Institutions, Machines, and Complex Orders (Part 9); Conclusion: legal-political institutions and systems

Institutions, whether formal or informal, consist of limitations on behaviour that allow structuring an order of human interaction (North, D.C., 1991). Such institutions endow decisions with their agents of transitivity and, consequently, with rationality and predictability. That is to say, an institution allows to conform expectations on a range of events dependent on individual decisions that will happen and, above all, on another range of events that will not happen or, if they do happen, they will generate an obligation to repair (either to a private individual through a pecuniary indemnity or to society through a criminal sanction).

For these reasons it is interesting to compare institutions with algorithms: a set of automatic procedures -and therefore devoid of arbitrariness on the part of any of the agents- that, according to the data provided by the environment, yield a range of possible results. In a modern political legal system (equality before the law, division of powers, political responsibility of high officials, principle of closure, etc.), such results show at the individual level a certain range of prohibited actions (the aforementioned principle of closure, everything that is not prohibited is allowed). At the individual level, an institution as an algorithm will allow us to predict what an individual will not do, but not what he will concretely do outside of that range of prohibited actions. At the governmental level, the opposite occurs: institutions allow us to anticipate what judicial decisions will be, which in turn will have to review laws and decrees that violate the rights and guarantees of individuals.

However, while institutions can function as algorithms, providing predictability to individual decisions and policies, they cannot function in a vacuum, but they need to be integrated into a legal and political system. This is so that it is impossible to enunciate them if it is not within the parameters configured by such systems. If institutions are algorithms, legal and political systems are abstract machines that select and integrate such institutions. It is the institutions integrated into a legal and political system that constitute a framework of incentives for human action.

Such institutions evolve following a natural selection pattern, when the legal-political system allows to act a negative feedback system mainly articulated by judicial decisions and precedents that readjust their meaning and content for the resolution of concrete controversies based on principles emanating from the legal system itself. Of course, each system represents the materialization of a set of values. Those of modernity, for example, are based, among others, on the dignity of the human person, which translates into the right to individual autonomy.

An ethic of political responsibility that defends such values ​​can be carried forward by rescuing an abstract system of dispute resolution between individuals that refrains from designing society from a central command. In many cases, such an ethic of responsibility must face ideological political programs that are presented under the guise of an ethics of principles.

Such antagonism is asymmetric, since the central design of society presents its followers with a concrete model and the promise that everything works. Although, this only leads, in practice, to an increasing number of decisions based on expediency. Thus, the opposite of the predictability and absence of arbitrariness of a system of spontaneous coordination of individual plans.

[Editor’s note: You can find Part 8 here, and the full essay can be read in its entirety here.]

Institutions, Machines, and Complex Orders (Part 8): Inequality before the law, de facto

François Furet, in the preliminary essay that serves as an introduction to The Past of an Illusion, entitled “The Equalitarian Passion,” highlights that in the Ancient Regime inequality was legally consecrated, while after the French Revolution, inequality persists surreptitiously, of contraband, thus cementing a feeling of vindication in the face of illegitimate inequality. Something similar happens in a system of regulations that, with the intention of serving the common good, re-establishes, de facto, a system of monopolies and oligopolies.

It is paradoxical that a political legal system made up mostly of general and abstract rules finds an unintended consequence of an increase in general well-being, while a regimented system based on a specific goal of social justice and growth finds itself as an involuntary stagnant consequence and with high rates of inequality. However, attentive given that no one can be judged morally for their involuntary results and instead for their intentions, it is commonly interpreted that the success of societies organized around abstract and general principles cannot be adjudicated to such principles, as it is also considered active policies that deliberately seek the common good cannot be reviewed by virtue of their poor results, but in any case what deserves to be discussed are the means to reach such objectives.

Once this point is reached, we discard any political program that does not have a purpose of reform or transformation based on a specific objective and in which the political discussion is about society models and the means to achieve in the practice of the realization of such models, the table is served for the ideologization of political discourse. Kenneth Minogue had rescued the original concept of “ideology” -before the Marxist who points to a set of values ​​of the ruling class at the service of the perpetuation of his power-, which dealt with the set of claims with scientific pretension that, through a redemptorist program, he proposed a series of concrete transformations of society. This word and notion comes from the ideologues of the French Revolution, which mostly fulfilled a pedagogical function.

Since the ideology of politics is installed, any doctrine that arises from its discourse in terms of defending a system of coexistence articulated around abstract and general norms and lacking a specific purpose of designing the society according to a certain model. In the political arena, therefore, there are political programs that seek to impose a certain model of society, articulated around a series of assertions with alleged scientific validity. Whatever the model of society under discussion, by the mere fact of proposing such political programs the transformation of society in function of those, the legal norms expressed in abstract and general terms that make up both the individual guarantees and the private right run the serious risk of being considered as an obstacle and an irrational hindrance of the past that prevents the realization of such models of society. This is the process that Friedrich A. Hayek had described in The Road to Serfdom.

