and knowing the details. He then wound up back in London. He got a job as the Duke professor of economics and statistics at the LSE, which he got on the basis of the lectures he gave there. That became his book, Prices and Production. And he was at the LSE for quite a while. And there he – while he was there, he participated both in the Socialist Calculation Debate and the debate with Keynes. And of course, Keynes was his friend and colleague over at Cambridge. Hayek came to the United States in the late 1940s after the war. That story is fascinating because it had to do both with his desire to be in the States and he ends up at University of Chicago at the Committee on Social Thought but also was wrapped up with his divorce and somewhat scandalous remarriage. We can talk about that if you want. And so he's at the University of Chicago – again, not in the economics department but in the Committee on Social Thought through the 50s and into the 60s. I can't remember exactly which year, but he ends up back in Freiburg, Germany in the early 60s, continues to work there. And then he goes through a really difficult period in the late 60s and into the 70s suffering from some depression and things like that. But he still manages to crank out law legislation and liberty in the 70s. And of course, in 74, he shares the Nobel Prize with Gunner Murdoch. And then Hayek passed away in 1991. 92, 92. Rand was 91. No, Rand was 81. 92, yeah. So at the age of 91, it can't quite – maybe it is his birthday yet. But he – of course, his last book before he passed away was The Fatal Conceit in 1988. So you look over the span of over 60 years of writing and published work. Did you ever get a chance to meet him? It is one of the great shames of my life that I did not. I just missed him. One of his last – he was at George Mason for, I think, his last visit to the state. He may even come to Cato when he was two. Yeah, I think he did. And that would have been 83 maybe. And I started at Mason in 85, so I missed him by a couple years. Now, when did he become – this is a weird way of putting it, but – Yeah. Start becoming more famous. Was it in the 20s? Was he pretty famous? Well, you know, define famous. Yeah, exactly. His business cycle work, his academic work in the 30s certainly made him – I'm getting that job at LSE. Was he huge? That was a major thing. So that made him famous within intellectual circles. What made him famous as a public intellectual, of course, was The Road to Surfdom in 1944. And that book, which was obviously controversial in a number of ways and a book defending classical liberalism at a time when planning and socialism were at their peak, it was serialized in Life Magazine. It was Reader's Digest. Reader's Digest, too. But there's also – there's a Look Magazine version, cartoon version. Yeah, the cartoon. Serialized in Reader's Digest, right? And so it was sort of all over the culture. And the story is he came to the United States to deliver lectures on the book. And he was like thinking, you know, typical professor, I'm going to go give a lecture. You know, 50 people will be there. And they had booked him in these huge auditoriums, right? For thousands of – and he was not prepared for that, but he handled it. And certainly that made him very much a public figure in ways that he had not been before. In some ways to his dismay, because he was – he had thought that he'd lost his academic, you know, cachet gravitas, I guess, because of that book and felt very strongly going into the late 40s and 50s that he somehow had to get that back, right? He had to remind people he was actually a real scientist, not just this guy who wrote these public intellectual books. So what was the argument of the road to serfdom? Well, it's one of these classic ones where the argument people think it made isn't quite the one it made, okay? So the version of it that you hear is something like the following that Hayek argued that any step on the road towards planning, towards greater government control over the economy would inevitably drive us down the road to serfdom into full totalitarianism, right? So once you – you know, it's the world's biggest slippery slope, right? Once you started down it, boom, you were gone. And it's not what he said. What he said more guardedly was that once you begin to believe that you need to plan an economy, if you are to pursue that consistently, you will find that you will have to plan other parts of society, that you'll have to take increasing – your attempts to control society will increase over time and that if you don't recognize that, you can slide down that road to serfdom. But it wasn't this sort of, you know, Marxian kind of inevitability. He was – it was a warning. It was in that way like 1984, right? It was a warning that said, thinking you can just plan an economy while leaving people free in these other dimensions is naive, okay? It's not going to work. And he – in the book he traces through the sort of history of planning and where those ideas come from. The sort of thesis that everyone kind of grappled with was this one, right? And he – you know, because obviously we can think of places today that have started down that road. But Sweden – Sweden, right. And they backed up, right? So, yeah. And so it wasn't a story in which human agency wasn't present where we couldn't stop this process. But it was one that he said, if you pursue it consistently, you will have to do these kinds of things. And there's some wonderful chapters in that book. One called The End of Truth where he talks about how – that you'll eventually, if you pursue this, have to engage in all kinds of forms of propaganda in order to persuade people to adopt a set of preferences that's consistent with, right? And the other one – one of the most enduring chapters is why the worst get on top, which is a sort of pre-public choicey kind of story about why once you put power – this kind of power in the hands of the political class, it will attract the people with a comparative advantage in doing nasty stuff because they will be the ones who rise to power. So it's – again, and remember, he's writing in the 40s while Nazism and the Soviet were seeing both at the same time. And it's a very effective kind of story about both of those not being simply well Germans or anti-Semitic, therefore, but rather the idea that you've turned this power over to the state so it wouldn't be surprising that you get people like Hitler and others who come to power once you believe the state ought to do these things, that once you rise to power are the Stalin's and the Hitler's and the – you know. My favorite