Arnold Kling  

Comments on Hayek

Social Security Wage vs. Price... Pseudo-currency...

An interesting collection of comments on the influence of Friedrich Hayek, from the latest issue of Reason. For example, cognitive psychologist Steven Pinker writes,

Hayek was among the first to call attention to the emergence of large-scale order from individual choices. The phenomenon is ubiquitous, and not just in economic markets: What makes everyone suddenly drive SUVs, name their daughters Madison rather than Ethel or Linda, wear their baseball caps backwards, raise their pitch at the end of a sentence? The process is still poorly understood by social science, with its search for external causes of behavior, but is essential to bridging the largest chasm in intellectual life: that between individual psychology and collective culture.

For Discussion. How will Hayek's ideas be used in this century?

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CATEGORIES: Austrian Economics

COMMENTS (8 to date)
Lawrance George Lux writes:

His dissemination of information theory will lead to Government agencies being independently budgeted without extended funding--resembling the modern Corporate structure. They will have to set up their own Pay schedules, Labor cadre, and face localized Shutdowns because of Budget overspending.

Some bright Economist will study his work, and decide Market pricing disappears with absolutely perfect information. It is the imperfection which creates the Market. Governments may come to realize that Losses are the release value--venting poor Capital distribution, and should be allowed full impact without regulation. lgl

Jim Glass writes:

How can Pinker add himself to the list as yet one more guy who mistakenly thinks Hayek ever had a useful thought?

"...if one asks what substantive contributions [Hayek] made to our understanding of how the world works, one is left at something of a loss. Were it not for his politics, he would be virtually forgotten."

-- Paul Krugman. There, and that settles that.

Brad Hutchings writes:

Great question Arnold. No doubt that Hayek will continue to gain in stature, perhaps becoming as influential this century as Marx was in the previous. But in the first two or three decades, I fear a protracted "Copyfight" based on a misappropriation and misapplication of Hayekian concepts.

Two trends that have acquired a loud following in the past 15 years are "open source" and "open culture". In deflecting the obvious "information communism" critique, proponents often cite Hayek. Open source/culture permits and supposedly yields local control of information. However, the most politically correct licensing scheme of the movement (GPL-ish licensing) is completely anti-Hayekian, stripping the information of actionable value. The comparative value of any information is in its exlusivity -- can you use a piece of information to your advantage because others do not have that information. As we have moved from a time when information was mostly about physical valuables to a time when information is the intrinsic valuable itself (books, software, music, etc.), a definitive extension of Hayek's concepts are needed to resolve the conflict.

By contrast, I think Arnold's fascination of late with "the tails" is a lot more in line with what will eventually win out in the way we think about markets. The "Microsoft vs. Linux" dichotomy is a false one. Creating an original operating system and a popular productivity suite is a task that can be done with a lot of capital. Copying something that already exists is a task that may be doable with a lot of people with time on their hands and a desire to take down "The Man" and make sure it's free for everyone. Clearly, you do not need the capital of Microsoft to create and popularize an operating system. Witness Be, Green River, QNX, NeXT, Palm, and so on. But it doesn't mean that you have to eschew the profit motive. You do not need EMI, Sony, etc. to produce and popularize music. But it doesn't mean you have to do it for free or side with "customers" who have as small an intention of paying you as they do the big boys. You do not need to be ABC, CBS, NBC, or Fox to get on TV. But you don't have to be cable access or PBS either.

Nathan Cheng writes:

Kind of off-topic, but just today I was reading the entry for "catallaxy" on Wikipedia and realized that Wikipedia itself is a catallaxy of sorts. It would be interesting to look at the parallels between the phenomenon that is "Wikipedia"--where tens of thousands of individual contributors have produced an amazingly coherent encyclopedia--and the phenomenon of the individual-oriented free market resulting in large-scale order.

Neel Krishnaswami writes:

Hi Brad,

Your understanding about how information works is incomplete -- the key piece that you are missing is that disseminating information can a) lower the costs of your inputs, and b) increase demand for the things you sell.

For the first case, consider mechanical engineering. This knowledge is what makes someone a mechanical engineer, and disseminating this information increases the supply of people who can do competent engineering. If engineering is a cost for you (suppose you are an architect), then the free spread of this information is valuable to you, because a larger supply of engineers will drive down the price of engineering. You don't want this information to be exclusive, since that will drive up your own costs.

Second, consider the case of complementary goods. If you are selling a product, then demand for your product will rise when the price of a complement drops. So it can be to your advantage to write programs that complement your main program and release them for free. Here, GPL-ish terms serve you well, because you want to keep the price of complements as low as possible, and the GPL ensures any improvements to the free program will be re-incorporated into it. This lowers the ongoing costs of keeping it competitive in the market, because that cost gets spread out among the users.

Finally, as an aside, it's funny to describe the GPL as anti-Hayekian, when one of Hayek's main arguments is that the person on the spot has the best understanding of his or her needs. When a firm releases software licensed under the GPL, the Hayekian thing to do is to assume they probably have a good reason for it, and to look for that reason! :)

Brad Hutchings writes:

Hi Neel,

Let's worry about your second paragraph, the engineer example. You write from the point of view of someone hiring MEs. Becoming a competent ME requires much more/harder work and training than most other professional specializations. The academic programs are more difficult to get into and more difficult to survive. If, as you suggest, the knowledge and experience of competent MEs becomes more distributed so as to lower the cost of competent ME labor, the long term incentive for a young person to enter the discipline is reduced. You bring up a great example, because this is not a skill where you can take Joe Shmoe from the local gas station or telemarketing firm, send him to DeVry Tech for 18 months, and have a guy who can design a bridge for you. So you lower the incentive, reduce the supply of competent MEs, and then, guess what? Your distributed knowledge is at best useless and more likely dangerous.

The piece you are missing (in your GPL reply especially) is that competence itself is a very local piece of information. To assume that you (or your people) can quickly develop the same level of competence in a field that can be the central organizing proposition of a firm (use software development as an example) is folly. That you and others can conspire to make such central organizing propositions of other firms obsolete is the apex of wishful thinking :-). "Open source" and "open content" are tactics (and mostly a marketing one at that), not viable organizing principles. They do OK at copying, and have yet to show any tendency to innovate. Honestly, why do something new and interesting, thus giving yourself tremendous comparative advantage, and give it away? It makes no sense.


dsquared writes:

Pinker is still on the wrong trail of Hayek scholarship if he thinks that there is something which "makes" order arise out of individual choices, or that there is anything to "understand" about the process. In Hayek, the process is all that there is; this is one of the constant threads running through everything he wrote.

Deb Frisch writes:

Ah, psychologists are relevent when they have something to say about economists. Cute.

Reminds me of the old joke:

"Enough about me. What do YOU think of me?"

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