The paradox is that a legal – political system composed mostly of abstract (that is, lacking a concrete purpose) and general (that is, the same for all citizens regardless of their status) rules allows to coordinate in a more efficient way the resources of those that a society has, through a better coordination of individual plans, about whose content we know nothing and whose final configuration is impossible to predict, that is, a complex social order. On the other hand, the abolition or gradual weakening of such a system of coordination in the allocation of resources and its replacement by a system of planning or centralized control of the economy and society based on a specific model generates an economic breakdown that only serves of excuse to redouble centralization in the administration of resources. At one point, neither the model of society nor the need to have a central planning to reach it, nor even that there is such a model or such a central planning of society, is only discussed, but it is indeed discussed which are the most appropriate means to “improve” said model.

That said, it is worth making a terminological clarification: what Hayek called in The Road to Serfdom “socialism” and then in Law, Legislation and Liberty “constructivism,” can be assimilated to a large extent to what Kenneth Minogue called “ideology” (although in truth, it must be recognized that Minogue, at the time, accused Hayek of being an ideological author). But, as Hayek himself clarifies in his prologue to the 1974 edition of The Road to Serfdom, the socialism to which he alluded in 1944 was not income redistribution programs, but the centralized planning of the economy and society . Similarly, Hayek’s critique of the notion of social justice concerns precisely those programs of political reform that seek to establish, through centralized planning, a designed social order. Another issue is the positivization of values ​​through abstract and general rules. A negative income tax – as proposed by Milton Friedman at the time – can be implemented through abstract and general norms, as well as patterns of redistribution inspired by John Rawls’ theory of justice. The problem is not redistribution, but the replacement of a spontaneous social organization system with a centralized planning system.

At the heart of the dispute between the prevalence of a spontaneous social order versus its replacement by a system of centralized planning of society is a divergence around the concept of the abstract. The supporters of the centralized planning of society are convinced that, through the measuring elements provided by science, the wealth of social events can be selected in aggregates that allow forming an abstract model of society, which In turn, it allows planning its reform according to the ideal model of society in whose transformation the political program that gives it reason to be to the politician’s own activity and that justifies his ethics of responsibility.

Of course, statistical tools, which are constantly developing (Hayek himself was a professor of statistics, and from The Road to Serfdom to today appeared the desktop computer and the science of Big Data, for example), allow a better allocation of public resources in the implementation of government programs. It is very useful for the rationalization of the government administration to know how much the population is going to vaccinate, the poverty and indigence statistics in order to determine, for example, subsidies to the demand, or the needs of schooling at its various levels. However, if there is consensus on the need for a vaccination program, or on the importance of subsidizing access to certain goods or the importance of schooling the population, it is because the members of that society already have a set of principles about what is considered good or bad, desirable or undesirable, necessary or superfluous. Such abstract notions do not arise from the abstraction of social events in statistical aggregates, but, on the contrary, these abstract concepts allow to form the groupings by virtue of which the social reality will have to be interpreted.

Such principles are born, develop and evolve according to the game of continuous human interaction. As described above, they consist of uses and customs that individuals incorporate in the course of exchanges and that prove with the passage of time to provide a better performance to the members of the community that follow them. Accounting standards, public behaviour guidelines, compliance with the word pledged, good faith, are examples of such practices that are extended throughout the population by incorporating such standards into the habits of its members. It was what Max Weber at the time conceptualized as the emergence of “rational capitalism.” These principles are not immutable, but on the contrary they adapt to the circumstances. However, they also enjoy certain permanence in time that allows them to serve as a structure or parameter for rational decision-making, since such a structure of values ​​prohibits a certain range of decisions, which makes its transitivity possible.

This system of discovery and spontaneous evolution of the abstract values ​​according to which reality is perceived and its respective organized elements can assume various configurations and has its own process of immanent criticism. The egalitarian guidelines that we can characterize as typical of modern society, in which every human being has the right to have equal consideration and respect, were extended over less efficient structures such as those of the caste and estates societies, in which the restrictions of competition and the unpredictable exercise of political authority generate stagnation (what Acemoglu and Robinson call “extractive economic and political institutions,” as opposed to “inclusive”). For its part, the peaceful resolution of disputes through the right of judges allows readjusting the set of expectations with which each member of society usually makes its decisions.

Such a system of discovery of abstract values ​​with which each individual can count on to coordinate their respective life plans and their corresponding immanent criticism through the judicial system is also susceptible of receiving a critical analysis by a reasoned examination regarding it and as a result of this, a new political legal order or partial reform of the existing one may arise through the legislative promulgation or even of a constituent assembly. A spontaneous order may have as its origin the enactment ex nihilo of it by a legislator, but among its defining characteristics is the note that it should not necessarily be so. Another of its defining characteristics is that the consequences of a political legal order, still created by the will of a legislator or constituent, cannot be foreseen in its entirety. Moreover, the future evolution of this order cannot be foreseen in its totality and detail. Such degree of uncertainty does not come from the deficiency or insufficiency of the elements of measurement that have for object to know the reality, but in the levels of complexity to which such order can arrive in their more abstract planes.