part about it is the sort of sociology of the state type of thing that you mentioned there and the real enduring lesson I think when you see in this town and watch the news cycles is that he says basically that they're going to try and plan something. And my next question is about the planning. So they're going to say we're going to say Obamacare or whatever they're – we're going to plan. We're going to take over some part of the economy to make it better, make it more fair or whatever thing. And then when it doesn't work and it won't work because of Hayek's other ideas, which we'll get to, they're never going to say, oh, it didn't work because we went too far. They're always going to say it didn't work because we didn't go far enough. The problem was the freedom that is undercutting the planning and not the planning itself. And that's a very good observation I think about the sociology of the state. And I think, too, by the way, Mises has this wonderful stuff on what now gets termed the interventionist dynamic where basically he says, you know, people perceive a problem in a largely market economy. It's more times not caused by the state. They say we have to fix this problem so we need more state intervention to fix it. The state intervention comes along, creates several problems, other problems now that of course most economists would have anticipated but leave that aside, right? Creates a bunch of new problems and people say, oh, my God, we have to solve these problems with more state, right? It's sort of the same version. And what Mises argued is, again, if you don't recognize this, you're either going to end up going all the way to a more comprehensive form of state control or you're going to have to realize we've got to stop this and back up. So, yeah, I mean, those arguments were deep in that tradition. So why can't they plan? I mean, this is maybe the biggest question. And this goes back to the socialist calculation debate. And it's related to the, you can tie these together for the use of knowledge in society, which is such an important. So why doesn't it work? Well, what Hayek does is to suggest that the fundamental problem in society is a problem of the use of knowledge, hence that famous 1945 article of use of knowledge in society. And that the problem we have to solve in any society is the fact that the knowledge we need to produce, create and do almost anything is dispersed, contextual and tacit, right? It's dispersed in the sense that different people know different things. And so somehow we need to get people to share the little bits that they know. It's contextual in the sense that oftentimes the knowledge relevant for economic, for the sort of rational use of economic resources, for efficient use of resources, is knowledge that will only appear when you're in the context of a market economy that draws it out through the competitive process. So that the knowledge doesn't really in some sense exist until you're in the game, until you're in that process. And then it's tacit. There are things that we know that we can't articulate. So my favorite example of this though, it's less, my students are less likely to get it these days. If you know how to drive a stick shift, a manual shift, okay, I ask my students how do you know when the, what's the hardest thing to learn? Well, when to pull your foot off the clutch, okay? How do you know? How do you know when to pull your foot off the clutch? How do you just kind of know? Okay, I'll say to them, do you know? Yeah, I know. Do you drive? Yeah, because if you pull off too early, right, you know, pull off too late. So they know, but they can't articulate it. Or can you ride a bicycle? If you can ride a bicycle, you're solving these complicated physics equations, but you can't articulate what it is. So there's all kinds of knowledge like this. A significant portion of the knowledge in any social system, but in an economy in particular, is of this sort. Entrepreneurship, specifically, they have learned from experience that they can't always articulate, but that they know. So when you put all these things together, the idea of planning an economy, of trying to create an economic system from the top down, would require that you were able to access and gather and make use of all of this knowledge, yet the knowledge is dispersed, so it's challenging to get it all in one place. It's contextual. It can only exist under certain institutional arrangements, and if it's tacit, the people themselves, because you might say, that throws everything they know into a computer, and we figure out how to allocate. Well, wait, if you can't articulate it, you can't get it into the computer. And the flip side of this, then, so that's the way that knowledge plays out in the economy, and the way that the economy and the people in it operate is why planning doesn't work, but it also leads us to the other great idea that Hayek's known for, which is spontaneous order. And so for Hayek, spontaneous order is the idea that human institutions are the product of human action, but not human design. And I think that's the phrase he liked and comes really from Adam Ferguson, one of the Scottish Enlightenment thinkers that Hayek loves so much. And the idea here is that so many of the things in society, in particular economic institutions and practices, evolve over time in ways that no one person designed, although each one of us contributes to the choices that we make. So again, another example here with students is I teach up north where it snows a lot, we get the snow covering the quad. And what happens over the course of the morning, of course, is that these pads, foot pads, get worn through the quad as students walk from class to class. Same thing with tracks in the woods, Hayek uses that example too. There's no one out there with a sign saying, hey, everybody walk here, there's no one planning out where these pads will be. Yet these pads form through this spontaneous orderly process, and they work, right? George Mason in the 80s, they were building so many new buildings, they were smart, they didn't pave in any paths, they waited to people walk through the dirt of the grass and saw the patterns from the bottom up that people were tracing out and then paved them in afterwards. And that's the idea of spontaneous order. In the market, what makes that possible, what coordinates all that behavior, are prices, profits, losses in the other institutions of the market. And Hayek's argument in the use of knowledge in society is that prices, and this is my preferred phrase for it, but prices are knowledge surrogates. They serve in the place of that