April 29, 2011
From Rap Battles to Libertarian Myopia
Following that brilliant first instalment, Keynes versus Hayek Round II is here:
There’s no denying this is greatly entertaining stuff. But as with the first video, I find the pro-Hayek message rather irritating (well I would, wouldn’t I?)
To pick up on one specific thing, however, I’m frustrated by the Hayek character appropriating some words of Adam Smith about human beings not being mere pieces on a chessboard.
The original Smith quote, from his Theory of Moral Sentiments, runs thus:
“The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. 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 upon the 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 chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”
Smith’s point is simple but extremely important. However ingenious and complex a plan or system may be, it can never match the complexity of the world upon which it is unleashed. Each action sets off incalculable further reactions. Each human agent affected by these actions and reactions will in turn be propelled by his or her own “principle of motion” in ways that cannot be predicted or controlled. No plan or system ever works out the way “the men of system” hope. As Smith, in his typically understated way implies, failing to see this can lead to social, political and economic disaster.
Libertarians (and “classical liberals”, Austrian economists and whoever else is on the wagon this week) are fond of quoting this passage. Over at CafeHayek it is proffered as advice for “would-be czars and other experts to remember”. Yet libertarians (et al) rarely realise that Smith’s reflections apply – with devastating force – to their own state-minimalist politics.
Even in the world of minimal-state libertarian fantasy, there will inevitably be economic recessions.* Eventually, at least one of these will be severe. In recessions people suffer; that’s what unemployment and poverty entail, especially under the minimal state where there is presumably no welfare support. When people suffer, however, they do not sit around idly and wait for the market to fix itself – whenever that might be. They take action to alleviate their sufferings as soon as possible.
Under such circumstances, large-scale collective action will be taken by individuals seeking relief from suffering. Action of this sort is known as “politics”. In this “politics”, human beings mobilise so as to put the levers of power into the hands of those who will (or at least promise to) alleviate their sufferings. In modern societies this is done via the state apparatus. Hence even if (magically) we start out with libertarian state minimalism, we will not stay there. The power of the state will eventually be deployed so as to interfere with the market forces currently failing to alleviate the sufferings of ordinary people.
Two things follow. First, and with especial irony, the libertarian minimal state can only be sustained by coercive state force. When ordinary citizens mobilize to demand state action to alleviate suffering, the politicians they select, and the movements that propel them to power, must be repressed in order to preserve the minimal state which refuses to interfere in the economy or to provide state support. Minimal state libertarianism either organically gives way to state interventionism, or resists this organic development by becoming an anti-democratic tyranny. At a conceptual level, this basically means minimal state libertarianism tears itself apart upon any contact with the constraints of reality.
Secondly, with such considerations in place we can return to the real world and look at the alarming historical record. During the 20th century, when economic situations became sufficiently dire for sufficiently long, it was not mildly interventionist Keynesians who took power. It was murderous Fascist, National Socialist and Bolshevik regimes, who either wrested control of the state by force or were selected by desperate populations via popular vote.
Hayekians (or whatever) are being extremely myopic when they denounce Keynesians and other interventionists who broadly support market-economic systems whilst attempting to actively mitigate their worst failings. For the Hayekians fail to see that Keynesianism and other economic interventionist programmes take place against a complex real world background. A real world in which attempts at basic economic management (i.e the alleviation and prevention of suffering) are a bulwark against disaster. A bulwark against the sorts of regimes that are deeply and murderously antithetical to individual and economic liberty in ways economic-interventionist capitalist democracies have never been, nor ever will be.
Libertarian state-minimalism and attendant Austrian laissez-faire economics are fine for fantasists pining to live in a fantasy world. But for those of us preoccupied with the perils, dangers and constraints of this real world, they and their loud-mouthed proponents are usually little more than a nuisance.
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* The really nutty crowd, of course, claim that without government there would never be any market failure, recession or depression. This piece of deliberately self-serving wishful naivety is best treated by simply being ignored.
Richard said,
April 29, 2011 at 12:23 pm
“The really nutty crowd, of course, claim that without government there would never be any market failure, recession or depression. This piece of deliberately self-serving wishful naivety is best treated by simply being ignored.”
Wrong, some Austrians believe that it is fractional reserve banking that causes recessions (Mises, Rothbard etc), others that it is the central bank (Selgin, Horowitz etc). Either way the Austrian Theory of the Business Cycle deserves serious consideration and should not be conflated with crude “abolish government and all would be fine” libertarian arguments.
Incidentally I thought that the Hayek-Keynes video failed to make the point that Keynesian deficit spending can create a recovery but that such a recovery is artificial, based as it is on government-allocated spending rather than genuine private demand. The government will have to withdraw its funding at some point and the industries/projects the funding is withdrawn from will not necessarily receive private funding afterwards if private demand requires funding in other industries/projects.