However, these degrees of complexity decrease drastically in the daily experience of the subjects that interact with each other, seeking to coordinate or compete in their respective individual plans, since each one of them knows what expectations to have regarding the actions of the rest of the subjects (the more “inclusive” the institutions are, the lower the degree of uncertainty). For the case in which two spheres of autonomy collide, the controversy will be resolved by a court that will have to say the content of the law for the specific case submitted to its decision. From this result, they will have to configure a set of expectations with which agents will know that they can count or not.

In contrast to this, at the level of the legislator and the political authority, such levels of certainty leave room for increasing degrees of complexity. Although there are many administrative decisions that can be taken with a high degree of probability of being successful following the procedures of administrative law and the general principles of law – what Max Weber described as a process of rationalization in political decision-making , the certain thing is that it arrives at a point in which the legal reasoning arrives at a limit – what in his moment Carl Schmitt characterized like an instance in which the right dies and leaves its place to the policy. This is where the political authority is faced with the need to dispense with the rationalizing element of law and articulate its decision-making process based on another type of “anchoring”: a philosophical doctrine, a conception of life, a political doctrine, a reason of state or an ideology.

Those who oppose the extension of political power over the autonomous institutions and processes of society maintain that such philosophies, reasons of state, or ideologies are mere masks of pure political will left to their free will. However, at least in principle, they can serve as limitations or at least elements of political responsibility of the ruler in a democracy. There are numerous cases in which a democratically elected governor receives criticism from public opinion regarding a supposed lack of consequence with his political doctrine, a double discourse, or the configuration of a consistent but mistaken ideology. Even so, except for the cases of impeachment and the impossibility of re-election, the tools to control the political reasons of the rulers and their consequences are rather scarce.

However, a distinction can be made between a simple political doctrine and an ideologized political doctrine – or, in Minogue’s terms, quite simply an ideology. A political doctrine can sustain a series of diffuse principles that do not exhaust a totalizing vision of reality. For example, German Christian Democracy can be defined equally by rejection of the extreme left, as the extreme right, a market freedom regulated by the State in order to preserve competition from the actions of monopolies (the “competitive order” of Ordo-Liberalism) and the moderate defence of certain values ​​prevalent in society through the non-interference of the government in its autonomous processes, that is, a clear division between society and State. However, no one can define in detail an ideology of German Christian Democracy.

In many circumstances, this “de-ideologization” is interpreted as “pragmatism” or “opportunism.” However, there is also room for opportunism in the interpretation of a political ideology by the public power that invokes it as a reason of state. The great problem that “ideologies” or ideological visions of politics do present is that, by offering a totalizing and scientific version of reality, they can be used as tools to discredit the legal system.

It is true that a legal system could be replaced by another in its entirety through a legislative reform – in the case of private law, a new civil code, for example – or a constitutional reform. But once reformed or replaced by the new, unless a tyranny has been instituted, it becomes the new legal order that will limit the political power. The problem arises when there is a phenomenon that can be named as the “road to serfdom”: the continuous, permanent and incremental discrediting, erosion, violation and exception to the current legal order.

When such a process is presented, freedom understood as the absence of arbitrary coercion is in decline, since, by invoking a reason of state or a state of exception, the expectations with which individuals counted to form their plans of life are frustrated in a way impossible to foresee. As a result, the political legal order becomes perceived as arbitrary and its obligation to obey it put in doubt.

Another consequence of the phenomenon known as the “road to serfdom” is that the system of immanent criticism of positive law affected by the application of this by judges in the face of concrete controversies is eroded. As already mentioned, attentive to the open texture of legal language, the judicial system allows for marginal readjustments on the content of the law that represent a true process of evolution, in the sense of adaptation to changes in the environment. In turn, this readjustment introduces new expectations in the agents, which generates a change in reality and opens the way for a new interpretation change through the open texture of the letter of the law, in a real feedback process negative that gives stability and predictability to the system.

On the contrary, the state of emergency and emergency legislation, as well as legislative and judicial activism, which seek to modify the content of the law not to solve the internal contradictions generated by its open texture, but to transform it according to concepts alien to the law. Right, they erode such a negative feedback system of expectations and, far from achieving the modernization of the law, what they obtain is their obsolescence, their discredit, and their disobedience. See that in countries with a greater authoritarian tradition, the adherence to standards by the population is significantly lower than in countries where emergency legislation and the state of emergency was limited to cases of war.

[Editor’s note: here is Part 7, and here is the essay in its entirety.]