underlying knowledge. It's not as if a price gives you that knowledge, but it lets you act as if you knew all of those other things that people knew. So when a price goes up, we know that this good is now relatively more scarce, we know we should economize on it, we know we should be looking for substitutes, we don't need to know why, we don't need to know the who, what, the price tells us much of the substitutes for that information that we would otherwise have. But using prices to track that knowledge I guess distort our knowledge as well, because the prices then it's not just that the prices are giving us information but they're encouraging us to act in certain ways and we're getting information from prices as opposed to from other sources and so it's similar to the, you know, you look for your keys where the light is best and so this leads to a market economy where people are chasing profits, chasing the highest prices they can get, creating bubbles in a way that we wouldn't if we had more rational planning or other incentives or other ways of getting at knowledge that were tied to say greed or whatever else. And then, yeah, and the question then is what's the alternative, right? I mean, you know, Mises back in 1920 in his first contribution to the Socialist Calculation Debates says, look prices. Yeah, I'm going to stop, yeah. I think we said Socialist Calculation Debates a couple of times, so clarify. So let's, we'll back up and then we'll come forward. So, you know, Marx and the Marxians argued that you could plan an economy in the absence of all the institutions of the market, right? That you wouldn't need prices, profits, you wouldn't need private property exchange. You could scientifically plan an economy and sort of, you know, we could gather the necessary knowledge so that everyone or a group of people could know how to allocate resources efficiently. I mean, you know, we don't want to go too far into the Marxian story, but the idea was you know, markets capitalism are full of wasteful duplication and people are doing what's profitable instead of, you know, what's really valuable. So if we had planning we would eliminate that waste. We would eliminate the, you know, the exploitation of the market and alienation of the market. So the question was, could we do this? Could we actually allocate resources rationally in the absence of markets? Several attempts to grapple with this turned the century and the most fundamental response to it was Mises's 1920 article, Economic Calculation in the Socialist Commonwealth, where he laid out the argument about why you could not plan an economy. And essentially it's this what we're talking about here. Mises said you can't know the, you can't determine efficiency without knowing the value of resources. And the only way that you can know the relative value of resources is through prices. And those prices have to be determined through exchange in the market. The only way you get exchange in the market is if you have private property. And particularly he pointed out in the means of production in capital goods. So his argument was if you want rational economic allocation of resources you have to have prices to be able to make the comparisons. So you can say you can know technologically I can make a bridge out of wood steel, maybe platinum. Let's suppose for a moment you could do that. So wood steel, platinum. Which one should we make it out of? How do we know? And we know don't make it out of platinum because it's really expensive it has more valuable uses. But in the absence of a market and prices there's no way to pick among the technological solutions the one that is economically the most efficient. And that difference between technological efficiency and economic efficiency was key. So Mises writes this in the 1920s, throws the challenge down. There's some responses by the Marxists but the most interesting responses were by mainstream, then mainstream economists particularly Oscar Lange others as well who argued and here's where we get into the weeds a bit but argued that the principles by which economists use the theory that economists use to talk about the market could apply equally to a socialist so at least a system Lange said where the means of production were socially owned. So Lange, this got referred to as market socialism, was allowing prices back in in ways. So at one point you can make right here as well, okay then you've conceded Mises' main point but what Lange tried to argue is you could still allocate capital from the top down by kind of mimicking the market by sort of throwing out prices and seeing what people would supply, would be willing to supply and demand and adjusting them accordingly. He had this whole kind of complicated system. Hayek's work in 40s was a response largely to the Lange type proposals about why that couldn't work and one of the interesting things about that I think is that Lange said in his original contribution how grateful the planner should be for Mises' original argument because it forced them to rethink, you know, think through all these issues that they should build a statue of Mises in the hall of planning to thank him, right for that would be a little smart he's been long as be a little snarky but I think it's fair to say that without Lange's response to Mises Hayek would never have been pushed to develop these knowledge issues in the way that he did and in a real equally ironic sense modern Austrian economics owes a debt to Lange for I don't want to build any statues or anything but owes a debt to Lange. So I think another thing for our listeners who aren't familiar with this what happened for the fact that Mises was proved correct and Hayek what happened in the Soviet Union because of the lack of prices? Well let's just take one other point in the eyes of the economics profession by the way Lange won that debate or at least it was a draw right and the perception was well Lange showed that you couldn't decide on theoretical grounds whether capitalism or socialism was better and it really wasn't until you know the 80s and here's where my own dissertation advisor comes in Don LaVoy wrote a wonderful book in the mid 80s called Rivalry in Central Planning that the socialist calculation debate revisited where he went back and really reinterpreted what happened there and made the case that actually people misunderstood it and that Mises and Hayek were right. So that's an interesting story too. I mean Hayek once you know Hayek lost the two biggest debates was perceived to have lost the two biggest debates in social science in the 20th century yet at the end of the day he was