CHAPTER 21 Friedrich August von Hayek’s Model of Society and His Theory of Cultural Evolution

In The Road to Serfdom (1944/1962), written in England during World War II, Friedrich August von Hayek outlined those fundamental ideas which would later become typical of him: he believed the development of our western civilization was only possible because people submitted to impersonal market forces. No one consciously planned and organized this development; it came about spontaneously in the course of increasingly more complex exchange relationships on the path toward cultural evolution. The intent to change this structure in future and shape it with the help of ideas could be the only outcome of “incomplete and therefore erroneous rationalism.” No individual or government agency has anything approaching a complete overview. Authority over all of our lives cannot be assigned to anyone. Political planning and regulation would necessarily lead to a worsening of conditions and destroy personal freedom in the end (cf. Hayek 1944/1962, p. 152).

This fundamental notion, which became the leading idea of evolutionary economics, can be traced back directly to Carl Menger. In his Principles of Economics, he described the nature and origin of money as the result of human actions, but not of human design (cf. Menger 1950/2007, pp. 257–271). In his Investigations into the Methods of the Social Sciences, he expanded the application of this basic idea to a series of other “social structures,” which he understood to be law, language, the state, money, markets, prices of goods, interest rates, ground rents, wages and “a thousand other phenomena of social life in general and of economy in particular.” These were “to no small extent the unintended result of social development” (Menger 1963/1985, p. 147).

The Road to Serfdom, probably Hayek’s most popular work, was dedicated “[t]o the Socialists of all Parties,” in other words, to everyone who was hoping that economic planning would lead to a “new Jerusalem.” Hayek demonstrated meticulously that socialism, in whatever form it manifests itself, is incompatible with the idea of freedom and that the rise of National Socialism was not a reaction to the socialist spirit of the times, but had instead been its inevitable consequence. Whether National Socialism or Soviet communism, a controlled economy will always end in despotism. In contrast, a free society does not need first to be artificially constructed through violent revolution and subsequent re-education, but is attained in an evolutionary way through consistent adherence to market-economy principles. Because these principles had been progressively destroyed by socialist ideas, it is vital to restate them, so as to clearly and tangibly instill the idea of freedom in people’s consciousness.

Individualism based on traditions and conventions, which in principle affirms family values, co-operation between small communities and groups, and local self-government, is the foundation of a free society. Such individualism, wrote Hayek in Individualism and Economic Order (1948), has the advantage of establishing “flexible but normally observed rules that make the behavior of other people predictable in a high degree” (Hayek 1948, p. 23). In contrast to this is a socialist-inspired “false individualism which wants to dissolve all these smaller groups into atoms which have no cohesion other than the coercive rules imposed by the state, and which tries to make all social ties prescriptive” (ibid.). Genuine individualism is characterized by all forms of planning being carried out by a large number of individuals instead of centrally, by a government agency. Only a plurality of individuals can make the best use of the entirety of possible knowledge: “practically every individual has some advantage over all others, because he possesses unique information of which beneficial use might be made” (ibid., p. 80).

Economic research claiming that an unequivocal solution comes about if all facts are known to an individual has nothing to do with reality. Instead, research needs to show “how a solution is produced by the interaction of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind, . . . is to assume the problem away and to disregard everything that is important and significant in the real world” (ibid., p. 91). That economic research could become so blind can be explained by its increasing orientation toward the natural sciences. Little by little, empirical methods conventionally used in the natural sciences had been formally imposed upon the social sciences—which lead finally to fiasco: “To start here at the wrong end, to seek for regularities of complex phenomena which could never be observed twice under identical conditions, could not but lead to the conclusion that there were no general laws, no inherent necessities … and that the only task of economic science in particular was a description of historical change. It was only with this abandonment of the appropriate methods of procedure … that it began to be thought that there were no laws of social life other than those made by men and that all observed phenomena were all only the product of social or legal institutions” (ibid., p. 126).