Institutions, Machines, and Complex Orders (Part 7): The open texture of the words of the law

However, the law itself has its own endogenous system of production of rules, which operates on the abstract plane of the configuration of the structure of the relationships between its terms, and whose dynamics depends on the negative feedback process implied by the judicial work itself to clarify the words of the law for each specific case to be decided. Both in codified law systems and in customary law systems, the current positive law is clearly defined. The legal systems in which previous judgments oblige judges are even more rigid than codified systems, since in the latter it is enough for the legislature to enact a new code for the positive law to change. On the contrary, the judges must make a hermeneutical effort to modify the doctrine consecrated in a judicial precedent without this constituting an arbitrary ruling.

However, both in coded and customary legal systems, the law, which is always enunciated in express statements, carries with it the phenomenon of the open texture of language. These are not the cases of ambiguity, vagueness, or obscurity of the letter of the law. These latter cases can be solved by the doctrine, composed of scientific works that investigate the debates between the members of the legislative power at the moment of sanctioning the norm whose text carries such problems, or resorting to the normative antecedents of which the current law took its vocabulary.

However, vagueness, obscurity, and ambiguity in the words of the law configure linguistic problems with legal relevance, but not legal ones in themselves. What really matters to study are the cases of open texture of the language of the law, since it is through these cases that the law evolves.

In cases of open texture of language, the anomaly occurs in the universe of events to which the language refers. An obvious example: a constitution written in the 19th century can establish that the President is the Commander-in-Chief of land and sea forces. It would not be necessary to reform its text to incorporate the air force – or even weapons built to act outside Earth’s orbit.

However, the dynamics of legal traffic are mostly made up of less obvious cases in which the open texture of language forces judges to establish the words of the law for the specific case, resorting to a hermeneutic interpretation of the law for which “common sense” is not enough. In customary law these hard cases are those that generate a new precedent that often define what is inside and what is outside the “good legal sense.” The authors disagree among themselves on how to characterize this aspect of judicial work. However, the remarkable thing is that these “difficult cases” generated by the phenomenon of the open texture of the language are what make the law respond autonomously to changes in the conditions of the environment that the same right has as a regular task.

Indeed, Friedrich Hayek states in Law, Legislation and Liberty an attempt to separate law and politics based on the evolution of law according to a process of natural selection of norms. While it expressly recognizes that a legal system can be sanctioned in its entirety by the legislator, it also highlights the ability of legal systems to make an immanent critique of themselves, through the judicial system.

Although Hayek does not analyse the phenomenon of the open texture of language in his work, it does characterize law as a structure of norms that continually readjust to changes in circumstances following a negative feedback process, through successive judicial decisions. In Hayek’s own words, what establishes a legal order is a set of expectations about the behaviour of congeners that will be considered or not according to law. For example, if a party fails to meet its contractual obligations, it can expect the other party to refuse to comply with them and that, if sued, the latter will be supported by the courts. This expectation also works as an incentive to fulfil contracts and reduce litigation.

On the other hand, another feature of legal systems -particularly modern ones- that Hayek highlights is the definition of a range of expectations that will be systematically thwarted. This is what determines a structure for human action and implies the consecration of the principle of closure: everything that is not expressly prohibited is allowed. This allows individuals to form their life plans with the expectation that they will be fulfilled and with the ability to anticipate the behaviour of their peers, since they will be under the same incentive structure. The latter leads to a third characteristic of modern legal systems, which allows them to function as self-regulated systems: the principle of isonomy or of the same law for all. The incentive structure determined by the range of expectations that will be systematically frustrated, in a system that results from the same application for each individual, allows the definition of individual spheres of autonomy, within which each individual has free discretion, but when entering into collision with each other, each one will be able to infer what expectations they can have regarding a possible judicial ruling.

The reverse of this system is the “Administrative State,” by Carl Schmitt, in which only that which is expressly authorized by a decision based on expediency, and the status system of the Ancient Regime, is permitted, that each group had a private legal system or privilege-strictly speaking, our current modern system of rights consists in the extension to all human beings of the liberties or privileges that the nobles had wrested from the kings at the time. Therefore, it is a great risk that the number of regulations is such that the rule becomes that only what is specially expressly regulated can be done, depending on the dynamics of the change of the decision of the authority taken in administrative files, and that such is the segmentation of regulations according to pressure groups and interest groups, that they return to a system of privileges instead of equality before the law.

It is not difficult to find numerous current examples: the public transport system could reach levels of regulation such that it could practically be said that only such activity can be carried out with the express authorization of the public authority to that effect. The alternative is not the absence of regulation, on the contrary, the alternative is the modern State of Law: a set of positive norms, dictated by the competent authority and formulated in general terms. These rules that regulate public transport do not have an abstract content, but rather a concrete one: the set of objectives expressly set by public policy. While the rules of private law have an abstract content, that is, they lack a specific purpose, the rules of public law not only have a specific and specific purpose, but that such purpose must be expressly declared, in such a way that justice they can evaluate whether the willing means disposed by the public authority are related and proportional to the purpose of the rule of public law and, in turn, the citizens consider whether such ends are worth pursuing.

