David R. Henderson  

David Kennedy on Early 20th Century Economic Progress

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David Kennedy needs to understand a key paragraph in Hayek's "The Use of Knowledge in Society"

There are so many things I like about Chapter One of David M. Kennedy's book, Freedom from Fear. I blogged about the book yesterday.

In the last few pages, he tells of the economic transformation the United States was going through up to the Great Depression. Kennedy takes a typical American, someone aged 26 in 1930, and tells us about the country around him and how it has changed. By the way, aside from the fact that that he lived in Canada, my father was almost that typical American. He was 30 in 1930, rather than 26, and, at the party I gave for him for his 82nd birthday, he got up and reminisced about the changes he had seen, the main one being the proliferation of cars.

This one paragraph caught my eye:

Raised in the country without flush toilets or electric lighting, as the 1920s opened he moved to the city, to an apartment miraculously plumbed and wired. In the streets he encountered the abundant and exotic offspring of all those immigrants who had arrived when he was a baby. Together they entered the new era when their country was transiting, bumpily, without blueprints or forethought, from an agricultural to an industrial economy, from values of simple rural frugality to values of flamboyant urban consumerism, and, however much the idea was resisted, from provincial isolationism to inevitable international involvement.

I love the first two sentences. But notice the third sentence. It's so at odds with reality and it illustrates one thing I talked about yesterday: Kennedy is an historian, not an economist. When he sees a transformation in an economy that government officials did not plan, he assumes there were no "blueprints or forethought." But did the big buildings that were starting to be built in Chicago or New York come about with no blueprints? When people wired and plumbed apartments, did they not use forethought? To ask the question is to answer it. There was incredible forethought and there were lots of blueprints. But they were mainly those of people working in the non-government part of the economy.

Which brings me to Hayek. When I teach his "The Use of Knowledge in Society," one of the passages I emphasize is in paragraph H6:

The answer to this question is closely connected with that other question which arises here, that of who is to do the planning. It is about this question that all the dispute about "economic planning" centers. This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning--direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons.

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COMMENTS (7 to date)
Daniel Kuehn writes:

Nice passage! I'd just assume he meant that the transformation writ large had no blueprints or forethought, which is of course true. It's the difference between constructivist and ecological rationality at different levels. There was lots of constructivist rationality going on but at the social level there wasn't - it was ecological (and what is collectively planned of course emerges from individual behavior).

David R. Henderson writes:

@Daniel Kuehn,
I certainly think yours is a reasonable interpretation. I do worry, however, that he thinks that you need a big government blueprint and that many of his readers will think he's affirming their own views on this.

Glen S. McGhee writes:

Yes, Kennedy is wrong.

But Hayek also needs to read David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism (1977), especially the history of how the corporations commandeered the patent process and patent courts, and established research bureaus (laboratories). It happened, but not the way Hayek thought it would.

Tracy W writes:

My great-grandma, who was flirting with boys at the turn of the 20th century, in her lifetime went from horses and carts to a man on the moon.

Though anyone who says something like "from values of simple rural frugality to values of flamboyant urban consumerism" rather lowers my opinion of their historical understanding. When have most people not gone for flamboyant consumerism? Jane Austen, for example, the English novelist who mostly lived a rural life and died in 1817, notes displays of flamboyant consumerism in her novels, both in London settings and in rural village settings. And who was building all those luxurious English country houses?

David R. Henderson writes:

@Tracy W,
Good catch.

Philo writes:

If Kennedy has said 'without a blueprint' he might have explained that he meant *a single blueprint for the whole transition*. But he said 'without blueprints', and you rightly nailed him--for that and, of course, for 'forethought'.

Also, I think more rural agricultural workers would be flamboyant consumerists if they weren't so poor!

Glen S. McGhee writes:

To give the flavor of early 20th century American technological/institutional changes. American By Design.

All societies stratify according to wealth, prestige, status. The avowedly egalitarian or communist ones don't last too long, or not long enough, depending upon your point of view.

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