The meaning of Hayek’s main views on monetary theory

The one who is set to determine what Friedrich Hayek’s monetary theory consisted of will discover that his was a labyrinthic exploration conducted to dead-ends, which taught him what paths not to follow.

In his first years of research, Hayek was focused on the business cycle theory and on the monetary effects on the business cycles, his main objective being the pursuit of a neutral currency. This means, a monetary system that does not interfere in the price system, i.e., that the variations in relative prices express only the variations in the relative scarcity of goods, without any monetary disturbances. In this first stage, Hayek concentrated on the study of what he called “Cantillon effects,” in which the variations in the money supply did not affect prices simultaneously but were transmitted from capital goods firstly to consumer goods later, generating thus an intertemporal distortion or falsification in relative prices.

This distortion in the intertemporal value of goods is expressed in the distortion in the interest rate. It is worth clarifying about this last aspect, that for the Austrian School of Economics, which was where Hayek came from, time preference is the predominant element in the interest rate and that the monetary element represents, precisely, a disturbance in said time preference scale.

The monetary disturbances on the interest rate had two main consequences for Hayek: the first, the generation of cycles of boom and recession; the second, a process of continuous decapitalization of the economy.

In turn, in this first stage of Hayekian economic thought, stability in the purchasing power of money would not necessarily mean a neutral monetary system: that the money supply accompanies an increase in money demand, for example, could lead to a cycle of boom and recession with an initial stage of stability in the general level of prices, since the increase in the money supply would first be channeled into the capital goods market, generating an effect similar to an initial drop in the interest rate, which would then rise when the increase in the money supply reached the market for consumer goods.

In this last stage, the demand for consumer goods would increase, but the supply of such would not be able to satisfy it, since the resources -induced by the initial drop in the interest rate- had previously been redirected to the production of capital goods.

For Hayek, therefore, crises were not generated by underconsumption, but quite the opposite, by pressure on the demand for consumer goods. If this additional demand for consumer goods was not validated by further increases in the money supply, adjustment and recession would ensue. It is what was called The Concertina Effect -which later received severe critics from Hayek’s former disciple and translator Nicholas Kaldor.

But if indeed the monetary authority validated the expectations of consumers permanently, in order to avoid the slump, this would induce a gradual substitution in the production of consumer goods for capital goods. A process of a sort that John Maynard Keynes had already mentioned in his “A Tract on Monetary Reform” -to which Hayek adhered: The phenomenon of capital consumption that caused high inflation. Such a process of erosion of the capital structure of an inflationary economy would be the central theme of Hayek’s studies on the Ricardo Effect, which John Hicks proposed to rename the Ricardo-Hayek effect. This theme of his youth will accompany him both in the works of his adulthood and in his old age, as exposed in his essays “The Ricardo Effect” (1942) and “Three Elucidations of the Ricardo Effect” (1969).

To summarize, Hayek’s initial concern on monetary theory was not focused on the stability of the price level but rather on the attainment of the neutrality of money. His most relevant conclusions on this subject could be found in his short note titled “On Neutral Money” (originally published as “Über ‘neutrale Geld’” in 1933), in which he stated what follows:

“Hence the relationship between the theoretical concept of neutrality of the money supply and the ideal of monetary policy is that the degree to which the latter approximates to the former provides one, probably the most important though not the sole, criterion for assessing the maxims of monetary policy. It is perfectly conceivable that monetary influences would always give rise to a ‘falsification’ of relative prices and a misdirection of production unless certain conditions were fulfilled, e.g., (1) the flow of money remained constant, and (2) all prices were perfectly flexible, and (3) in the conclusion of long-term contracts in terms of money, the future movement of prices was approximately correctly predicted. But the implication is, then, that if (2) and (3) are not given, the ideal cannot be attained by any kind of monetary policy at all.”

In turn, in 1943, he rehearses the proposal of “A Commodity Reserve Currency“, with the purpose of giving a functional meaning to the phenomenon of hoarding: an increase in the purchasing power of money caused by a monetary demand for a reserve of value would translate into in a greater demand for primary goods by the monetary authority, which would curb the fall in prices and the monetary disturbances on the level of activity. Correlatively, a rise in spending would be offset by the sale of raw materials by the monetary authority and the concomitant sterilization of means of payment, thereby decompressing inflationary pressures. The big problem with such a proposal was the instrumentation itself: having a reserve system for a basket of raw materials is laborious and costly; in the same way that the choice of goods that make up said basket of goods is not exempt from controversy.

That is way Hayek’s attitude towards the inevitability of monetary shocks to the real economy is one of apparent resignation. When it comes to describing the incidence of the money multiplier by the banking system, Hayek points out that not much can be done about it, other than to understand that this is how capitalist economies work.

However, in 1976 – 1977, Hayek returned to contribute to monetary theory from his proposal of competition of currencies in “Denationalisation of Money”, where he questioned whether the monopoly of money was a necessary attribute of the nation state -something that dates back to the times of Jean Bodin- and proposed that the different countries that made up the then European Economic Community, instead of issuing a common currency, compete with each other in a selection process of currencies by the public.

Although Hayek is credited with having outlined inflation targeting in that book and is regarded as an inspiration to the private and crypto currencies, his main contribution remains yet to be assessed: The competition of currencies is not the best monetary system but the best procedure to discover a better one.

Previously, in his essay of 1968, “Competition as a Discover Procedure”, Hayek had stated that: “Competition is a procedure for discovering facts, which, if the procedure did not exist, would remain unknown or would not be used.” Thus, we will never define by ourselves, speculatively, how it would work the perfect monetary system, but the competition of currencies would enable us with a more powerful tool to discover which monetary system would better adapt to the changing conditions of the economic environment. The denationalization of money is not a monetary system by itself, but a device to improve the existing ones.

A few words — and many quotations – about the influence of Ludwig Wittgenstein on Friedrich Hayek

In a brief autobiographical note, Friedrich Hayek refers to the influence he had received in his younger years from both his teacher Ernst Mach and his distant cousin Ludwig Wittgenstein:

But I did, through these connexions, become probably one of the first readers of Tractatus when it appeared in 1922. Since, like most philosophically interested people of our generation I was, like Wittgenstein, much influenced by Ernst Mach, it made a great impression on me.”

F. A. Hayek – Remembering My Cousin, Ludwig Wittgenstein

This can be seen in the analytical rigor present in his essays published in the 1920s and in his book Monetary Theory and the Trade Cycle (Geldtheorie und Konjunkturtheorie) (1929), translated by N. Kaldor and H. M. Croome from the German. However, such influence was not exclusively limited to Hayek’s youth. He was also present in the conception and writing style of The Sensory Order, published in 1952, and Law, Legislation and Liberty, the first volume of which, Rules and Order, was published in 1973.

From my point of view, the following aphorism of the Tractatus Logico-Philosophicus is the one that best allows us to appreciate the reflection of said work in Hayek:

4.12 „Der Satz kann die gesamte Wirklichkeit darstellen, aber er kann nicht das darstellen, was er mit der Wirklichkeit gemein haben muß, um sie darstellen zu können -die logische Form.

Um die logische Form darstellen zu können, mußten wir uns mit dem Satze außerhalb der Logik aufstellen können, das heißt außerhalb der Welt.“

Which could be translated as follows:

4.12 “The proposition can represent the whole of reality, but it cannot represent what it must have in common with reality to be able to represent it – the logical form.

To represent the logical form, we should have to be able to station ourselves with the proposition somewhere outside the logic, i.e.: outside the world.”

This statement about the limits of representation later finds its correlation in the following aphorisms from Hayek’s The Sensory Order, about the limits of knowledge and of the transmission of information:

8.14. While there can thus be nothing in our mind which is not the result of past linkages (even though, perhaps, acquired not by the individual but by the species), the experience that the classification based on the past linkages does not always work, i.e., does not always lead to valid predictions, forces us to revise that classification (6.45-6.48). In the course of this process of reclassification we not only establish new relations between the data given within a fixed framework of reference, i.e., between the elements of given classes: but since the framework consists of the relations determining the classes, we are led to adjust that framework itself.

Note that if there is something that “does not always work,” then we are confronted with the limits to our representation. I think that the said “framework of reference” could play the role of the “logic form” and what Hayek is describing here is the dynamics of a negative feedback process.

8.18. The new experiences which are the occasion of, and which enter into, the new classifications or definitions of objects, is necessarily presupposed by anything which we can learn about these objects and cannot be contradicted by anything which we can say about the objects thus defined. There is, therefore, on every level, or in every universe of discourse, a part of our knowledge which, although it is the result of experience, cannot be controlled by experience, because it constitutes the ordering principle of that universe by which we distinguish the different kinds of objects of which it consists and to which our statements refer.

Here, the subject, instead of being outside the world is inside another universe of discourse.

8.67. Apart from these practical limits to explanation, – which we may hope continuously to push further back, there also exists, however, an absolute limit to what the human brain can ever accomplish by way of explanation—a limit which is determined by the nature of the instrument of explanation itself, and which is particularly relevant to any attempt to explain particular mental processes.

Nevertheless, there are certain universes of discourse that human beings can never access to -so, they are outside their world.

8.69. The proposition which we shall attempt to establish is that any apparatus of classification must possess a structure of a higher degree of complexity than is possessed by the objects which it classifies; and that, therefore, the capacity of any explaining agent must be limited to objects with a structure possessing a degree of complexity lower than its own. If this is correct, it means that no explaining agent can ever explain objects of its own kind, or of its own degree of complexity, and, therefore, that the human brain can never fully explain its own operations. This statement possesses, probably, a high degree of prima facie plausibility. It is, however, of such importance and far-reaching consequences, that we must attempt a stricter proof.

Here, Wittgenstein’s logic form delimits the said structures of a higher degree of complexity which the subject given in a simpler universe of discourse could never trespass.