To continue with the exemplification of public transport of passengers and merchandise: there is a sphere that corresponds exclusively to private law. This refers to the rules that attribute legal responsibility between the transporter and the transported: the obligation of the transported to pay the ticket or the freight, the obligation of the transporter to transfer the people and goods without them suffering damages. In this sphere there is no concrete purpose of the norm. It only limits itself to stating the set of expectations that the parties can count on, regardless of who they are specifically and what the specific purpose of the transport is.

Correlatively, the regulation of public transport, which belongs to the orbit of public law, does have certain specific purposes. For example, take care of public safety and ensure an efficient distribution of the cost of accidents. For this purpose, it may provide that public transport companies register, periodically review the status of their units, which must meet certain minimum standards, and establish the obligation to contract civil liability insurance. Anyone who complies with these provisions, for example, could devote himself to the activity of public transport, passengers or merchandise. How many and who will be the transporters is something that the public transport regime should not compete with. The number of carriers will be fixed by the price system. Nevertheless, to the control of public transport must concern that the units that circulate are in good condition, that their drivers are suitable and have an insurance that covers their civil liability, so that the transported does not have to face the cost of accidents before an eventual bankruptcy of the carrier. On the other hand, the system of private law, in a parallel and autonomous way, distributes the responsibilities between the parties, without addressing who is each one.

[Editor’s note: Part 6 can be found here, and the full essay is here.]

Institutions, Machines, and Complex Orders (Part 6): Institutions as algorithms

There is therefore a category of phenomena to which the characteristic of being “simple” is attributed (in contrast to the so-called complex), ordered by logical models whose capacity for explanation and prediction is continuously tested by means of a system of trial and error that allows readjusting these models in a process of continuous approach to the truth. The progress in the knowledge of these simple phenomena also depends on the measurement tools that are available: statistical methods, more powerful microscopes, laboratory experiments, etc.. The investigation of simple phenomena consists of a process in which it goes to a greater degree of specificity and concretion. It is for this reason that it is difficult to distinguish whether their theories consist of logical models or empirical models, since they mostly consist of the description of relations and functions between given events.

In the opposite sense of intellectual inquiry, complex phenomena are located: their study consists in the statement of the relationships and functions that structure an abstract order of events. An everyday example of such abstract orders of events can be found in the phenomenon of written laws, both procedural and substantive. In them you can find credit relationships, procedural burdens, temporary periods to exercise actions or rights under penalty of estoppel, or prescription or expiration, assigned functions to produce legal norms of general or particular scope, etc.. The application of such abstract models to the concrete reality is known as “jurisdiction,” that is to say “to say the right for the concrete case.” Of course, for this depend elements of proof and a critical judgment that interprets the given events assigning the legal qualification and the legal consequences of that that the law prescribes in abstract and general form. The jurisdictional activity could be characterized as a “simple phenomenon,” however, the same would not happen with the “science of legislation.”

In effect, when what is studied is a legislative reform, what is being done is to increase in degrees of complexity in the study of standards. The legislator is no longer exclusively discussing legal issues. It could do it: study for example the coherence of a new norm whose sanction is under study with the rest of the juridical order, nevertheless still it is extremely difficult to foresee the set of consequences of a reform on the global operation of the juridical order. However, if this is already difficult in itself, it becomes much more complex when philosophical and political issues come into play in the legislative debate. In the legislative debate on the sanction of the norms, a point arrives at which the legal analysis ceases, in the sense that the discussion takes the fervour of the political philosophy or the cold calculation of the negotiation to reach a legislative majority.

[Editor’s note: You can find Part 5 here, and you can read the full essay here.]

Institutions, Machines, and Complex Orders (Part 5): Logical models

There is a thin line between the abstract model of “natural selection of institutions,” its instantiation in an imaginary example that interprets it and the application of that theory to interpret historical experience. The latter does not test the model, but is the result of the organization of the record of events around this interpretive model. The instantiation in an imaginary example is a visualization that allows us to identify the inconsistencies in the model -if there are any- and to test general predictions about the behaviour of the variables. Such interpretations of the model assume that the rest of the variables remain unchanged, that is, the ceteris paribus condition.

If the abstract model does not have inconsistencies, i.e.: if in its imaginary interpretation, contradictory events do not arise, and, nevertheless, its explanatory or predictive power is contradicted with the experience, this does not imply a refutation. On the contrary, it is an indicator that another set of events are acting that neutralize the effects of the process described by the theory. In this case, although the theory does not achieve results in terms of explanations and predictions, it does fulfil a heuristic function: that is, it inspires new lines of research and discovery.