the one still standing which I think is interesting what happens in the Soviet Union what you have there is you don't have a planned economy in the full sense of the term they still had prices right they were and they had world prices to look at what you had there was sometimes called an administrative command economy it's an economy in which prices are being set administratively from the top it's an economy in which and they're being set too low so you constantly have shortages and you have misallocation of resources because they can't figure you know the old story of the they're told to companies called produce 10,000 pounds of nails right so they produce 10,000 pound nails right and so we would never produce in terms of weight right we'd say what kind of nails or what kind of screws do you need Phillips head or straight up right so there's the market can fine tune in the ways that they could so you had all this inefficiency there but inefficiency that came from heavily distorted markets from what we would today call rent seeking and called crony socialism all right it was but it wasn't it was never with the exception of the war communism years it was there was never any serious attempt to fully eliminate the market there it was a different degree of what we've of what we've seen but then sort of loop back around to my my question that so there's a there's a sense I mean the way that the way that these arguments get portrayed end up looking something like a market triumphalism market is it's not just that the market works compared to the alternatives but the market is totally awesome and so the the counter to that might be that these yes we have to we may have to rely on prices but they're distorting are not perfect in the way that we could say like look if you're only source of news about the world was say Fox News we still wouldn't say well that's that's wonderful you know that's there are there are bad things that would happen from only getting your news from literally knowledge free right yeah yeah I so so what Mises said this but I think where we left up Mises said in that 1920 piece was he said look there's things prices can't do they can't tell us about beauty they can't but for the things that we need to do from day to day to ensure you know progress and peace and prosperity they do a good enough job and it there's I think you know libertarians who who talk about these issues have to be you know we can't you know we prices can't tell us everything there is to know and they're not perfect either right we live in this Austrian a school economist would say we live in a world of disequilibrium prices are never perfectly right that's what entrepreneurs are for right to figure out when something's not right and sort of you know make the move to try to to to make those make those corrections so I think admitting that prices can't tell us the value of everything right I don't put a price relationship with my children or things like that right that's that's fine but if but if the question is how do we generate a prosperous cooperative society prices may prices are market prices are necessary even if they're not completely sufficient for the kind of world that we might like to live in a couple of times now we've mentioned the term Austrian economics and Hayek and Mises are the two giants of the modern Austrian school but for listeners who aren't familiar with it give us the thumbnail sketch of Austrian econ and how it's different from mainstream I'll do I'll do the brief very brief history and then in in the 1870s economics had a major revolution known as the marginalist revolution the idea of understanding that value was both subjective and marginal in the sense of the specific thing in front of you right you what mattered was not the value of all water everywhere but the particular glass in front of you but there were three kind of I wanted actually just to clarify that because I remember when I was learning economics I to clarify it was the diamond water paradox right right yeah and what did they think before before how is this I mean it makes so much sense the puzzle was look diamonds are frivolous you know luxury that we don't need to survive water is essential to human survival so why are diamonds so much more expensive than water if water is so crucial to our survival why isn't it more valuable right and the answer is because we don't when we value things we don't value the total utility of all water everywhere or all diamonds we value a particular concrete amount right so what's more valuable a glass of water or a glass of diamonds that's the question right and so this you know that my cup of water sitting on the table here is such a small part of the total supply of water that any given decision human beings make on the margin is always about a specific quantity of that could not the whole thing right so so that would got resolved but it worked kind of into three branches the three thinkers were Carl Manger, William Stanley Jevins and Leon Valros and they all kind of took this in different directions Manger was Viennese he was an Austrian and Manger took this insight in a way that really focused on people's subjective perceptions of the world and their decision making he kind of rejected the early mathematical attempts not because he couldn't do math because he didn't think it was the right way to think about economic issues and so the this approach to economics got tagged by its opponents as the Austrian school because well they were you know they were very psychological and all these are not German and they're not German that's right so so that's how the name came and then there's you know Manger's student Manger was a was the teacher of Mises and so we get this kind of lineage that comes about so today how do Austrians differ today Austrians today the Austrian school today starts from the assumption that what matters in economic really social scientific analysis is that the task of economics is to explore human plans and their consequences especially their unintended consequences so we start with the subjective agency of human beings we are actors we have plans we perceive the world in certain kinds of ways we have means and ends and we want to achieve those ends how do we go about doing that and it looks a lot like mainstream economics in some sense we're you know economizing behavior and we know margin utility things but what we're really interested in is how so given your own perceptions of the world how do you learn about the rest of the world and here comes the high story we've been talking about well you need that information provided by