8.81. The impossibility of explaining the functioning of the human brain in sufficient detail to enable us to substitute a description in physical terms for a description in terms of mental qualities, applies thus only in so far as the human brain is itself to be used as the instrument of classification. It would not only not apply to a brain built on the same principle but possessing a higher order of complexity, but, paradoxical as this may sound, it also does not exclude the logical possibility that the knowledge of the principle on which the brain operates might enable us to build a machine fully reproducing the action of the brain and capable of predicting how the brain will act in different circumstances.

8.82. Such a machine, designed by the human mind yet capable of ‘explaining’ what the mind is incapable of explaining without its help, is not a self-contradictory conception in the sense in which the idea of the mind directly explaining its own operations involves a contradiction. The achievement of constructing such a machine would not differ in principle from that of constructing a calculating machine which enables us to solve problems which have not been solved before, and the results of whose operations we cannot, strictly speaking, predict beyond saying that they will be in accord with the principles built into the machine. In both instances our knowledge merely of the principle on which the machine operates will enable us to bring about results of which, before the machine produces them, we know only that they will satisfy certain conditions.

Thus, the knowledge of the principle enables us to build an abstract machine such as language, the price system, or the law, in order to form expectations of future human actions. Since such abstract machine would be built using the knowledge of the principle, it would not be deliberated designed but grown from the experience.

While Ludwig Wittgenstein confronted the subject of knowledge against the limits of the conceptual representation and threw him into the silence and into the realms of mysticism, Friedrich Hayek, on the other hand, chooses to place the said limit instance in an order of discourse more complex than the human mind, which could be the market, the language itself, or the extended society.

For Hayek, the social order works as an abstract machine, which continuously processes information and appears in the event horizon of the subjects to confirm or readjust their own classificatory systems. These classificatory systems that, in an abstract plane, each individual has and that are in a continuous process of readjustment based on the novelties that come from the spontaneous order, are abstract but, at the same time, empirical.

Among such abstract orders are the normative systems and the first volume of Law, Legislation and Liberty is devoted to their study.

‘Learning from experience’, among men no less than among animals, is a process not primarily of reasoning but of the observance, spreading, transmission and development of practices which have prevailed because they were successful-often not because they conferred any recognizable benefit on the acting individual but because they increased the chances of survival of the group to which he belonged. The result of this development will in the first instance not be articulated knowledge but a knowledge which, although it can be described in terms of rules, the individual cannot state in words but is merely able to honour in practice. The mind does not so much make rules as consist of rules of action, a complex of rules that is, which it has not made, but which have come to govern the actions of the individuals because actions in accordance with they have proved more successful than those of competing individuals or groups.”, Chap. 1, Reason and Evolution

Here we find a process of natural selection of rules of conduct, thus, provided not by representational reason, but from experience.

The first of these attributes which most rules of conduct originally possessed is that they are observed in action without being known to the acting person in articulated (‘verbalized’ or explicit) form. They will manifest themselves in a regularity of action which can be explicitly described, but this regularity of action is not the result of the acting persons being capable of thus stating them. The second is that such rules come to be observed because in fact they give the group in which they are practised superior strength, and not because this effect is known to those who are guided by then. Although such rules come to be generally accepted because their observation produces certain consequences, they are not observed with the intention of producing those consequences-consequences which the acting person need not know.  Chap. 1, Reason and Evolution

Here we find a concept that Hayek will use extensively along the rest of Law, Legislation and Liberty, the articulated and the unarticulated. In the terms previously used in The Sensory Order, the unarticulated is what belongs to another universe of discourse, of a more complex level.

The process of a gradual articulation in words of what had long been an established practice must have been a slow and complex once the first fumbling attempts to express in words what most obeyed in practice would usually not succeed in expressing only, or exhausting all of, what the individuals did in fact take into account in the determination of their actions. The unarticulated rules will therefore usually contain both more and less than what the verbal formula succeeds in expressing. On the other hand, articulation will often become necessary because the ‘intuitive’ knowledge may not give a clear answer to a particular question. The process of articulation will thus sometimes in effect, though not in intention, produce new rules. But the articulated rules will thereby not wholly replace the unarticulated ones, but will operate, and be intelligible, only within a framework of yet unarticulated rules. Chap. IV, The Changing Concept of Law

Thus, the process of articulation of new rules is not a labor of creation of new ones, but of discovering them through the limits of the universe of discourse of the individuals.

The contention that a law based on precedent is more rather than less abstract than one expressed in verbal rules is so contrary to a view widely held, perhaps more among continental than among Anglo-Saxon lawyers, that it needs fuller justification. The central point can probably not be better expressed than in a famous statement by the great eighteenth-century judge Lord Mansfield, who stressed that the common law ‘does not consist of particular cases, but of general principles, which are illustrated and explained by those cases’. What this means is that it is part of the technique of the common law judge that from the precedents which guide him he must be able to derive rules of universal significance which can be applied to new cases.

The chief concern of a common law judge must be the expectations which the parties in a transaction would have reasonably formed on the basis of the general practices that the ongoing order of actions rests on. In deciding what expectations were reasonable in this sense he can take account only of such practices (customs or rules) as in fact could determine the expectations of the parties and such facts as may be presumed to have been known to them.

And these parties would have been able to form common expectations, in a situation which in some respects must have been unique, only because they interpreted the situation in terms of what was thought to be appropriate conduct and which need not have been known to them in the form of an articulated rule. Chap. IV, The Changing Concept of Law

Here, “rules of universal significance” should be understood as knowledge of the principle. The general practices denote that the said order, despite of being abstract, is, nevertheless, empirical. The common expectations are readjusted through a process of articulation of rules which redefine the universe of discourse of the individuals of a given community or society.

This conception of rules allows us to a better comprehension of the notion of natural rights, since they are empirical, despite their enforcement:

Whether we ought to call ‘law’ the kind of rules that in these groups may be effectively enforced by opinion and by the exclusion from the group of those who break them, is a matter of terminology and therefore of convenience. For our present purposes we are interested in any rules which are honoured in action and not only in rules enforced by an organization created for that purpose.

It is the factual observance of the rules which is the condition for the formation of an order of actions; whether they need to be enforced or how they are enforced is of secondary interest. Factual observance of some rules no doubt preceded any deliberate enforcement. The reasons why the rules arose must therefore not be confused with the reasons which made it necessary to enforce them. Chapter V. Nomos: The Law of Liberty.

Finally, despite being the enforcement of natural rights a matter which depends upon a political decision, the authority is a subsystem inside of the same level of discourse of the individuals of the same political order. Thus, the political authority could not trespass the limits of the knowledge of the said empirical order without consequences concerning its stability. It should deal with the rules which act as the framework of individual interaction using just knowledge of the principles, articulated in general and abstract rules. As we succinctly have seen, the youth influence of Ludwig Wittgenstein on Friedrich Hayek endured until the last books of the latter. I dare not say that the Tractatus encloses the clues of interpretation of the most intricated works of F. A. Hayek, but its reader will find some common ground upon which to build a more prolific interpretation of his legacy.

Nightcap

  1. Rod Dreher is an unfamiliar figure in Britain Sebastian Milbank, the Critic
  2. Cosmopolitanism and International Economic Institutions” (pdf) Turkuler Isiksel, Journal of Politics
  3. In search of Islamic liberty Emina Melonic, Modern Age
  4. From Group Selection to Ecological Niches” (pdf) Jack Birner, Rethinking Popper

Some derivations from the uses of the terms “knowledge” and “information” in F. A. Hayek’s works.

In 1945, Friedrich A. Hayek published under the title “The Use of Knowledge in Society,” in The American Economic Review, one of his most celebrated essays -both at the time of its appearance and today- and probably, together with other studies also later compiled in the volume Individualism and Economic Order (1948), one of those that have earned him the award of the Nobel Prize in Economics, in 1974.

His interpretation generates certain perplexities about the meaning of the term “knowledge”, which the author himself would clear up years later, in the prologue to the third volume of Law, Legislation and Liberty (1979). Being his native language German, Hayek explains there that it would have been more appropriate to have used the term “information”, since such was the prevailing meaning of “knowledge” in the years in which such essays had been written. Incidentally, a similar clarification is also made regarding the confusions raised around the “spontaneous order” turn, which he later replaced by that of “abstract order”, with further subsequent replacements:

Though I still like and occasionally use the term ‘spontaneous order’, I agree that ‘self-generating order’ or ‘self-organizing structures’ are sometimes more precise and unambiguous and therefore frequently use them instead of the former term. Similarly, instead of ‘order’, in conformity with today’s predominant usage, I occasionally now use ‘system’. Also ‘information’ is clearly often preferable to where I usually spoke of ‘knowledge’, since the former clearly refers to the knowledge of particular facts rather than theoretical knowledge to which plain ‘knowledge’ might be thought to prefer” . (Hayek, F.A., “Law, Legislation and Liberty”, Volume 3, Preface to “The Political Order of a Free People”.)

Although it is already impossible to substitute in current use the term “knowledge” for “information” and “spontaneous” for “abstract”;  it is worth always keeping in mind what ultimate meaning should be given to such concepts, at least in order to respect the original intention of the author and perform a consistent interpretation of his texts.

By “the use of knowledge in society”, we will have to refer, then, to the result of the use of information available to each individual who is inserted in a particular situation of time and place and who interacts directly or indirectly with countless of other individuals, whose special circumstances of time and place differ from each other and, therefore, also have fragments of information that are in some respects compatible and in others divergent. 