One such line of such lines is, for example, how politics plays out in the process of natural selection of social habits and practices. As indicated by the School of Public Choice, the regulations on economic activity that affect the distribution of corporate profits, assign monopolies, restrict imports, intervene in the market of credits and capital to favour certain activities over others, among others many cases of economic dirigisme encourage the development of practices known as “lobbying.” Investing in human capital and new technologies means an opportunity cost that will never be assumed if higher yields are obtained as a result of influencing government decisions that protect the producer from competition, or allowing the State to sell at a price higher than the market price. Therefore, if experience is indicating a low capacity for innovation, lack of initiative and stagnation, it is most appropriate to focus the observation on which incentives are acting effectively in that country.

The counterpart of the logical models is the empirical models, the latter consist of abstractions of elements that occur in reality, highlighting their common notes to obtain various classifications of such elements, and they are a simplified scheme of perceived reality. However, any system of abstraction of the common notes of a set of objects requires a prior conceptualization of such notes as defining a set or class. In order to classify diverse populations in countries, it is previously necessary to be in possession of the notion of population, for example.

On the other hand, abstract notions are not necessarily conformed by a deliberate operation of consciousness, but by the perception of series of events that are repeated and differentiated from one another, generating in the cognitive apparatus an association of diverse stimuli. Out of habit arises the expectation that from the appearance of a particular event or series of events a range of determined events will follow and not follow another range of events of various kinds. On these spontaneous classifications, articulated around the repetition of events, their differential in the system of stimuli of the nervous apparatus, and the predisposition generated by the habit of waiting and ruling out the consequent appearance of other events and stimuli is that consciousness is conformed and the cognitive apparatus of the knowledge subject.

But, likewise, those “spontaneous classifications” allow the appearance of an abstract set of functionally related notions whose ordering does not depend on a deliberate decision. These are the cases of norms with empirical observation and of what Douglass North called “informal institutions.” The value of the contribution of Friedrich Hayek in Law, legislation and Liberty consists in both the positive legal norms (deliberately created by the legislator) and the informal institutions that condition our conduct also depend for their enunciation of that abstract order of notions that it arises from pure experience.

These logical models -as they are abstract- that make up the consciousness and the cognitive apparatus of the subjects, are in permanent trial and error testing and, therefore, in continuous reformulation. It is a kind of negative feedback process in which the frustration of an expectation is corrected in the interpretative scheme of reality that the individual has, in a process of continuous readjustment. From the invariant reiteration of a certain series of events, a structure is formed that serves as a parameter to order other events of less frequency or more erratic behaviour.

To the extent that the subject continues its experimentation, the spontaneous classification system that makes up its consciousness becomes more complex, incorporating new ranges of events, adjusting its frequency and incorporating new structures. These are the relative limits of knowledge. They depend on the experimentation and the readjustment of the abstract patterns that allowed the subject to classify the events of reality.

However, knowledge can also grow in another direction: consciousness can focus not on the events that come from its perceptions but in the analysis of the classifications themselves. In this activity, the abstract classification schemes that had been shaped by habit do not apply to reality, but reflect on these classifications and extend and reformulate them, not in terms of their experience, but in virtue of their abstract speculation. This is the task of deliberately shaping the logical models to be applied to the interpretation of reality.

The elaboration of a legal theory -for example, about representation-, the description of a market structure -for example, monopolistic competition-, the outline of a sociological explanation -through the ideal types statement, to cite a case- , are situations in which the subject of knowledge does not experiment on events, but reformulates the classificatory systems that until then had arrived spontaneously. Knowledge in this case does not grow in specificity, but increases in levels of abstraction.

These are the cases in which the historian questions not only the interpretative frameworks he uses, but also the conditions that underlie these interpretative frameworks. The philosophy of science dabbled in the scientific paradigms (Thomas Kuhn), or in the research programs (Imre Lakatos), or in the great stories (Jean Francois Lyotard). The common denominator of these three concepts can be found in that they lack an “author,” they are inferences, true conjectures that we make about the framework in which a given scientific community develops tacitly.

Many interpret these currents of philosophy of science, although diverse, as relativistic, since they lend themselves to postulate that the statements of science are conditioned by the historical circumstances that serve as the frame of legitimation. There would not be a truth in itself, but a truth enunciated in a frame of reference. Another way to see it is to interpret these scientific communities structured around a set of practices, procedures, and validation rules whose origin is mainly spontaneous in a sort of “abstract discovery machines.”

In general, a series of physical devices conformed in a process of transforming inputs into exits is called a machine. But such physical devices are organized according to an abstract plane that assigns them functions for a certain process. This plane can be interpreted through mental operations without resorting to the construction of the physical machine, throwing said mental operations verifiable results; we are faced with an abstract machine. In recent times, the term “algorithm” has also been used to compare an information process that does not depend on the free will of the researchers, but consists in the follow-up of an automatic process.