prices and profits and losses and all the other institutions in the market to enable you to make those decisions right and that those institutions are particular we want to understand how those institutions make possible the coordination of the marketplace and when and if it doesn't work right why doesn't it work and then that leads to this have focus on entrepreneurs and the role that entrepreneurs play in spotting ways in which markets are not coordinated and seeing opportunities to improve outcomes by using resources in ways that people haven't thought about before so I'm getting an obvious example these days is Uber Uber is just a beautiful example of two important things entrepreneurship that these guys realize this opportunity took advantage of it but one of the most fundamental truths about economic progress is economic progress is the progressive reduction of transaction costs right of making you define yeah yeah of reducing the costs of people finding and engaging in trade with each other so what the fact that the Uber gets there way before the tax again can take you to exactly where you want to go and you can do it all on your phone dramatically reduces the transaction costs of getting from here to there right you know you can think about eBay right people used to have a lot of junk in their houses now now now what they have is what used to be other people's junk but now is there is their treasure right and so eBay has dramatically reduced the transaction costs of finding people to get rid of your junk and from the other end of that market of finding stuff you think is a treasure but someone else thinks is a junk well that's the in the transaction cost that I lecture I talk about that a lot that you also realize that in the basic trading game parable that you can make the world way awesome or at least in subjective present preferences by reorganizing the stuff in it right that's right and the problem is is that you got to figure out what kind of person wants to trade with you and this is the story of human civilization that's right it's just you have a hundred people in a group where you have a thousand people in a group and now you have more trading possibilities but now you have more knowledge problems and this one the Austrians come in with with how in not just eBay first it was classified ads newspapers and then Craigslist and then and then also in human relations you have you have Tinder and you have and you have all these different you know hook up your harmony the harmony they also diminished transaction costs and it's amazing that that how many of those things are just standing in the way of human and that's the knowledge that's the that's the and that's the Austrian point and and the and right and the freedom to trade I mean economics it's a very Austrian point to recognize that economic act activity doesn't change the number of atoms and molecules in the world as you said we just reorganize stuff in ways that get things into the hands of people who value them or transform them into things that people value more without ever changing the amount of number of molecules that's that is awesome right that because that really gets at this point that what makes what wealth is is a subjective perception of us having the things that we value I think it's a piece of junk in my basement you think it's a treasure we trade and the knowledge is the problem and I think knowing that the other person right knowing that the other person is there and finding ways to make that happen and then we get and this goes back to the other question about what what else besides prices huge issue of course is trust right and all of these ways in which we all trade has to involve trust and as we trade gets more anonymous through these kinds of you know internet enabled things we have to find more and more sophisticated ways of signaling trust so so you know it's not just about prices it's about these other kinds of features of markets too but again when people are free to develop these things we can't we can't predict where you know where they'll go and and and that's the that's the sort of spontaneous order argument that when people are left free under the right institutional rules of the game right we can't let people club each other over the heads and steal but but under the right rules when people are free we generate good results and the and the the knowledge element is paramount and that's and and one quote that comes from Williamson someone yeah sure very familiar with about this little element of knowing and it goes back to socials calculation debate everything is one where he says my grocer doesn't know what I'm gonna buy when I'm gonna show up or how much I'm gonna buy but if he doesn't have it I fire him yeah right and and and it's the amazing ability for the economy to take all those things and put them together where you walk into the store and you take it for granted that you walk in that store and you get really mad that they don't have something and all those things are what goes into the difficulty of planning but on the Hayekian point yeah that's the I think we've said a foundation but if we were going to try and explain now when someone says this is a very Hayekian right like what are they like a Hayekian view of the family like Hayekian view of cities or Hayekian view of paths and GMUs campus yeah what would that what does that mean I think it's a recognition of the power of evolutionary forces the recognition of the limits to human humanity's ability to design social outcomes and a recognition of the way as we've been saying the way in which good institutions can make can enable us to make use of other people's knowledge in ways that enable all of us to solve problems more effectively so I think you know Hayekian for me the key at least certainly the stuff of the family is that kind of combination of evolution and spontaneous order recognizing that for example the family as an institution has evolved and changed in ways that no one intended or perhaps even imagined and it's done so in response to the ongoing evolution of economic and political structures and so on and so when we you know people want to say so and you know feminism wreck the family right well no you know it's more we have to tell we have to get behind that story and figure out what the forces and institutions and things are that are in place I think we also have to another part of that is understanding the family as an institution as one of the institutions that frames economic activity too right which is how how does not just how does the how do economic forces affect the family but what