In the economic field, this is manifested by the variations in the relative scarcity of the different goods that are exchanged in the market, expressed in the variations of their relative prices. An increase in the market price of a good expresses an increase in its relative scarcity, although we do not know if this is due to a drop in supply, an increase in demand, or a combined effect of both phenomena, which vary joint or disparate. The same is true of a fall in the price of a given good. In turn, such variations in relative prices lead to a change in individual expectations and plans, since this may mean a change in the relationship between the prices of substitute or complementary goods, inputs or final products, factors of production, etc. In a feedback process, such changes in plans will in turn generate new variations in relative prices. Such bits of information available to each individual can be synthesized by the price system, which generates incentives at the individual level, but could never be concentrated by a central committee of planners. In the same essay, Hayek emphasizes that such a process of spontaneous coordination is also manifested in other aspects of social interactions, in addition to the exchange of economic goods. They are the spontaneous –or abstract- phenomena, such as language or behavioral norms, which structure the coordination of human interaction without the need for a central direction.

“The Use of Knowledge in Society” appears halfway through the life of Friedrich Hayek and in the middle of the dispute over economic calculation in socialism. His implicit assumptions will be revealed later in his book The Sensory Order (1952) and in the already mentioned Law, Legislation and Liberty (1973, 1976 and 1979). In the first of them, we can find the distinction between relative limits and absolute limits of information / knowledge. The relative ones are those concerning the instruments of measurement and exploration: better microscopes, better techniques or better statistics push forward the frontiers of knowledge, making it more specific. However, if we go up in classification levels, among which are the coordination phenomena between various individual plans, which are explained by increasingly abstract behavior patterns, we will have to find an insurmountable barrier when configuring a coherent and totalizer of the social order resulting from these interactions. This is what Hayek will later call the theory of complex phenomena.

The latter was collected in Law, Legislation and Liberty, in which he will have to apply the same principles enunciated incipiently in “The Use of Knowledge in Society” regarding the phenomena of spontaneous coordination of individual life plans in the plane of the norms of conduct and of the political organization. Whether in the economic, legal and political spheres, the issue of the impossibility of centralized planning and the need to trust the results of free interaction between individuals is found again.

In this regard, the Marxist philosopher and economist Adolph Löwe argued that Hayek, John Maynard Keynes, and himself, considered that such interaction between individuals generated a feedback process by itself: the data obtained from the environment by the agents generated a readjustment of individual plans, which in turn meant new data that would readjust those plans again. Löwe stressed that both he and Keynes understood that they were facing a positive feedback phenomenon (one deviation led to another amplified deviation, which required state intervention), while Hayek argued that the dynamics of society, structured around values such like respect for property rights, it involved a negative feedback process, in which continuous endogenous readjustments maintained a stable order of events. Hayek’s own express references to such negative feedback processes and to the value of cybernetics confirm Lowe’s assessment.

Today, the dispute over the possibility or impossibility of centralized planning returns to the public debate with the recent developments in the field of Artificial Intelligence, Internet of Things and genetic engineering, in which the previous committee of experts would be replaced by programmers, biologists and other scientists. Surely the notions of spontaneous coordination, abstract orders, complex phenomena and relative and absolute limits for information / knowledge will allow fruitful contributions to be made in such aspects.

It is appropriate to ask then how Hayek would have considered the phenomenon of Artificial Intelligence (A.I.), or rather: how he would have valued the estimates that we make today about its possible consequences. But to adequately answer such a question, we must not only agree on what we understand by Artificial Intelligence, but it is also interesting and essential to discuss, prior to that, how Hayek conceptualized the faculty of understanding.

Friedrich Hayek had been strongly influenced in his youth by the Empirical Criticism of his teacher Ernst Mach. Although in The Sensory Order he considers that his own philosophical version called “pure empiricism” overcomes the difficulties of the former as well as David Hume’s empiricism, it must be recognized that the critique of Cartesian Dualism inherited from his former teacher was maintained by Hayek -even in his older works- in a central role. Hayek characterizes Cartesian Dualism as the radical separation between the subject of knowledge and the object of knowledge, in such a way that the former has the full capabilities to formulate a total and coherent representation of reality external to said subject, but at the same time consists of the whole world. This is because the representational synthesis carried out by the subject acts as a kind of mirror of reality: the res intensa expresses the content of the res extensa, in a kind of transcendent duplication, in parallel.

On the contrary, Hayek considers that the subject is an inseparable part of the experience. The subject of knowledge is also experience, integrating what is given. Hayek, thus, also relates his conception of the impossibility for a given mind to account for the totality of experience, since it itself integrates it, with Gödel’s Theorem, which concludes that it is impossible for a system of knowledge to be complete and consistent in terms of its representation of reality, thus demolishing the Leibznian project of the mechanization of thought.

It is in the essays “Degrees of Explanation” and “The Theory of Complex Phenomena” –later collected in the volume of Studies in Philosophy, Politics, and Economics, 1967- in which Hayek expressly recognizes in that Gödel’s Theorem and also in Ludwig Wittgenstein’s paradoxes about the impossibility of forming a “set of all sets” his foundation about the impossibility for a human mind to know and control the totality of human events at the social, political and legal levels.

In short, what Hayek was doing with this was to re-edit the arguments of his past debate on the impossibility of socialism in order to apply them, in a more sophisticated and refined way, to the problem of the deliberate construction and direction of a social order by part of a political body devoid of rules and endowed with a pure political will.

However, such impossibility of mechanization of thought does not in itself imply chaos, but on the contrary the Kosmos. Hayek rescues the old Greek notion of an uncreated and stable order, which relentlessly punishes the hybris of those who seek to emulate and replace the cosmic order, such as the myth of Oedipus the King, who killed his father and married his mother, as a way of creating himself likewise and whose arrogance caused the plague in Thebes. Like every negative feedback system, the old Greek Kosmos was an order which restored its lost inner equilibrium by itself, whose complexities humiliated human reason and urged to replace calculus with virtue. Nevertheless, what we should understand for that “virtue” would be a subject to be discussed many centuries later from the old Greeks and Romans, in the Northern Italy of the Renaissance.

A Note on “Hayekian” Empirical Normative Systems

In the first volume of Law, Legislation and Liberty (1973), we will find the most daring theses of Friedrich Hayek regarding the problem between law and politics. Just as his economic work of the 1930s and 1940s had been, in his opinion, misunderstood by his colleagues; just as he was surprised to hear the fervent readers of The Road to Serfdom (1945) attribute positions to him that he had not exposed there; also his legal-political work triggered simplifying interpretations that conceal the main contributions, still relevant for this time.

In Norms and order –that is the title of that first volume- the author does not propose to abandon legislation and return to customary law, nor to replace the political decisions of the administration of state affairs by a government of judges. On the contrary, it is stated there with a clarity that leaves no room for doubt that the powers of the state must be organised and operate in accordance with the rules and procedures of public law, made up of legislative bodies endowed with rules with a clear teleological content.

On the other hand, the genuinely innovative thesis that Hayek exposes in the aforementioned volume consists in affirming that the interactions between individuals in the scope of their exchanges destined to cooperate freely and voluntarily in the coordination of their respective life plans are structured around a set of abstract rules –that is, lacking a specific purpose- and general rules whose observance could occur in practice without the need for a positive enunciation. It is for this reason that Hayek affirms that the law is not created, but discovered, and that it is not legislated, but rather evolves.

On this last point, John Gray at his time, many years after Hayek’s death, lamented that his former mentor had spent the last years of his life discussing pseudoscientific ideas around alleged evolutionary theories. However, such suspicion cannot fall in any way on the triptych of “Law, Legislation and Liberty” (1973; 1976 and 1979).

What is found in the said work is an express taking sides with a tradition of thought that extends from the Late Middle Ages, the Renaissance and the beginnings of Modernity: the school of natural law understood as something different from an ideal, derived from reason, about what should be, but to a set of normative beliefs effectively extended in a given population, which condition their behaviour, contribute to the formulation of a critical judgement about the value of actions and allow the formation of expectations about the expected behaviour of peers and, therefore, facilitate the ideation and coordination of individual plans.

For Hayek’s own epistemological conceptions, this tradition of thought acts as a kind of discovery mechanism on certain aspects of the legal phenomenon and the structural characteristics present in all human interaction and therefore his constant appeal to the history of ideas.

Hayek, in a peaceful and incontrovertible way for any specialist in the matter, syndicates Hugo Grotius as the initiator of the rationalist and idealist school of natural law, although holding him responsible, as he did, for the evolution of the identification of legislation as the only and exclusive source of law could be considered as an overly emphatic statement, which would abandon the very premises of cultural evolutionism to which Hayek himself adhered: if Grotius’ theses were so successful, it was largely due to the subsequent advent of the national states.

Although the truth is, however, that the characterization of Natural Law as a derivative of reason later allowed, in the 20th century, to receive from legal positivism the rejection of all Natural Law as “metaphysical”, thus leaving the formulation of the Law at the mercy of politics and, with it, in a serious crisis the very notion of “Rule of Law”.

It is for this reason that Hayek set out to rehabilitate the empiricist current of Natural Law, which seeks normative statements not in the derivations of reason, but in the discovery of notions about what could be considered right behaviour towards others through the investigation of patterns of behaviour actually observed in a given community that is structured around peaceful exchanges repeated over time.

The archetypal example of such kinds of normative structures given in practice, independently of their enunciation by any type of legislator, is represented by the communities of merchants: a repeated series of regular exchanges generates certain expectations about the conduct to be observed by the members of said group of merchants, which also allow to conceive and coordinate other business plans. For this reason, many times, conflicts between merchants are resolved through friendly settlers, or arbitrations, and judges resort to the opinion of specialised experts in a certain commercial area to dictate their decisions.

Such examples do not constitute proof that all law is spontaneous, but rather a powerful counterexample to the theses that hold, on the one hand, that legislation is the only possible source of law and those that, on the other, affirm that all law must be derived from reason.

Although both antithetical visions are synthesised in the figure of the rational legislator, whose legislative enunciations are derivatives of public reason, this in turn receives -in the first half of the 20th century and today- challenges from Realistic doctrines, which state that legislative activity is not a product of public reason, but of the exercise of political will.