As we might observe that parts of biological organisms move in a manner suggesting that their purpose is the preservation of the whole, Hayek wrote in The Counter-Revolution of Science: Studies on the Abuse of Reason (1952), that we can also observe “how the independent actions of individuals” in spontaneous social structures “will produce an order which is no part of their intentions…. The way in which footpaths are formed in a wild broken country is such an instance” (Hayek 1952, pp. 40, 82–83). Certainly there exist social structures that have neither been consciously planned by anyone in particular, nor whose functions are consciously maintained by anyone, but are nevertheless vastly beneficial for the attainment of human goals. According to Hayek, many of the greatest achievements are “not the result of consciously directed thought, and still less the product of a deliberately co-ordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand. They are greater than any individual precisely because they result from the combination of knowledge more extensive than a single mind can master” (ibid., p. 84).

A collectivist who wants to understand social institutions objectively, said Hayek, will necessarily fail in his attempts to accurately define their nature and how they function. He will be driven to imagine these to be the creation of one ingenious mind, and will finally make the political demand that “all forces of society be made subject to the direction of a single mastermind,” while it is “the individualist who recognizes the limitations of the powers of individual reason and consequently advocates freedom as a means for the fullest development of the powers of the inter-individual process” (ibid., p. 86).

Collectivist thinking opens the gates to despotism. Based on misunderstood rationalism, it paves the way for dangerous irrationalism. This can only be prevented to the extent that conscious reason acknowledges the limits of its own capabilities,

as individuals we should bow to forces and obey principles which we cannot hope fully to understand, yet on which the advance and even the preservation of civilization depends. Historically this has been achieved by the influence of the various religious creeds and by traditions and superstitions which made men submit to those forces by an appeal to his emotions rather than to his reason. The most dangerous stage in the growth of civilization may well be that in which man has come to regard all these beliefs as superstitions and refuses to accept or to submit to anything which he does not rationally understand. The rationalist whose reason is not sufficient to teach him those limitations of the powers of conscious reason, and who despises all the institutions and customs which have not been consciously designed, would thus become the destroyer of the civilization built upon them (ibid., p. 92).

There is only one alternative to control by arbitrary rule, wrote Hayek in The Constitution of Liberty (1960): universal submission to formal laws. This means that individuals, because of deeply rooted moral convictions, voluntarily comply with certain guidelines. Freedom therefore requires responsibility. But it must be clear

that the responsibility of the individual extend only to what he can be presumed to judge, that his actions take into account effects which are within his range of foresight, and particularly that he be responsible only for his own actions (or those of persons under his care)—not for those of others who are equally free. (Hayek 1960, p. 83)

Since responsibility cannot be expected of everyone, freedom is above all freedom under the law. However, this order must be without dictates: a universal, abstract set of rules—free of arbitrariness—that are restricted to defining competing spheres of action in order to optimize the latitude of each individual.

Freedom has economic significance for the reason that it allows “room for the unforeseeable and unpredictable” (ibid., p. 29). Since one cannot know which experiments with procedures, products, or services will prove to be successful, maximum freedom to develop is most expedient: “It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it” (ibid.).

In his Freiburger Studien (1969a), Hayek writes that coercive government measures should be limited to the enforcement of universal rules of conduct exclusively. Government should not have specific objectives. This is because a market-based system is not based on “some common objective, but instead on reciprocity, i.e., on the balance of different interests to the mutual advantage of the participants.” In a free society, terms such as “the common good” or “public interest” should only be understood in abstraction. This alone “offers any randomly singled-out individual the best chances to successfully employ his skills for his personal objectives” (Hayek 1969a, pp. 110–111). Government measures ostensibly serving “the common good,” such as progressive taxation, for example, wherein a majority burdens a minority against the minority will, are nothing but cases of arbitrary discrimination that destroy personal freedom. Governments should therefore refrain from influencing income distribution in favor of “social equity.”

A person can only develop in an optimal way within the framework of a regulatory system based on law and tradition and largely removed from the grasp of rulers. Constant competition in such a system would always favor behaviors that had proven successful. It is impossible to predict where competition, which can be characterized as a “procedure for discovering facts,” will ultimately lead (ibid., p. 249). Yet it is plain that those societies which draw on competition for this purpose know more, and thus ultimately generate more wealth for everyone. Such a regulatory system, which one could also call “spontaneous order” and which has always, wherever it appeared, made use of the market and of private property, always leads to a “Great” or “Open Society”¹ or an advanced civilization (ibid., p. 111).