are the functions that the family as an institution performs in the broader spontaneous order of what Hayek called the great society of what Smith called the commercial society that grand spontaneous order of civilization and on that I mean one of the things we've been talking mostly about Hayek as an economist and he was a world class economist but then one of the really remarkable things about his enormously rich career was he wrote very very important works on topics that we don't typically think of as economics applying these insights so into law and political philosophy and so shift into some of those and maybe talk after after the road to surf them probably his next most famous book is the Constitution of Liberty and I think so one of the ways to understand as I suggested earlier what happens after the road to surf them is I think two things Hayek wants to get his you know scientific mojo back right he wants to be perceived as not this guy who wrote this you know book that was turned into a cartoon and he is very frustrated at having perceived to have lost those two debates and I think he's trying to figure out what what what went wrong what did what do the Keynesians not understand what did longer and the market socialists not understand what did I communicate well and so I think you can view the rest of his career after World War two as a bunch of attempts to address that Constitution of Liberty he said of it it was his attempt to write the on liberty of the 20th century he found mill endlessly fascinating he wanted to write something that would have the weight and impact and breath of on liberty and in Constitution of Liberty he tries to lay out a vision of classical liberalism and of the market economy that reflects many of things that we've been talking about that really focuses on the the the importance of that institutional framework about the way in which market and other institutions emerge and evolve spontaneously within it there's all kinds of interesting chapters in there about the political structure and how how how democratic political structures might play into that and the limits on government and the last part of that book is a bunch of applied to particular questions at the time that that people I think who read it are shocked to see how not radical he was his his classical liberalism was a very modest sort but again writing in 1960 that's understandable so you see that the and so Constitution of Liberty is sort of law and political philosophy law legislation Liberty the three volumes in the 70s is kind of a reworking of that I think he's like said at some point that even after Constitution of Liberty was done he was unsatisfied with it he thought there were things he had to do not there's a big debate about who you know who thinks which book is better I actually find I think law legislation Liberty is better I think he got it better the second time the economics a little more sophisticated the he's able to bring in some more evolutionary insights and things that that just it's richer than the first and he got more radical in his old age I mean we can talk about denationalization of money too there's a famous quote from story about Hayek where he met this was when he was in the states in the early 80s or late 70s he met with a group of young Austrian economists now my senior people now and they were pushing him all about libertarian or anarcho-capitalism and pushing him you know you should think about anarchism and all this and Hayek said stop look I'm an old man I can't do this right I can't think this way but he says I think if I were a young man today I would find this really really fascinating and I would be where you guys are so I think that's an interest he could see how they were pushing him so we have to talk about the neuroscience to keep everybody happy so Hayek in his student days Hayek wrote a was interested in psychology and he wrote a paper on theoretical psychology that proposed this kind of theory of the minds and cognition that he couldn't really substantiate the argument at the time and he put it aside and in the 40s he came back to it for a bunch of different reasons and I suspect that one of them was he knew from the papers on knowledge as part of the calculation debate that he had to understand something about knowledge and how the brain worked and so he went back to that paper and then read everything that was happening in sort of the neuroscience of the time the cognitive theory at the time and psychology at the time to figure out where it was and he turned out there was now what he was thinking but I think what's the rhetoric of it I think for him was he needed a scientific basis for the subjectivism of Austrian economics that is the idea that people perceive the world differently the idea that knowledge is dispersed and tacit and contextual the idea that knowledge matters that all the things that were in those but I think he really wanted to show and this is part of the, get his mojo back too in psychology or whatever it was science so he writes the sensory order which was published in 1952 way ahead of its time in terms of how it understood mind as an emergent phenomena from the physiology of the brain it's sort of anti-reductionist it's without being having the kind of physical evidence that modern neuroscience has because he didn't have the tools he was absolutely on the right track unless you're into that sort of thing but the last chapter is about the implications for methodology in the social sciences and stuff and it really becomes clear there where he's going which is if I'm right brains work a certain way and those produce certain human minds that process knowledge in certain sorts of ways and if that's right then this other stuff makes sense so it was he was all of these things were done with a purpose he really had an integrated social slash scientific story he wanted to tell so which makes him endlessly fascinating absolutely I mean you know he's my favorite yes I think there's a good time to perform a Hayekian analysis to clarify some of these things for our listeners and what this means and the kind of things you can do Hayekian analysis on so let's talk about language okay and what it would mean to so how language develops and what situations what it would mean to plan a language like Esperanto or economy Francais and then whether or not you could expect a planner the Esperanto I think there's still like 100,000 people clinging on and how this sort of stuff drifts so can you well, language is one of the first spontaneous order examples going back to the 18th century people recognize that nobody