It is in relation to this contest that Hayek plays the card of cultural evolutionism and of the legal system as a spontaneous order. In this sense “Law, Legislation and Liberty” is a new elaboration of “The Road to Serfdom”.

This theoretical controversy maintains its full validity to date: the confrontation that the predominant species of Liberalism, of an idealistic and rationalist nature, seems to be losing against Political Realism, which places political will above a system of human coexistence based on rules and not on discretionary decisions. In Hayek’s case, he sides with a rule-based political system, but what sets him apart from prevailing Liberalism is that such rules are not derived from reason, but rather emerge from experience.

This experience not only produces norms of just conduct to be discovered by the courts and enunciated by legislators, but it is also responsible for structuring the very apparatus for understanding such norms. It is for this reason that Hayek himself, in his book The Sensory Order (1952), called his particular philosophical vision “pure empiricism.”

Of course, an empiricist conception of Natural or Fundamental Rights – based on Adam Ferguson, David Hume and Edmund Burke, among others – is not exempt from difficulties, the main one being the task of identifying those empirical norms that effectively contribute to maintain a peaceful order of coexistence and provide them with the corresponding enforcement.

However, despite such difficulties, affirming that the existence of Natural Rights emerges from the experience that structure a peaceful order of coexistence and that they are the ones that legitimise the exercise of power and not vice versa, already constitutes in itself an affirmation worthy of being considered and, eventually, defended.

Nightcap

  1. Is anything going to change? Emily Sellars, Broadstreet
  2. Why I am not a liberal The Last Positivist, Sooty Empiric
  3. Hayek’s trap and the European utopia we need (pdf) Philippe Van Parijs
  4. Soviet children’s literature Evgeny Shvarts, Economist

Hayek the globalist

“Since it has been argued so far that an essentially liberal economic regime is a necessary condition for the success of any interstate federation, it may be added, in conclusion, that the converse is no less true: the abrogation of national sovereignties and the creation of an effective international order of law is a necessary complement and the logical consummation of the liberal program.”

2022 Hayek Essay Contest

The Mont Pelerin Society (MPS) announces Friedrich A. Hayek Fellowships for its 2022 Biennial Congress and General Meeting, which will be hosted October 4-8, 2022 in Oslo, Norway.

The MPS encourages members to share this announcement with any eligible and interested individuals (see Rules of Eligibility and Submission Guidelines below), who would like to submit an essay and receive consideration for a Fellowship to attend the meeting:First prize: $2500 cash award + travel grant*Second prize: $1500 cash award + travel grant*Third prize: $1000 cash award + travel grant**Travel grant includes coach class airfare, registration fee, and most meals. Hotel, other food, and other expenses will be the responsibility of the attendee.

The essays will be judged by an international panel of three members of the Society. Essays structured as a professional scholarly journal article are especially encouraged.
 Contest ThemeThe MPS welcomes submissions addressing the following questions related to the meeting theme:What type of international order is most conducive to the preservation of liberalism?What is the appropriate role for the subsidiarity principle and/or secession?What cultural domestic underpinnings are necessary for successful international orders?How does trade policy relate to and/or influence the larger institutional international order?Submissions may also address one or both of the following quotes from Hayek.
“An international authority which effectively limits the powers of the state over the individual will be one of the best safeguards of peace. The international Rule of Law must become a safeguard as much against the tyranny of the state over the individual as against the tyranny of the new super-state over the national communities. Neither an omnipotent super-state, nor a loose association of ‘free nations’, but a community of nations of free men must be our goal.”
– Hayek, Friedrich (1944, 1976) The Road To Serfdom. Routledge & Kegan Paul. p. 175.
“Since it has been argued so far that an essentially liberal economic regime is a necessary condition for the success of any interstate federation, it may be added, in conclusion, that the converse is no less true: the abrogation of national sovereignties and the creation of an effective international order of law is a necessary complement and the logical consummation of the liberal program.”
– Hayek, Friedrich (1939) The Economic Conditions of Interstate Federalism, reprinted in Individualism and Economic Order (1949, 1976). Routledge & Kegan Paul. p. 269.
More information on the conference theme can be found here:
About MPS Oslo 2022.
Rules of Eligibility and Submission GuidelinesThe Hayek Essay Contest is open to all individuals 36 years old or younger. Entrants should write a 5,000 word (maximum) essay. Essays are due on Tuesday, May 31, 2022 and the winners will be announced on Thursday, June 30, 2022.Essays must be submitted in English only. Electronic versions should be sent to: MPS Young Scholars Program Committee. Authors of winning essays must present their papers at the General Meeting to receive their award.Download the Contest Announcement as a PDF Document:
2022 MPS Hayek Essay Contest.

Please contact the MPS Young Scholars Program Committee to address questions or request additional information.

A Liberal View on Trade and Development

This is the pre-edited text of an article that will shortly be published in World Commerce Review (https://www.worldcommercereview.com)

The liberal tradition in political thought is by no means unified. The original ideas developed in the (Scottish) Enlightenment, most importantly by David Hume and Adam Smith, have been modified extensively. This has led to different definitions and practical applications of individual freedom, the core idea of liberalism, but also of most other ideas associated with the liberal tradition.[i] Regardless this proliferation, the wide liberal support for free trade and globalization as a means to alleviate poverty and foster human development more broadly has been rather constant, although the ideal of trade free from all government interference has never been within reach. With the World Trade Organization at shambles, the increase of bilateral and regional trade treaties which often hamper free trade more than fostering it, and a general anti-liberal sentiment across the globe, the liberal ideals may not be a very popular at present. However, this does not say anything about their empirical or moral validity. Liberal recipes to fight poverty and to foster development still work and need support, both through domestic and international policies. 

Global inequality

In international relations inequality is the norm, in many different fields. Often this is not problematic in liberal eyes, as long as individuals get the chance to use their talents in the way they see fit. Grave hindrances, for example caused by a lack of basic needs and insufficient protection of classical human rights should be removed, as they often make individual flourishing impossible.

In contrast to what is often thought, liberals are convinced it is possible for all countries to implement policies that foresee in these basic liberal preconditions. Most often, bad circumstances don’t just happen to countries, nor should they be seen as the inevitable result of regrettable historical events such as slavery, imperialism, let alone the alleged detrimental effects of capitalism. As Lomasky and Téson show, the fate of the inhabitants of developing countries lies not in the hand of failing rich countries, but are mainly due to poor domestic policies, lack of, or failing, domestic institutions and a no respect for classical human rights, such as freedom of opinion, right to property, or a free press.[ii] 

Evidence

Of course, this is a broad topic, which can be approached from many angles. In this short piece, the focus is on the above-mentioned classical liberal rights and measures, but also includes broader topics such as governance and the development of human capital, in Sub-Sahara Africa. This is made visible through an -admittedly- rough measure: the outcomes and ranking of countries in a number of well-known and internationally respected indexes. These indexes compare countries on domestic policies.

A presentation of this kind has to be treated with caution. Methodologically, the indexes are different and a comparison is not always easy or fully warranted. Definitions and operationalizations differ, just like the way results are aggregated into (final) scores.

Nevertheless, these indexes provide a useful indication of good policies from a liberal view. Especially for the countries of Sub-Sahara Africa, which mostly contain low income countries. Contrary to some assumptions that is no barrier for some governments to implement different policies. Being a low income country does not automatically lead to bad policies!

Indexes

Given space limitations, the five indexes are introduced by a broad outline. Please use the references for further information. For practical purposes 5 indexes are used, published in 2018 and 2019.     

  • Since the 1970s, Freedom House publishes the Freedom in the World Index, which determines how individual rights and liberties are applied and protected, on the basis of 25 indicators. It groups countries in ‘free’, ‘partly free’ and ‘not free’. The top 5 free countries in Sub-Saharan Africa are Ghana, Botswana, Namibia, Benin and Senegal.[iii]
  • The International Property Rights Index is published by the American Property Rights Alliance (PRI), expressing the degree of protection of property rights, both material and intellectual, per country. The PRI emphasizes that property rights are also human rights, and that they are essential for economic and social development. In 2019 Rwanda (42nd), South-Africa, Botswana, Ghana, Burkina Faso and Tanzania (73th) were the highest ranking Sub-Saharan countries.[iv]
  • Transparency International publishes The Corruption Perception Index, ranking countries to the degree there is corruption and fight corruption, surveyed among business people and experts. Corruption undermines the trust people have in the political and social-economic systems within societies. In the ranking, Sub-Saharan Africa is perceived as the region with the most corruption, still the countries that score best are Seychelles, Botswana, Cape Verde, Rwanda and Namibia.[v]
  • The Ibrahim Index measures the governance of African countries, defined as ‘the provision of political, social and economic public goods and services that every citizen has the right to expect from their government, and that a government has the responsibility to deliver to its citizens’. In the overall governance category, we find Namibia, Botswana, Ghana, South Africa and Rwanda.[vi] 
  • The World Bank publishes the Human Capital Index, which focuses on different indicators, such as infant mortality, life expectancy, and the chances on education for girls and boys. Countries that score best are: Zimbabwe, Gambia, Ghana, Namibia, Botswana and Senegal.[vii]          

This leads to the following summary:

IndexTop
Freedom in the WorldGhana, Botswana, Namibia, Benin, Senegal
International Property RightsRwanda, Zuid-Afrika, Botswana, Ghana, Burkina Faso, Tanzania
Transparency InternationalSeychellen, Botswana, Kaapverdië, Rwanda, Namibië
IbrahimNamibië, Botswana, Ghana, Zuid-Afrika, Rwanda
Human CapitalZimbabwe, Gambia, Ghana, Namibië, Botswana en Senegal

Especially Botswana, Namibia and Ghana succeed in implementing relative liberal policies, with South Africa, Senegal and Rwanda following their lead. It must be noted that a position on an index is always relative. None of the Sub-Saharan countries are in the absolute top, although some score surprisingly high. Also, this is not to claim these are countries without problems, or that they are liberal countries, let alone liberal-democratic ones. Their absolute rankings do not warrant such a suggestion. It does indicate that being a low-income country does not need to be a barrier to implement relatively liberal policies, which provide individual citizens more (social-economic) opportunities than is the case in other Sub-Saharan countries. Hence, the liberal emphasis on domestic policies is fully warranted.