In this line, Friedrich Hayek characterized competition as a process of discovery, that is, as an abstract machine that processes data and yields results that describe reality. In fact, the discovery would be the only function of a system of free competition that gives a differential over the rest of the systems. A monopoly, whose margins of profitability were controlled either by a maximum price or by a tax on profits, would be more efficient in terms of the production of a given good, than a set of small producers without market power and without scale. The scale of the monopolistic producer allows greater efficiency at a technological level than small producers competing with each other, being able to resolve economic inefficiency through regulatory or tax tools. However, in what a system of free competition is incomparably superior is in terms of the discovery process that drives its own dynamics. These are the benefits that innovation brings, as a consequence of an unanticipated system of free competition or competition, which far exceed all the supposed advantages of a regulated system.

It is this innovation that produces, most of the time involuntarily, an institutional system of free competition, called by Acemoglu & Robinson “inclusive economic institutions” – the one that allowed Hayek to characterize it as a process of discovery, in other words, as an abstract innovation machine.

This characterization of innovation processes through institutions that function as algorithms that produce new knowledge can also be extended to scientific communities and to the evolutionary process of legal norms.

[Editor’s note: you can find Part 4 here, and the full essay can be read in its entirety here.]

Institutions, Machines, and Complex Orders (Part 4); Malthus and Darwin: population analysis and evolution

The institutional evolutionism has a history before Darwin, parallel to it and even later divergent. In parallel, Darwin for the elaboration of his concept of natural selection took from the political economy the notion of population analysis by Robert Malthus, the one that also comes from the analysis of the institutions as a framework of incentives. At the time Malthus sought to refute the anarchist philosopher William Godwin, who proposed abolishing marriage as a social institution. Mindful that the extra-marital children lacked at that time fewer rights than those born in marriage, Malthus replied that such a measure would lead to an exponential growth of the population and, therefore, marriage as an institution fulfilled the containment function of population growth. A similar analysis makes Malthus of the laws of poor: aid to the poor increases the cost of food, which generates more poor, assuming the dynamics of a vicious circle. The judgments of Malthus have an empirical character that makes them susceptible of refutation, it can be verified if Malthus was right or wrong. However, what has an abstract, methodological, propaedeutic character is its population analysis. That is what Darwin took to conceive natural selection processes and that today can be used in the analysis of institutional evolution.

When one speaks of a political, economic, or social institution displacing another, such movement becomes effective at the level of the populations. For example, literacy and accounting applied to business administration generates a leap in efficiency in the administration and auditing of businesses. It is not surprising that literate traders who carry inventory and accounting processes displace illiterate traders. This is how literacy and accounting can be extended without any central political decision, nor any disruptive phenomenon. (Of course, the modern state, in its process of rationalization, can impose the obligatory nature of certain principles of accounting or schooling, but not necessarily depend on it.)

To a large extent, the arrival of European immigration to South America in the second half of the 19th century consisted in the importation of habits, practices and techniques that immigrants already incorporated. It is widely known the arrival of new techniques of field work and breeding and care of livestock. Also many immigrants who arrived implemented inventory practices and cash management that were leaking into the rest of the population.

William Easterly characterizes this phenomenon as a leaking of knowledge. Following the example of the previous paragraph: those immigrants were more competitive because they brought with them new techniques of rationalization of time, they took inventories and accounted for income and expenditure of funds methodically. This advantage translated into prosperity and expansion of their businesses. However, in order to implement this type of “technology” they must necessarily share it with their collaborators. There is in these collaborators an incorporation of human capital through what Gary Becker called “on-the-job training”: a learning of how to work at a general level (to arrive at schedule, to concentrate on the task, to meet deadlines) and also at a particular level (particular techniques of sowing, raising livestock, managing a certain inventory system). Human capital is a set of habits and practices that “travels” incorporated in each “apprentice”. In this way, the entrepreneur can finance himself by paying part of the compensation to the dependent in kind: the training. On the other hand, there is the phenomenon characterized by Easterly as “leakage of knowledge”. This knowledge is transmitted, migrated, from person to person. To the extent that it reports a greater utility to its “bearer” it is expanding, extending, throughout the social fabric, often not as a deliberate education, but as an unintended consequence of the use of such knowledge, which, for can be put into practice, needs the help of more than one person.

It is in this sense that what evolve are the practices and habits, in this case of work and business. It is extended by its incorporation by individuals who adopt them, often involuntarily, either through the incorporation of guidelines from their place of work, or through imitation or emulation. Following the terminology of evolutionism, practices and habits are the unit of evolution and the people who incorporate their replicators. A practice or habit is more successful to the extent that it extends into the population. In turn, the populations carrying practices and habits more adapted to the environment will extend them to others.