there's an old far side cartoon with two cavemen pointing to body parts going elbow we know it didn't work that way we know that it from earlier from earlier from so the way that words evolve and spellings of words in English evolve why certain words have meanings all these things nobody decides that from the top down it's decided by the users very much like money right what makes something money is what people decide with networking effects yeah there's network right and there's huge networking effects if only 100,000 people speak Esperanto or Klingon it's really not that useful if you're the only guy with a fax machine it doesn't it's not that useful so yeah there's network effects and what words get selected in and what words get selected out no one controls my St. Lawrence's school songs all seem to have the word wended in them you wended down a hill which is a word that was very common at the turn of the early 20th century but we don't use it now right why no one said stop using wended we just people change their behavior and you can look at the way text speak has invaded our language and the way in which the internet has given us words that we would never have before it's this constantly growing and usage changes too right all these battles over what literally means but the beautiful part is that no one it's an ongoing conversation about language right and no one can force a decision and what people decide through their usage will determine it Economy Francaise says don't use the word weekend but people use it right no one listens to them because usage matters and it's also why the artificial languages are difficult to get going because language to the bottom up growth of language just like those footpaths right you know where people want to walk if you wait right so when you let language bubble up from the bottom you actually get language that's more effective because people have chosen these words because they think they convey a meaning and they've been able to effectively communicate with them top down you can't know that and you can draw the analogies to markets here right yeah well I think that Hayek would use a term which I think we should clarify and define for something like Esperanto I mean but the term rational constructivism right what is that term yeah and what Hayek meant there was again this idea of trying to create top down through human sheer sort of rationality to construct something new that was completely detached from tradition and history one of the interesting things in Hayek is his relationship with tradition and he's very respectful but not reverent of tradition because tradition carries that weight of history and of usage and of success with it and so we have to recognize there's a reason we do things the way we do things so what Hayek says is you can't you can't throw everything out and start anew you can critically examine a piece of the social world and sort of ask whether this works or doesn't work but you're always doing it against the background of these other things and whether it fits so you can for example the debate over same sex marriage would be an obvious example here you know and it's an interesting question that Hayek say but there's no reason to think Hayek wouldn't say we can talk about this question and think about the evolution of this institution because it has evolved over time is this the next step are we designing something from the bottom up new I don't think we are are we critically assessing how we've taken an existing rule treat people equally and apply here so there's all kinds of ways that you can do this without thinking you can reconstruct the institution of marriage from the top down like we just tore it up and started over that's what you really can't do then how does the how do his views on law and the emergence of common law and law versus legislation fit into all of this so he was a great fan of common law because it's another one of these spontaneous order bottom up processes but he recognized too that you know the law can sometimes get into a dead end or a cul-de-sac right where where that historical process puts it in a place where now doing things the way we've done them doesn't make any sense and my favorite example this is debates over copyright and music sharing and all this kind of thing we took a consistent idea about the importance of copyright and kept applying it but we were now in a world where this the scarcity constraints were different right and the technology was different and so in those places Hayek says that's where you know judges can to the common law sometimes paint themselves into a corner and that for Hayek was one of the roles of legislation that is of government to sort of step in and say can we now fix this law but it was always about making it align better with the rest of the system it had to be consistent with the rest of the system it was repairing a hole in the fabric not not designing a whole new thing and so that and that's a very if you know your Carl Popper right it's a kind of popper popper called piecemeal social engineering right I think that's a little stronger than Hayek would put it but it's the same basic idea that we can fix these holes but we always have to do it against the larger fabric that we're in in rules and order which is the first volume of law legislation Liberty Hayek has really interesting observations I would call them for when I read it mind-blowing about where rules come from so it's not just economies that are planted it's also the possibility that the law yeah how can how does that work well I mean again we you know where where does the law come the law is a problem all right all institutions solve problems market solve problems the law solve problems people have a dispute they take it to a third party third party they both agreed third party renders a decision that decision becomes potentially precedent think about our discussion of language right it's one contender right other judges face similar situations they look at what other judges have decided and so we see this build up over time right where what emerges out of this individual problem solving and dispute settling instances is a body of fairly consistent fairly coherent well-known rules that become that become the law and so it's not again we we have this notion of the law giver right the person or entity who sat down and wrote out the law but that's just as silly as the far side cartoon about naming the body parts right the law evolved and emerged what Hayek refers to as legislation is is the role of government you know the legislative bodies government in in correcting