Liberal international policies

Liberals believe domestic policy is most important to promote development. Still, the perennial practice in international relations also is: what can other countries do in support of this? The short liberal answer is one of restraint: stay clear, do not (militarily) interfere, be modest about the possible success of ‘helping’, while ensuring the best global economic conditions.

The latter is done through ensuring free trade, also the foreign economic policy liberals are most strongly associated with. The popularity of free trade has known its high and low tidings, ever since the Ancients.[viii] Therefore the current low esteem of free trade is nothing new. There have always been people who distrust trade, for economic, political or moral reasons.[ix] On the other hand, there are also too many liberals who have claimed way too much on behalf of free trade, especially its peace-enhancing effects, which are erroneous.[x] The lack of support for trade still deserves to be fought. Friedrich Hayek and Milton Friedman, to name two great thinkers, have shown the importance of continuing to argue against the topical grain.

The evidence continually shows the superior results of even relatively free trade, which has real effects for the improvement of the life of (poor) people. Countries that are committed to free trade become richer and are able to create more possibilities for (economic and human) development. Columbia University’s Arvind Panagariya is just one of the many who found clear evidence for that. In his book Free Trade and Prosperity he shows that developing countries have enormously profited from the recent wave of increasingly free world trade.[xi] The World Bank is even clearer:

Trade is an engine of growth that creates better jobs, reduces poverty, and increases economic opportunity. Recent research shows that trade liberalization increases economic growth by an average by 1.0 to 1.5 percentage points, resulting in 10 to 20 percent higher income after a decade. Trade has increased incomes by 24 percent globally since 1990, and 50 percent for the poorest 40 percent of the population. As a result, since 1990, over one billion people have moved out of poverty because of economic growth underpinned by better trade practices.[xii]

Yet, in contrast to Richard Cobden’s famous argument, it must be acknowledged free trade is no panacea. Domestic policies are needed to see that trade benefits find their way to the wider population. Also, when some groups are out-competed at the world market, they (temporarily) need domestic support. Still, the less than perfect trade arrangements of the last decades have had enormous positive effects on development.

Foreign Aid

By way of a closing remark, in contrast to trade, governmental development aid is not supported by liberals. It still largely is, as Lord Peter Bauer had it, ‘bringing money from the poor in the rich countries, to the rich in the poor countries’. The research of his modern day successors, most notably William Easterly and Dambisa Moyo, largely confirm this.[xiii] The structural effects of governmental foreign aid are minimal and often detrimental, resulting in ‘aid addiction’ in the receiving countries. Liberal have the same doubts about the structural effects of aid by private donors such as NGO’s (positive local effects are possible, for example in health care or education). Yet as long as these private donors donot use public money, this remains a case between donor and recipient. However, in liberal eyes it fails as an international policy to foster development.

Conclusion

Inequality and poverty remain a global reality, which can have detrimental effects to the development of individuals. Liberals think this should change, but emphasize this is mainly done through improved domestic policy in low-income countries based on proven liberal principles. This is not just theory, it is a real possibility, as the some of the countries in Sub-Sahara Africa show. The best way the world can assist in this process is to provide truly free trade, while abandoning governmental foreign aid. Global development is too important to not make the effort.  

Dr Edwin van de Haar is an independent scholar specialized in liberal international political theory and political economy (see www.edwinvandehaar.com). This article is based on a chapter published in a Dutch volume entitled Difference There Must Be. Liberal Views on Inequality, published by the liberal think tank Prof. Mr. B.M. Telders Foundation (www.teldersstichting.nl) 


[i] Edwin R. Van de Haar, Degrees of Freedom. Liberal Political Philosophy and Ideology (New York and London: Routledge, 2015).

[ii] Loren E. Lomasky and Fernando R. Tesón, Justice at a Distance. Extending Freedom Globally (Cambridge: Cambridge University Press, 2015).

[iii] Freedom House, Freedom in the World 2019 (Washington DC).

[iv] Property Rights Alliance, Property Rights Index 2019 (Washington DC).

[v] Transparency International, Corruptions Perceptions Index 2019 (Berlin).

[vi] Mo Ibrahim Foundation. 2018 Ibrahim Index of African Governance (London and Dakar).

[vii] World Bank, Human Capital Index 2018 (Washington DC).

[viii] Ronald Findlay and Kevin O’Rourke, Power and Plenty. Trade, War, and the World Economy in the Second Millennium (Princeton and Oxford: Princeton University Press, 2007).

[ix] Douglas A. Irwin, Against the Tide. An Intellectual History of Free Trade (Princeton: Princeton University Press, 1996); Jagdish Bhagwati, In Defense of Globalization (Oxford & New York: Oxford University Press, 2004); Razeen Sally, Trade Policy, New Century. The Wto, Ftas and Asia Rising (London: Institute of Economic Affairs, 2008).

[x] Edwin R. Van de Haar, “The Liberal Divide over Trade, War and Peace,” International Relations 24, no. 2 (2010); “Free Trade Does Not Foster Peace,” Economic Affairs 40, no. 2 (2020).

[xi] Arvind Panagariya, Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty (Oxford: Oxford University Press, 2019).

[xii] www.worldbank.org/en/topic/trade/overview#1 (accessed 19 November 2021)

Do we have the right to be wrong?

The pandemic, and the consequent decisions taken by our and other governments, have confronted us with the question of the extent of our autonomy. Although we are aware of the exceptional nature of the situation, the matter about the right that assists each individual to make decisions about their own life returns more strongly.

In this sense, we can wonder: How do we make decisions? Are we rational beings? Are thus our decision-making processes rational or we tend to act based on emotions, instincts, or heuristics? Even if we think in terms of choices rather than of actions, do we have enough evidence to think that we rationally choose between options? And if so, can we find the optimal solutions for our problems? Can we evaluate the optimality of our decisions?

The rationality of our actions and our decision-making processes have been widely discussed, not only in the field of economics but also in the legal, political, and sociological realms. Some authors have proposed that our decisions are not based on perfect information or precise though-processes, as Friedrich Hayek, who enlightened us about dispersed knowledge in society or Herbert Simon , who showed us how limited rationality works in real decision-making situations.

More recently, various theories such as behavioral economics and several experiments conducted by scholars from different disciplines, such as those conducted by Carl Sunstein, have showed that individuals act influenced by cognitive limitations and emotional biases. For example, some of these studies have shown how, influenced by these biases, we fail in our perception of the risk, miscalculating the odds we have of suffering certain diseases or how our choices are influenced by the way the relevant information is presented (framing). Thus, it has long been revealed that human actions and choices are not the result of a perfectly rational thought-process, and such discoveries were very useful in predicting certain patterns of behavior.

Personally, I have always found these theories fascinating, showing us that our mind does not work as the precise instrument that other visions have proposed. These “limitations” of our rationality and cognitive capacity have always led me to conclude that we must assume a humble position regarding what we can and cannot do in terms of public policies or the “construction” of social and political reality. Even this humility should be applied to scientific knowledge that manifests itself in constant change and revision. What is worrying is that, recently, this type of analysis has made a jump from the descriptive realm to the normative one, obtaining prescriptive conclusions from these experiments.

On the other hand, nowadays it is common to find that, from different perspectives and schools, subjective rights of all kinds are multiplied. It seems that individuals enjoy -at least theoretically- not only all the rights constitutionally recognized, the rights established by international human rights treatises and all the tacit or unwritten rights but also the collective rights (adding several generations). It is discussed from the right to elect and to be elected (i.e., lowering the age of vote) to the right to enjoy a healthy environment. In addition, from diverse political agendas, it is proposed the widening of all rights enjoyed by people, groups and even animals. We could discuss at length about these rights and obligations involving third parties – not only to respect them but also, in many cases, to take responsibility for the effective enjoyment of them.

But it would seem that, among all these rights that we enjoy or intend to enjoy, the right to be wrong does not appear. Everything is permitted (again, in theory) while individuals live according to the standards or goals to accepted by the community and the State at a given time. From different perspectives we are constantly offered advice and suggestions to achieve the ideal that is presented almost as indisputable: a long, healthy, and calm life (not without some ingredient of novelty or adventure). Not only from the philosophical and theological views -that indicate that human life seems to have happiness, virtue, personal flourishing, or any other transcendent purpose as its goal- but also from more scientific perspectives that provide us with details about what our limitations are in making the right decisions about how to lead a full life. They all seem to agree in proposing a “perfectionist” ideal of human life.

However, when combined these two tendencies of thought -that is, on the one hand, the perfectionist ideal of human life and, secondly, a clear vision about human limitations for making good decisions or planning courses of action, it appears this idea that it is necessary to “underpin”, help or direct the decisions of individuals with the intention to help them that they achieve such ideal ends.

Just to illustrate this point outside the case of the pandemic, we note that all political views coincide in “guiding” citizens when it comes to eating and healthy habits. In this regard, if directing citizens consumption is concerned, much of the political range (conservatism, social democracy, and even the left) seem to agree in wanting to provide healthy standards that everyone should enjoy. This is reflected in a variety of decisions made by governments from one “ideal individual” – which range from prohibiting table salt in restaurants, forcing stores to not sell alcohol at a certain time of the night (and not only limiting the sale to adults as might be expected), forcing food producers or distributors to include a lot of information about its components in packaging, etc. The question does not end here: smoking tobacco, for example, has been almost completely banned everywhere (and not only in closed public spaces but also in open spaces and even in many buildings or premises for exclusive private use).