Paul Sagar said,
April 29, 2011 at 1:07 pm
And the relevant reply, in line with the OP being, so what if it’s “artificial”? To think this is the important point is precisely to fail to see the wood for the trees.
Richard said,
April 29, 2011 at 2:29 pm
Because at some point the artificial recovery will result in a crash again when the government has to reduce spending. Better for a genuine long-term recovery to occur.
Peter said,
April 29, 2011 at 3:14 pm
Richard,
Do Mises et al think that if we abolished fractional reserve banking/the central bank and replaced it with whatever the preferred libertarian solution is, then there’d be no recessions etc. If so, that just sounds like a more technical way of saying what Paul said – get rid of govt and everyone will have everything they ever wanted, and a pony! Forgive me if I don’t find that an especially plausible claim.
flyingrodent said,
April 29, 2011 at 3:20 pm
We’ve got the example of post-Soviet Russia right on Europe’s doorstep to illustrate these points, by the way. Given the choice between the ruination and disaster that the nation became and an incredibly sinister but stable managed democracy led by violent and utterly corrupt thugs, the Russians have repeatedly opted for the latter. It seems that in times of great hardship – which, as you note, are basically inevitable – lots of people would much rather be repressed and comfortable than free and hungry. Not that this will deter Hayek’s fans, who will no doubt rattle about genuinely free markets or some such, but still.
There’s a fair bit that could be said here about parallels between the free market yucksters that did such a stand-up job with Russia and the clique of overprivileged business school monkeys that tried to turn post-Saddam Iraq into an economic miracle, but that’s probably a chat for another day.
Richard said,
April 29, 2011 at 5:12 pm
“Do Mises et al think that if we abolished fractional reserve banking/the central bank and replaced it with whatever the preferred libertarian solution is, then there’d be no recessions etc. If so, that just sounds like a more technical way of saying what Paul said – get rid of govt and everyone will have everything they ever wanted, and a pony”
You could in theory have a socialist regime and a monetary policy run according to Austrian principles. It isn’t the abolition of government that ends recessions but the removal of the banks’ ability to increase the money supply thus artificially lowering interest rates and creating malinvestments. The other Austrian theory (based around the idea of monetary equilibrium) doesn’t have a problem with banks increasing the money supply as long as there are limits (limits which the Central Bank removes).
Jimmy Hill said,
April 29, 2011 at 5:31 pm
I think it might be worth making a distinction between Hayek and Hayekians given that the latter often ignore much of what Hayek said.
Hayek, in The Road to Serfdom, suggested: “probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez-faire capitalism.”
Agog said,
May 2, 2011 at 12:35 pm
Interesting old interview with Hayek (and comments) here:
http://delong.typepad.com/sdj/2011/05/friedrich-hayek-i-have-always-thought-this-interview-to-be-rather-disturbing.html
He seems there to be as unpleasant a reactionary as most of his followers.
declineofthelogos said,
May 3, 2011 at 11:54 am
It’s worth pointing out that the nutty end of the libertarian spectrum believes all these things would happen because everyone would accept that appropriating someone else’s property is always MORALLY wrong, so people would be happy to be complicit in their own exploitation, as to do otherwise would be immoral.
This would be less hilariously ridiculous if America did not exist.
Mark said,
May 4, 2011 at 4:24 am
It is true that people who find themselves in an unhappy enough situation will tend to do nearly anything, including resorting to violence, to escape it. However, as far as I’m aware, there is no law of human nature which states that unemployment should provoke such a reaction.
Our desires are largely a product of society and the messages conveyed to us by authority. Therefore, policies to increase employment also increase our need to be employed.
To state that people who reject these policies are being hideously naive suggests that attitudes towards employment and life cannot change – but clearly this is not the case. Criticising a small state libertarian for ignoring the disorder that would result from an end to interventionism, is a bit like criticising a communist for opposing the doctrine of transubstition or the introduction of an officially sanctioned prayer book. The whole point is that they want attitudes to change.
Tom Kealy said,
May 4, 2011 at 11:31 am
I’d like to point out that Hayek was fond of an interventionist monetary policy: namely some form of NGDP targeting by a central bank. He favoured this because he thought (understandably) that deflation wasn’t desirable.
There is also a small private correspondance between Hayek and Keynes, where they agree. Specifically on esoteric points of monetary policy. The ones for dealing with recessions, and how preventing these from becoming depressions (incidentally, both the Depression and our current Recession are the result of failures of the monetary authorities to do exactly what Hayek/Keynes advised).
For more on NGDP targeting see: http://www.adamsmith.org/files/ASI_NGDP_WEB.pdf
(of course becuase the ASI endorse it, naturally it’ll lead to babies dying in the streets).
links for 2011-06-05 « The NRB said,
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