those errors that we've talked about but also in laying down the internal rules for government itself so Hayek wants to distinguish between the role government's role in setting the rules of the game and the and the role of government and government actors in directing government as an organization right because he's not an anarchist and there's things government should do and we need rules for that and we need processes for that that's what that's this notion of legislation law on the other hand is is these sort of the rules of just conduct these these framework type rules and that's why in law legislation liberty volume 3 in his attempt to some would say rationally constructive sort of comes up with this model constitution and there's some interesting stuff there but he has two different bodies responsible for law and one for law and one for legislation because he thinks those are so distinct and such distinct when I teach the Hayek's view of law what rules in specific because he has a lot of observations about how there are all these again going back to tacit knowledge there are rules that you follow that you know that you don't even know that you know them and the only thing that make social like society work and specifically when people are together physically together and I might step on each other's toes and I and I my teaching tool for that is actually playing clips of Seinfeld because Seinfeld is entirely about all breaking breaking rules that you didn't even know existed until someone breaks them right right double dipping talking to close talking right right your face so what is the you know if you tried to legislate from the top down this is exactly how far people have to talk from each other but there are all these rules that and you know it and the thing about those rules is you know it when they're violated you might not be able to articulate what it is but you know it when it's when it's or the rule of putting your bag on a seat in a crowded cafeteria and having it be there when you come back turning on your parking signal to indicate you want that space yeah I mean these are all these get all these little social norms and rules that have evolved that nobody invented but that we you know we have developed out of practice like the law like money and that would be the Hayekin view of something like another thing that we could have a Hayekin view of in terms of rules and is traffic yeah right it's different everywhere yeah yeah right right and and notice to right this is the interesting thing there's scope within this for cultural variation that that it doesn't you know people who often perceive free market types as sort of saying well everyone's got to look like us no I mean the rules will vary by local circumstances we do know that there's certain you know that that that societies that want to be peaceful and proper prosperous and so on have to have the same general types of rules they don't have to be the same they don't have to be exactly the same everywhere as long as they work for that population you mentioned a couple of times Hayek is a classical liberal but you said as when talking about the end of constitutional liberty that he was not a radical in any way so I'm curious about how he fits into the libertarian tradition is he is Hayek a I mean we draw here K-dots we have the F.A. Hayek auditorium where we hold all our events I mean clearly we're fans but pictures of them everywhere yeah how does he fit into libertarianism well I think two things I think here's the way to put it you can use Hayek's insights to make a much more radical argument for libertarianism than Hayek himself did I mean you know if you catch me on the right day and I'll call myself a Hayekian anarchist because I think you can when you really understand the richness of spontaneous order and you know all this stuff we've been talking about right it becomes difficult particularly if you now throw public choice insights on top of it right to sort of recognize the limits of the state to think what the state can do effectively but you know that aside I think the more general point is that Hayek's analytical framework Hayek's intellectual system undergirds a lot of the arguments that that modern libertarians make even if Hayek himself was not willing to draw the same or as radical political conclusions out of them and I think that's that's the key to me right is it you know oftentimes it's a game that our friends on the left like to play is oh you love Hayek but Hayek he believed this thing about you know universal basic income or something that you guys reject so therefore and I want to go there for what right do you guys not draw on Marxian insights yet you don't right I mean does that somehow invalid it no it's just that we're not I think it's important for modern libertarians to not be worshippers of thinker to the point where the only way you can agree with that thinker is to agree with everything right and everyone's either a white hat or a black hat sort of thing no you use his insights to develop arguments that go beyond him that's that's what we do that's great for listeners who found this interesting have not necessarily read Hayek in the past but want to explore more where's the best place to start oh I love this question I think it depends on what your interests are I actually think for the general kind of reader road to serfdom or constitution of liberty are probably the best place to start if you are a little more sophisticated you can jump to law legislation and liberty right away that constitution of liberty are fairly substitutable if you're interested in the economics the book to read is his collection of essays called individualism and economic order which is still in print that's got all these knowledge essays from the from the 30s and 40s that's I mean when I teach Hayek or I teach a class in economics that's the book I use for Hayek because that's where all the action is you know for the more professional economists out there there's other things that they might touch but I think for the general listener interested in libertarianism those would be the four I would talk about individualism and economic order constitution of liberty road to serfdom and law legislation particularly the first two volumes no one really needs to except the epilogue which is great epilogue but people should absolutely read Hayek yes they should thank you for listening if you have any questions you can find us on twitter at freethoughtspod that's freethoughts pod freethoughts is produced by Evan Banks and Mark McDaniel to learn more find us on the web at www.libertarianism.org