Faced with this reality, we ask ourselves the question: Do we have the right or not to decide about our lives (our body, our health, etc.)? Can adults without serious cognitive problems -beyond those biases named above that we all “suffered”- with their legitimate autonomy, freedom, and responsibility and, if you like, access to public information about the possible consequences of their actions, choose to assume risks? Do them have the right to put salt to their food, although there are numerous studies that show a correlation between salt intake and high blood pressure? Don’t all those who choose to paraglide or drive a car on a high-speed avenue also take risks? Why are some elections forbidden or more “observed” than others?

So, from this perspective that combines perfectionism and observation of the cognitive limitations of individuals: Does this lead us directly to conclude that our decisions should be replaced or at least “influenced” or “improved” – as suggested by the nudge theory – by the decision of a public official or an expert scientist? Do we let a nutritionist tell us the ideal diet based on recent generic scientific studies? Do we allow an official or civil servant to indicate what activity / sport / food / drink / medical treatment / insurance should we carry out / practice / consume / submit to / hire considering the general statistics of the population for my age / sex / social condition? Would we allow this civil servant to “suggest” us the way of interacting with other individuals or habits to adopt?

To answer this question, it could help us to bring here the conceptual distinction proposed by Dr. Martín Diego Farrell in his essay on “Nino, democracy and utilitarianism”. There Farrell proposes two alternatives to justify democracy: The first one holds that all adults, free of physical or mental impairments, are the best judges of their interests and, in its turn, the second one points out that the same adults would be the best judges of their own preferences.

Farrell argues that the former is indefensible by the number of counterexamples we can find in which an adult seems not to know his best objective interest (perhaps knowable by an expert without his intervention) and, at the same time, other examples that show adults opting freely against their own interest. Instead, he openly defends the second argument: adults are the best experts and judges of their own (subjective) preferences. Although we will discuss in the next few paragraphs the assertion about the possibility that expert may have the objective knowledge of another person´s best interest, we will concede the point for now and agree with Farrell that each adult is the best judge of their own preferences.

This is how we could now answer the questions we posed before. I think that most of us would intuitively reject the proposal of experts/officials telling us what food to eat, what sports to practice, what form of social relationships to prefer and so. Of course, with the exceptions of exceptional situations of crisis in which we consciously seek help from experts in each subject, so that they can provide us with, in this case, personalized advice, considering our specific circumstances, beliefs and wishes. On the other hand, the pandemic has left us a clear image of the fallible, provisional, and changing nature of scientific knowledge.

I believe that the perfectionist and scientistic vision of individual life is based on a conception that responds and falls into the following errors:

a) Confusing correlation with causality: Studies on the influence of certain habit or the consumption of certain food or drink on individuals´ health show correlations and no causal links. That is, it cannot be reliably proven that this or that habit produces such a consequence but only that, given two variables, the values ​​of one vary systematically with the homonymous values ​​of the other. This coincidence may respond to an external cause to both (which produces or “causes ” both variables) or by multiple causes that are difficult to unravel at this level. This is obvious to any scientist or expert in each area, but it is forgotten when it is discussed in the public sphere, where not practicing sports “causes” obesity, salt “causes” high pressure and not wearing a face mask seems to “causes” the contagion of the coronavirus.

b) Studies always work with populations, that is, with a sample or group of individuals of a certain sex, age, physical characteristics, etc. that could have a probability of, for example, suffering certain disease. Let´s say- for the purpose of illustration- that certain group of individuals -men over 65 years have a 60% chance of having a heart attack. But this “class” or group probability does not tell us anything about each particular individual being part or not of that 60%. What if a public policy of restricting salt is being imposed on a man with low blood pressure and a very low probability of having a heart attack? Can’t this individual make the decision to consume more salt than recommended by public bodies or professional chambers at his own risk? Let´s remember all the atrocious examples that were experienced during the pandemic about relatives who have not been able to accompany terminally ill patients, penalties even of jail for people who circulated at prohibited hours and contradictory recommendations that prevented individuals from being able, with the public information available, to decide about their possibilities to work, circulate, see their relatives, etc. under threat of sanction.

c) Scientific studies and their practical conclusions are constantly changing. We have lived through this intensely in the last 20months or more of the pandemic, where what at first seemed irrefutable, months later seems shocking. Just as an example, the practically absolute prohibition -in countries as Argentina- for children to walk in the streets the first three months of quarantine. These major shifts in scientific criteria in one area can be observed (perhaps without the speed we see during the pandemic) in many other realms. Continuing with the nutritional example, we can say that the paradigms in this area seem to change drastically and quickly. Only in the last 20 or 30 years has it gone from suggesting that alcohol was bad to recommending a glass of wine a day to prevent heart disease; to try to eliminate meat in all its forms to currently attempt to eliminate all carbohydrates and sugars and to consume only proteins and fats and many more.

But, beyond all these characteristics of scientific knowledge that inform “perfectionist” public policies, we can also raise an even more fundamental point: Even if we could know, reliably and with certainty, -what science would never guarantee- how a certain habit can affect our health or what would happen if we do not met with the ideal, don´t we have any right to choose how to live our lives? When did we renounce to that right in favor of the experts of a group of professional councils or of the civil servants of a Ministry of Health? Should we forbid the individual who wants to dedicate his life to climbing the Himalayas to carry out such an endeavor because of the high risks of his life plan? And the one who practices hang gliding? Don’t these individuals know their own preferences better than anyone else?

And here are some more points added from a higher level of observation:

a) Levels of Abstraction: Why might we think that individuals choosing between options are “biased” and when individuals working as government agents in offices creating “nudges” are not biased as other individuals in their daily life? Individuals who work in the civil service or have some degree of professional or scientific specialty, don´t they suffer from the same biases and limitations described in the studies above mentioned, typical of every human being? For example, don´t they choose between theoretical or experimental options for those results presented in a more pleasant way (problem of the architecture of the election) or that confirmed more strongly their hypotheses (confirmation fallacy)?

b) Scientific theories are fallible. Also, some of the results of these experiments may turn out to be incorrect or incomplete in the future. Do we have the right to influence individual decisions based on studies that are, like any scientific theory or experiment, fallible and provisional? After all, isn’t it more worthy for the individual to pay the costs of his bad decision rather than paying the costs of a government agent’s bad decision?

c) Finally, a more philosophical point: How does chance or destiny influence on our daily decisions? Is there a case where the options are presented in a “neutral distribution” way? Let us suppose the case of an individual’s decision regarding the acquisition of medical or retirement insurances (issues that have also been very relevant during the pandemic). The individual must choose between “default options”. The options could be presented to consumers randomly or in a way decided by offerors – but without any central agent deciding-. In the latter case, the options are established by the offerors because they are trying to influence commercially on consumers´ choice and, therefore, it could be said that there is no neutral distribution even though it is not a “nudge” of the public sphere. But, on the other hand, there is a suggestion made by government agents, then the ” nudge ” is intervening in the market, albeit subtly. That is to say that private influence is being replaced by governmental influence, bringing an artificial “architecture” of the choice that did not exist before and, therefore, eliminating randomness. Here we are again facing “levels of abstraction” problem: Don´t “experts” -who propose the ” nudge”- have the same limitations as individuals that interact?

Recapitulating, during this long process we lived the last year and a half since pandemic, quarantine and all the -health, economic, political -measures taken by governments, the question about the scope of our autonomy reemerged. Standing on a platform where philosophical perfectionism and a misunderstood scientism are combined, it has gone from trying to discover patterns of behavior to prescribing ideal results and to opening the door to all kinds of measures, which establish from our right to move freely, if we can work, if we can trade, etc. And what has been more unusual, without explicit limits on the duration of such measures. I think this responds to a trend of thought that had started much earlier. But shouldn’t we take back the reins of our lives as adults? Don’t we know our interests better -or, at least, our preferences- by ourselves? If others believe they know our interests better than us, shouldn´t each of us, considering our preferences, be the best judges of how much risk we want to take? We could think that governments and expert organizations can, in good faith, publish all the information and studies produced and, likewise, could suggest, recommend, and even collaborate to follow the suggestions; but not to compel, prohibit and sanction those who are “wrong” at their own risk.

Of course, this implies taking responsibility for our actions and not demanding or claiming the governments to decide for us or to be accountable for our mistakes. If we decide to climb the Himalayas, we will have to train for many years, buy the appropriate equipment, take out the appropriate insurance, face possible injuries and if something goes wrong, even face death. Ultimately, in each election our desires, our beliefs, our projects, and our philosophical perspectives – that provides- meaning to our lives- come into play. So, we cannot ask the government or the experts to prohibit something from us (because it is risky) or, what is worse, to prohibit it from all citizens, so as not to face the dangers or costs of our eventual mistakes.

We find ourselves – by our decision – facing the paradox that we, given our limitations, cannot make personal and everyday decisions about our work, food or habits, but we can choose legitimately officials, experts or governmental agents that are going to lead us on such tasks. I propose, instead, to reassume our adulthood and start exercising our right to bring the life plan whose consequences we can assume. This, instead of taking it as natural that others decide for us in exchange of unloading on them the responsibility of our own life. Only then we will be able to claim, legitimately, the right to take our own decisions at the risk of being wrong.

American Classical Liberals Suck

This week Kevin Vallier published a new entry on neoliberalism in the Stanford Encyclopedia of Philosophy: Neoliberalism (Stanford Encyclopedia of Philosophy). It is a well-written, well-researched piece. However, it is also symbolic for the greatest deficiency of American classical liberals: they are unable or unwilling to defend the name, or label if you like, of the ideas they are associated with. Given the influence of American academia and thinks tanks on the rest of the world this is especially important. It has happened before, and it is happening now. It sucks.