[Editor’s note: You can find Part 3 of this essay here, and you find the full essay here.]

Institutions, Machines, and Complex Orders (Part 3): Evolutionary drift

The affirmation that one should not judge the historical past with current values ​​forms a topic as widespread as the disobedience to it. However, a conscious exercise of the evaluative critique of the past allows us to identify continuities and disruptions in institutional patterns, i.e., in systems of incentives that are considered legitimate, whether by virtue of a question of social utility or principles.

Caste systems are obvious examples in which a differentiated attribution of rights, that is to say the legal protection of the interests of individuals assigned to a certain ethnic group, was interpreted as legitimate because it was a matter of principle.

While a caste is defined by an ethnic component, or at least with respect to its physiognomic marker, in the status system the ethnic differences lose preponderance, to transfer it to the different private orders or privileges that determine a function within the society. In both cases, both in the system of castes and status, it should be noted that they not only define privileges for its members but mainly establish obligations: war, worship or field work, for example. While the cult is reserved for a certain caste, in the status societies the cult is an institutionalized function, an order, whose members fulfilled certain procedures of admission and permanence.

In any case, beyond the similarities and differences in the systems of castes and status, what matters in this case is to emphasize that such attributions of rights and obligations, that is, of legal protection of interests, collective or particular, do not respond to a question of social utility but of principles. In the first place, because in such societies the power is fragmented and therefore there is no central power that can perform a critical judgment on the social utility of a given system of incentives; at the most, if there is a king, he assumes a role of primus inter pares, an arbitrator between castes or statuses or protector of order.

The emergence of central governments demanded the emergence of stable bureaucracies supported by a tax system to be systematized in a public accounting, that is, a calculation of utility. On the other hand, the incorporation of abstract procedures from private law to the administration of the government, displacing the systems of sages, mandarins, humanists, etc., allowed a better centralization and control and rational administrative decisions. However, what is important to note here is that such institutional innovations did not necessarily depend on a disruptive change, such as a revolution, but that many cases occurred through an evolutionary process, in which more efficient institutions displaced obsolete ones.

The emergence of central governments replaced fragmented political and social systems, because centralization allows a calculation of utility in decision making, which yields better results -not always but most of the time- than a decision system based mainly on honour. Most of the time but not always, since there is the possibility that, in a situation of extreme complexity, the calculation of utility has a wide margin of error and, in contrast, in such situations, a pattern of decisions based on emotions, traditions, or moral principles work as a kind of heuristic better adapted to the circumstances. After all, for the calculation of utility to be viable, it must have tools such as an accounting system, a literate bureaucracy, an abstract procedural system, among others. If you do not have such means, hardly a decision based on utilitarian issues is far from whimsical and arbitrary. Faced with such cases, traditional structures could be more efficient.

Another issue to consider is not to be confused between the rationalization of political power in a central administration – public budgets and control of their execution, a neutral and efficient tax system, administrative decisions of a particular nature adopted according to abstract and general procedures – with the rationalization of each subsystem of society and even of the individual in particular.

It is true that, as indicated by Max Weber, the bureaucratization of political power leads to the gradual bureaucratization of the rest of society: the generalization of the same accounting system for all companies, in order to verify compliance with tax obligations, the public instruction of the whole population, to name a few examples. These processes of rationalization are extremely beneficial and generate a jump in productivity. This is what William Easterly, in his work The Quest for Economic Growth, highlights as a phenomenon in which knowledge leaks and spreads throughout society. In this way the relations of complementarity generated by the knowledge shared with the rest of the individuals that make up a given community are much more important than the substitution effect could give an advantage to a single possessor of such knowledge. For example, having knowledge of accounting represents an advantage over the competition, but that all companies are organized according to reasonable and homogeneous accounting principles allows a jump in productivity throughout the system that yields even greater individual profits. Likewise, not only the leaking of knowledge is beneficial for all members of society, but reached a point is inevitable.

However, this does not mean that a rationalization of the society as a whole and of the individuals that compose it is necessarily possible or desirable; much less that such process is directed from a central political power. A process of compulsive and totalizing rationalization is not always modernizing. Both in biological and cultural terms, the evolution occurs in the margins, it is the mutations of small isolated populations that allow them to adapt to changes in the environment.

Moreover, the totalizing political systems, which not only seek to define from a central power each one of the functions of the social subsystems in function of a supposed calculation of utility, also seek to build a notion of “citizenship” that stifles the sphere of autonomy that defines each individual with civic obligations. Such conceptions are the first to see the processes of innovation and creative destruction and any individual initiative as dangerous. Thus, by cutting off all possible adaptation to changes in circumstances, by mutilating all possible discoveries, it is not uncommon for such political systems to experience stagnation and be displaced by other systems more open to innovation – or at least be invaded by results of said competition, discovery and innovation processes.

[Editor’s note: Here is Part 2; Here is the full essay.]