The Greeks called an order created by humans, “taxis,” and a spontaneously created order, “cosmos.” According to Hayek, “cosmos” comes into being from regularity in the behavior of the elements of which it is made up, and therefore has no particular objective or purpose. It is “an endogenous system growing from the inside or, as the cyberneticists say, a ‘self-regulatory’ or ‘self-organizing’ system.” On the other hand, “taxis,” as a decree or an organization, is determined by an “efficacy outside the system” and is therefore “exogenous or imposed” (ibid., pp. 208–209). Since in a taxis all knowledge at individuals’ disposal has to be first channeled to a “central organizer,” that knowledge will always be more limited compared to that at the disposal of individuals within a cosmos (ibid., pp. 209–210).

Rules and norms created within the framework of the cosmos are to be called “nomoi,” the meaning of “nomos” being a

universal rule of just behavior … which applies equally to all people for an unknown number of future cases to which the objective circumstances described in the rule pertain, regardless of the consequences brought on in a specific situation by adhering to the rules. Such rules limit protected individual spheres by letting every person or organized group know which means they may employ in pursuit of their goals, without the actions of the various people coming into conflict with each other.

By contrast, the rules and norms created within the framework of a taxis are to be called “theseis,” the meaning of “thesis” being such a rule “which is only applicable to certain persons or which serves the aims of rulers” (ibid., pp. 211–212).

The distinction between “nomoi,” the universal rules of behavior, and “theseis,” the rules of organization, is comparable to the classical distinction between civil law (including penal law) and public law (constitutional and administrative law) (ibid., p. 213). It is instructive to remember that “the idea of law in the sense of nomos (i.e., an abstract rule independent of any concrete individual will, applicable regardless of consequences to individual cases; a law that could be ‘found’ and was not created for particular, foreseeable purposes), together with the ideal of personal freedom, existed and continued to exist only in countries such as ancient Rome and modern England, where the advancement of civil law was based on precedent and not on written law, where it lay in the hands of judges and jurists and not in the hands of legislators” (ibid., p. 214).

In addition to the closely linked concepts of “cosmos/taxis” and “nomos/thesis,” Hayek distinguished between values and goals. “Values” originate in cultural tradition and are what guide human action for a lifetime, whereas “goals” determine human action only in particular instances. An open and free society is based on its members’ sharing common values; conversely, the possibility of freedom disappears “when we insist there should be a united will issuing orders that direct members towards certain goals” (ibid., p. 223). Those values or rules of just behavior that have decisively contributed to the emergence of an open and liberal society had already, Hayek wrote in Law, Legislation, and Liberty: The Mirage of Social Justice (1973–1979, 3 vols.), been formulated by the Scottish philosopher and economist David Hume (1711–1776). Hume called them “the three fundamental laws of nature, that of stability of possession, of its transference by consent, and of the performance of promises” (Hayek 1973/1976/1979, vol. 2, p. 40). In civil law systems, these principles were later summarized as “freedom of contract, the inviolability of property, and the duty to compensate another for damage due to his fault” (Léon Duguit quoted in ibid.).

Historically, abstract rules and spontaneous order developed in mutual dependency. For just as the mind can only exist as part of a system which exists independently of it, a system can likewise only develop “because millions of minds constantly absorb and modify parts of it” (ibid., vol. 3, p. 157). According to Hayek, “Man did not adopt new rules of conduct because he was intelligent. He became intelligent by submitting to new rules of conduct” (ibid., p. 163). What ultimately made humans “good” was “neither nature nor reason but tradition. There is not much common humanity in the biological endowment of the species” (ibid., p. 160). Nor did human beings develop in the context of freedom at all. As members of small hordes— which they had to cling to if they wanted to survive—they were anything but free. Freedom is an “artifact of civilization” which liberated humans from the shackles of the small group. It became possible “by the gradual evolution of the discipline of civilization which is at the same time the discipline of freedom” (ibid., p. 163). Ultimately, we have to admit that modern civilization is possible by and large only by ignoring indignant moralists. This fact, Hayek points out, was formulated by the French historian and sociologist, Jean Baechler (1905–1983), as follows: “the expansion of capitalism owes its origins and raison d’être to political anarchy” (ibid., p. 166).

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¹In the original German, “Offene” or “Große Gesellschaft” in italics was obviously borrowed from Karl Popper, The Open Society and its Enemies (1945); in English the term appears for the first time in Hayek’s Law, Legislation and Liberty, 1981, p. 130.