This is how Vallier starts his entry:

“Though not all scholars agree on the meaning of the term, “neoliberalism” is now generally thought to label the philosophical view that a society’s political and economic institutions should be robustly liberal and capitalist, but supplemented by a constitutionally limited democracy and a modest welfare state. Recent work on neoliberalism, thus understood, shows this to be a coherent and distinctive political philosophy. This entry explicates neoliberalism by examining the political concepts, principles, and policies shared by F. A. Hayek, Milton Friedman, and James Buchanan, all of whom play leading roles in the new historical research on neoliberalism, and all of whom wrote in political philosophy as well as political economy. Identifying common themes in their work provides an illuminating picture of neoliberalism as a coherent political doctrine.”

The problem is in the words: ‘“neoliberalism” is now generally thought…’’.  Neoliberalism is a hotly debated term, there is certainly no consensus on its meaning. As Oliver Hartwich has emphasized in Neoliberalism, the genesis of a political swearword, it is still most often used as a swearword by the left for all that they think is wrong with capitalism, (classical) liberalism, (more or less) liberal policies by IMF, WTO and World Bank, et cetera. These left wingers are also found in academia, policy and in media circles, which has led to its routine use. However, it is not true that the work of Hayek, Friedman and Buchanan is generally thought to be covered by a neoliberal label. Only those who disagree with it call them neoliberals. It is painful to see that the ideas of these three Nobel Prize winners are now used to explain neoliberalism in a leading online source. They self-identified as classical liberals and just because opponents of their views use a different label is no reason to comply with that malicious practice.  

The worse thing is, it has happened before, also commencing in the US. Fairly recently, classical liberals began to use the label libertarian, as the Cato Institute has been promoting, for example on their (very useful) website  Libertarianism.org, or in David Boaz’ The Libertarian Mind.  Jason Brennan’s Libertarianism, what everyone needs to know is another example. The issue here is that the three aforementioned classical liberals, and others, are now thrown onto the same heap as Rothbard and Rand, to name a few rather different thinkers.

Decades earlier, Hayek and others noted with regret that the Americans were unable to defend the original meaning of the word liberal, with the result that a liberal in the American sense is now what people in other parts of the world call a social-democrat. It is also the reason Hayek and other started to use the name classical liberal.  

The result of all this changing of names is confusion and vulnerability. Nobody knows what label belongs to which ideas, which gives rise to a petty industry on liberal labels, yet without any clarity in the end. It also provides ample opportunity for opponents to negatively attack ideas loosely associated with the (classical) liberal movement, which results in a negative image, which also make liberal ideas less attractive for outsiders. The lack of clarity also makes vulnerable for any kind of criticism. Actually, embracing the swearword other use for you, by offering the ideas of your greatest and brightest thinkers, is a shameful act at least.

American classical liberals should stay firm and defend their ideas under the proper labels. There is no reason for change (see my Degrees of Freedom: Liberal Political Philosophy and Ideology), there is only a need for explanation and defense. Giving up clear and proper labels plainly sucks.         

Liberal Democracies and Authoritarian Regimes: The Case for Law Enforcement. (Part 10 of 12)

However, theorizing about law enforcement takes on vital importance when it comes to considering whether a low level of law enforcement denatures the Rule of Law in such a way that it implies, de facto, a change of regime. That is, when it happens that, under the shell of a constitutional system, an increasingly authoritarian system begins to develop, which successively curtails freedoms and deteriorates the viability of individual life plans, denigrating the dignity of people, through the file to weaken the application of the legal norms destined to protect said rights, guarantees, and freedoms.

For this reason, a liberal political regime requires a substantive content that involves the express recognition of individual freedoms and rights, but also requires in a vital way the respect and enforcement of those procedures that make their effective exercise possible. This is, through a high degree of law enforcement, previously inspired by those political principles typical of liberal democracies.

When we are in the presence of a constitutional system that is designed to guarantee the existence of a government limited by the law itself and to protect the freedoms and rights of individuals, a low level of application of legal norms implies a true denaturalization of such a regime. political and a de facto transition to an authoritarian system of government. As has been pointed out, given that the low law enforcement imposes high opportunity costs on those who spontaneously choose to comply with the law and places them at a severe disadvantage compared to their competitors, the reduced law enforcement works as an incentive to generate low regulatory compliance by the population. In turn, assigning such low regulatory compliance by citizens to cultural or ethnic characteristics works as a pseudo-sociological foundation to increase punishments and continue the aforementioned de facto transition towards an authoritarian or totalitarian system.

A similar mechanism had been noted at the time by Friedrich Hayek in his well-known book The Road to Serfdom, although he did not focus so much on the low law enforcement as on the pretexts and excuses used to justify such a transition towards an authoritarian system. Generally, in a mistaken way, the “road to serfdom” is characterized as a process of increasing state interventions, but such assertion does not constitute the core of either the aforementioned book or about what should be understood by a road of servitude. As Hayek stated on that occasion, we are not faced with a political process of this type when governments intend to carry out a plan of social and economic transformation in accordance with a model of society whose characteristics are rarely stated expressly and which is placed above the procedures and constitutional safeguards designed to legally limit the power of governments and defend the rights and guarantees of individuals. Thus, the system of constitutional safeguards is seen as too onerous an obstacle for the transformation process set in motion and, consequently, it begins to be de facto repealed through a low level of regulatory application and the gradual replacement of a political decision-making system. based on rules by another of decisions taken based on the opportunity, merit and convenience related to the aforementioned model of society to which it is aspired to achieve.

Both in the case of the path of servitude, as of a smooth and flat deterioration of the levels of law enforcement, we find ourselves in the presence of a transition of political regime: from the Rule of Law towards an increasingly authoritarian system: the government of the pure will of men, free from legal and constitutional ties. In both cases, the validity of the notion of individual freedom as the absence of arbitrary coercion is under serious threat.

As it will have to be repeated every time it is necessary to do so, it does not depend on cultural, historical or ethnic traits. Such processes of political regime change respond to an incentive system that perverts the functional dynamics of the Rule of Law. In the case under study here, the low application of legal norms.

But to describe with a greater degree of precision what the aforementioned process of de facto change of the political regime, from liberal democracy and the Rule of Law to authoritarian or totalitarian systems consists of, it is necessary to delve into the distinction between decisions based on rules and those that are They are motivated by reasons of opportunity, merit or convenience, that is, in the exercise of discretionary power.

As previously admitted in this writing, every government official, whether he belongs to the administration or is a judicial magistrate, enjoys a certain margin of discretion in the exercise of his functions and within the framework of competences that the Constitution and the laws give him. grant. Thus, a judge can say the right for a specific case that is subject to his jurisdiction within a range of alternative solutions that the law and judicial precedents impose on him. Thus, we are not faced with a mechanical law enforcement -which is reminiscent of the modern aspiration of “mechanization of thought” – but rather in a judgment of the adequacy of the rules to the specific case that the courts carry out taking into account the special circumstances of people, time, and place that the law, being expressed in abstract and general terms, cannot foresee. However, such adaptation of the law to the specific case should not in any way distort the meaning, scope and purpose of the law. Something similar occurs with administration officials, who enjoy certain powers granted by law and who have a margin of discretion to operate within it, which is subject to control by other hierarchical state bodies, superior or judicial.

Likewise, there are situations in which both judges and public officials deviate exceptionally from the abstract and general guidelines of the laws without them configuring any illicit, that is, exceptions that are within the legal system itself. Thus, we find ourselves in the judicial sphere with judgments that are based on notions of justice and equity and in the administration sphere with discretionary powers expressly granted to officials by law.

[Editor’s note: this is Part 10 in a 12-part essay; you can read Part 9 here or read the essay in its entirety here.]

Liberal Democracies and Authoritarian Regimes: The Case for Law Enforcement. (Part 9 of 12)

If individual freedom is defined as the absence of arbitrary coercion – as F. A. Hayek did in his The Constitution of Liberty (1960) – it is clear that a government that bases most of its decisions on rules known to all will have to be less arbitrary than the one who makes decisions according to his own criteria of opportunity. Of course, this also requires an effective notion of the principle of equality before the law, since decisions based on norms that prescribe privileges according to definitions of races, estates or social classes will also be arbitrary. The same occurs with the other characteristics of what some authors have called a free government: division of powers, system of cross-checks between them, declarations of rights and guarantees, principles such as that of closure, the notion of representativeness of public offices and the requirement of their suitability to exercise them and other elements that make up the Rule of Law. The protection of individual liberty as the absence of arbitrary coercion comprises a whole set of political institutions and judicial procedures that make the limits to the free will of citizens and rulers legitimate. However, the level of law enforcement has generally been considered sidelong for both political and legal theory, relegating it to a purely sociological and even anthropological level. The law enforcement thus appears as a kind of “logical form” of law and politics, since it does not fully belong to either of the two territories, but rather delimits them.

This meant that the level of normative application has been seen as a social phenomenon, which in any case could be studied by an intersection between sociology and economics, as can be seen in the studies carried out by Gary Becker at the time; the same as the approach practiced centuries ago by Cesare Beccaría (who Joseph Schumpeter would label “the Italian Adam Smith”).

However, the high or low level of application of legal norms does not in itself constitute a sociological or anthropological phenomenon, since the commitment to the effective law enforcement depends directly on a political decision. This political decision activates a series of feedback mechanisms in society that allows it to be described as an autonomous and automatic system, as is any incentive system, but such uses and social practices are not the cause of regulatory compliance or non-compliance, but rather its adaptive response to the aforementioned political decision that underlies at all times.

Therefore, an approach that characterizes low regulatory compliance as the social response to the political decision to implement a low level of law enforcement requires a behavioral model consisting of individual utility-maximizing agents in their decisions, both at the level of citizens as well as government officials and magistrates. According to this behavioral model, it is government agents who seek to maximize their power by reducing the level of law enforcement, in order to gain discretion in its exercise; while ordinary citizens seek to minimize the costs of such discretion on the part of the rulers trying to evade compliance with a law that in a relatively low number of cases is actually applied.

Putting an end to such a state of affairs depends on a political decision: that of enforcing the law for the majority of cases and limiting exceptions to it to the minimum possible. However, since this will bind the rulers to the law and reduce their discretionary power, it should not be expected that such a decision will be taken spontaneously by the governing bodies, but under pressure from the branches of the state whose function consists of the control of government acts, such as the congress and the judicial system.

However, as already mentioned, the political system itself is in a trap, since raising the levels of law enforcement right off the bat would mean making effective punishments and sanctions pressed for a lower level of enforcement. For this reason, an improvement in the levels of law enforcement requires, previously or at least simultaneously, a reduction in the volumes of repressive sanctions, fines and compensation. A similar reasoning must be done for tax collection cases, since many times the tax levels discount a certain evasion rate. Reducing the tax evasion rate requires a prior or simultaneous tax reduction.

Law enforcement and political regime

As has been stated, the degree of compliance with legal norms by a population does not depend on cultural issues (far from it, ethnic), but is a variable on which governments can influence in a decisive way. The main instrument that governments have when it comes to encouraging (or discouraging) citizens’ compliance with the right is to regulate the degree of law enforcement. Once it has been decided what degree of regulatory compliance by the population the government intends to achieve, it remains to implement an efficient use of the budget item in order to achieve said objective while sacrificing the least amount of resources possible.

Thus, if a government decides that regulatory compliance should be close to 100%, then it will have to provide its supervisory system, security forces, and its judiciary with the necessary resources to obtain such a degree of law enforcement that show a clear signal to the population that the sanctions, repressive or pecuniary, that the law provides, will have to be applied. This will mean that whoever complies with the law will not incur any opportunity cost in terms of waiving possible advantages derived from its non-compliance, since such non-compliance by its competitors and other third parties is highly unlikely.

Of course these considerations belong to the field of “instrumental reason.” Before discussing the necessary mechanisms to achieve a high degree of compliance with the law by the population, it is imperative to discuss what type of law such a political regime will have. A democratic, modern, and liberal regime requires that the laws respect and ensure the validity of certain values, such as recognition and respect for human dignity, the right of each individual to have their own life plan, or as at the time It had been listed by the Scottish philosopher David Hume, ensuring stability in possession, his peaceful transfer of property, and the fulfillment of promises. It is useless to theorize about techniques to achieve a high degree of compliance with the law, if they are to be used by a regime that is dedicated to curtailing freedoms.

[Editor’s note: this is Part 9 in a 12-part essay; you can read Part 8 here or read the essay in its entirety here.]

Liberal Democracies and Authoritarian Regimes: The Case for Law Enforcement. (Part 3 of 12)

This reference to the distinction of values ​​between the short and the long term also refers to the theory of capital and interest that Eugen v. Böhm-Bawerk and Austrian and Swedish economists who followed him in such developments, such as Ludwig v. Mises, Knut Wicksell, the already named Friedrich Hayek, Ludwig Lachmann, or the British economist John Hicks. Current economic science recognizes the element of time preference in the interest rate, but emphasizes the predominance of the value of money as its main component. In contrast to this, the Austrian and Swedish economists referred to had emphasized a characteristic of homo economicus that brought them closer to the behavioral presuppositions of David Hume: agents prefer the same good in the present than in the future, or, expressed in other terms, for an individual to agree to defer the use of a present good towards a future time, such abstention from consumption must be compensated by an increase in the future value of such good. Thus, if a person lends a certain sum of money and therefore incurs an opportunity cost by abstaining from its consumption, it is because he expects to receive compensatory interest on his waiting in the future. Of course, Böhm-Bawerk’s theory of interest received its timely evaluation by numerous economists, pointing out its weaknesses and subsequent developments by his disciples met with mixed luck – to the point that, for example, Friedrich Hayek declared that he had never undertaken the task of writing the second part of his work The Pure Theory of Capital attentive to the extreme complexity of the theory of interest that inspired him. However, re-expressing David Hume’s legal-political theory in terms of the Austrian and Swedish theory of capital represents an intellectual exercise with a significant heuristic function.

In “natural” terms, an individual will “spontaneously” fulfill a promise if he calculates that the present value of breaching it is less than the future loss of credit with respect to his creditor or the community with which he habitually – a term proper to the Humean empiricism – it interacts. This is consistent with Hume’s own theory of empathy, according to which each individual can understand how his neighbor would feel and judge a certain situation, better if he is someone known than a complete stranger. Thus, the tendency to cheat is less corroborated with those who have the expectation of interacting more than those in whom the interaction will occur in a single play – as illustrated by the best known game theory.

We can thus see how, in the absence of the incentives provided by the coercive powers on the part of the state, the natural tendency to keep promises is better corroborated among acquaintances, with continuous interaction over time, than with strangers with what will have to be done. interact only once. This is what led David Hume, likewise, to reject any theory of the social contract – since, by definition, in the supposed state of nature there would be no one to guarantee its fulfillment – and to consider that, in a primitive stage of the individual and society, the primordial political unit would have to be the family – in fact, the very etymological meaning of this term conveys a “micro-political” connotation.

It will be later Adam Smith who will extend the foundation of a human interaction order beyond the nearby nuclei through his concept of “Great Society,” in which unknown subjects are capable of spontaneously coordinating their respective activities through the signals transmitted by the system. of prices, which indicates the relative modifications in the terms of exchange of complementary and substitute goods, contemporary or deferred in time. However, neither did Adam Smith deny a fundamental function that some mechanism must fulfill in order to emerge and sustain such an extended cooperation order: the application of the norms of peaceful coexistence, which guarantee stability in the possession of goods, the transfer by consent of said possession and the fulfillment of the contracts entered into for the purpose of perfecting said transfers.

Consequently, the problems of law enforcement, which concern the degree of effective compliance with the legal norms that condition human conduct, must represent a major chapter of the political philosophy and theory that characterizes legal institutions and policies as true incentive systems.

[Editor’s note: this is Part 3 in a 12-part essay; you can read Part 2 here or read the essay in its entirety here.]

Liberal Democracies and Authoritarian Regimes: The Case for Law Enforcement. (Part 2 of 12)

Obviously, there is a whole question of information and transaction costs surrounding the game between empirical social norms and positive legal norms. The former are more agile and immediate, better adapted to the circumstances, but at the same time they are not enough to guarantee peace when the interests at stake gain social relevance. There are cases in which the legal system takes advantage of the immediacy of the empirical norms to give dynamism to the daily traffic and at the same time reserves the last word for a case of serious controversy: it is the referral made by the positive right to the validity of uses and customs. A typical example of this is commercial law.

Although in another frame of reference, but in the same vision, we can find in David Hume an antecedent of this distinction between empirical and positive norms. The Scottish philosopher called the first “natural virtues” and the second “artificial virtues,” and it was precisely justice that was among the latter. In turn, in the 20th century, Friedrich Hayek expressly collected his political philosophy in order to enunciate his concept of “spontaneous order”, which, among other characteristics, consisted of that diffuse zone in which the norms have not yet bifurcated between empirical and positive – and for which reason it is so elusive to categorize the first volume of Law, Legislation and Freedom, entitled “Norms and order,” either within social theory or within the theory of law.

The truth is that – something that Hayek did not have the opportunity to address – in that diffuse area in which it is difficult to distinguish a social norm with empirical compliance from another with recognition by the legal system – to use H. L. A. Hart’s own concepts – a determining factor for both types of norms, in addition to the violence that its non-compliance or its subsequent retaliation may involve, is the opportunism that acts as an incentive for the acting agents -with which here we return to the Humean distinction between natural and artificial virtues: stability in possession, the peaceful transfer of it and the fulfillment of promises are three virtues that make up the idea of ​​justice but that, for its fulfillment, require from the agents a general vision of the social consequences compliance or non-compliance, or the incentive provided by government sanctions in anticipation of non-compliance.

Opportunism on the part of private agents consists in preferring a present good to deferring that good in order to obtain a greater good in the future. For example, breaking a promise in a pressing situation constitutes a present greater good for the defaulter. However, the generalization of such default by all debtors would destroy a credit system that would, in the future, go against the interests of the entire society as a whole, including the defaulter himself. However, for the debtor, the default means an obvious immediate advantage, which can only be counteracted by the threat of a social sanction – stop being seen and treated as a “good businessman” – and, if this does not reach to modify their behavior, due to the threat of a legal sanction, such as compensation for non-compliance or, if necessary and if this non-compliance had been deliberate and obtained through a ruse, imprisonment.

It is here where the superiority of representative democracy is manifested over direct democracy, and of mixed systems, which combine long-term and even life-long terms or “while their good conduct lasts.” In these cases, the rulers exercise the “opportunism” of enforcing the law, following the adage of Herman Melville regarding “private vices, public benefits” or Machiavellian realism: greater wealth and, consequently, higher taxes come from societies in those that are characterized by a high fulfillment of promises and contracts, since it goes without saying that, abstaining from a present good to achieve a greater good in the future, generates in the long term a greater volume of wealth than enjoying a good present at the cost of giving up future good. If a government had to be revalidated daily, its incentive to stay in office would be to make short-term benefits prevail. Likewise, it is not only enough with a political system with stability in office, but also with legal and political responsibilities around the demand to make the long term prevail over the short term.

In this distinction between legal responsibilities and political responsibilities of officials, the Humean distinction between artificial virtues (the legal responsibility for the poor performance of the position) and the natural virtues (the personal desire to continue in office, through re-election or by avoiding impeachment). The legal-political system is articulated through opposite incentives: individuals have a “natural” tendency to breach promises, which is counteracted by the incentive of the legal system that establishes forced fulfillment of contracts; while the political system is expected to align incentives in such a way that rulers have “the natural tendency” to enforce contracts. This natural tendency of the rulers does not come from any “natural” characteristic of the person of the ruler but from the incentives provided by the constitutional system.

[Editor’s note: this is Part 2 of a 12-part essay; you can read Part 1 here or the whole essay in its entirety here.]