From Arnold Kling, By way of the WSJ, By Peter Boettke:
Mr. Hayek rightly warned of the dangers of central planning, Mr. Boettke says, but “he didn’t give a prescription for how to move from ‘serfdom’ back.”
(Taken and expanded from my comments on EconLib.)
Back From Serfdom?
Hayek didn’t solve the problem of the social sciences. He gave us the right warning, but no meaningful prescription for government other than to rely upon what we already knew.
Liberty is the desire of the minority. The minority participates in the market. The majority on the other hand lives off it, but does not participate in it. The majority is often frightened of the market. And if not frightened, they simply want to avoid the dirty reality of market participation: spending one’s life trying to understand and satisfy the wants of others, and risking one’s capital to test his or her judgement. We’d all rather be selfish.
CALCULATION AND THE SOCIAL SCIENCES
Mises, Hayek, Popper and Parsons all failed to solve the problem of the social sciences. The conservative sentiment remains a sentiment, and not an unarticulated rational philosophy. What structure it does have, remains allegorical and historical. This is why it cannot easily win a rational battle against the various forms of positivism aligned with marxist and collectivist sentiments.
Austrian ‘Calculation’, Austrian incentives, the abstractions of Property and Opportunities, along with the properties of human memory and cognitive bias, are, when taken together, a necessary and sufficient system for economic and political order, and a rational means of articulating the conservative and libertarian sentiments.
This structure. This answer to our problem of the social sciences, is in Austrian Theory. It’s just incomplete. Our political system relies upon debate and rhetoric as means of resolution of PRIORITIES and METHODS among people with SIMILAR interests. Debate relies upon relevant knowledge of the content policicians are debating. But without data that is sufficiently complex, and formulae that are sufficiently PREDICTIVE, their debates must rely upon social class and cult preferences. And since the society is comprised of multiple classes and people with multiple interests, debate in the absence of rational data, and a rational social science, must descend into sentiments and rhetorical contrivance of people wth dissimilar material interests, rather than rely upon scientific
Without additional complexity in our information systems, and without additional complexity in our political process the differences in our interests are too divergent to be solved by irrational discourse. It is a battle of who can win the greatest sentiments, rather than the determination of priorities among people with similar interests.
We need data, and a system of applying that data that will allow us to move beyond the convenient contrivance of the DSEM model, and that will permit human beings to rationally make political decisions based upon something other than the tyranny of the majority won through the artifice of irrational sentimental political debate, unbounded by the practicality of hard money, and the difficulty of borrowing hard money.
KLING’S RECALCULATION IS THE CORRECT MODEL
Calculation and Incentives are the reason the Recalculation Story is the correct analogy. But without rational, causal, articulation, it remains an allegory, and is an insufficient argument relying on explanatory power, rather than causal definitions.
There must be a way to combine knowledge of a nation’s market practitioners the way that the market does, and put it in the hands of politicians. We need politicians because if we are to pool our resources (if only to defend ourselves and our property from the barbarians and the proletariat) then there is a scarcity of resources to apply to infinite political choices.
Past civilizations failed because law, rhetoric, bureaucracy and religion were insufficient means of coordinating a large division of knowledge and labor. They failed to create property definitions and calculating institutions sufficient for cooperatively managing their resources and for forecasting their use by combining the knowledge of the body of practitioners who were participating in the market.
This is the reason all civilizations fail internally. It is a structural problem of complexity. Complexity does not have diminishing returns as some authors have suggested – just the opposite. But as complexity increases so must our cooperative technologies. And the tendency of governments to become corrupt, ritualistic, and calcified, combined with the lack of information systems and lack of conceptual models, and lack of institutions to use those models and data, leads to cooperative failure.
HARD MONEY AND KNOWLEDGE VERSUS SOFT MONEY AND PROBABILISM
Hard money and lending allow this cooperation between power and knowledge. Hard money requires borrowers to make a case to their debtors, and debtors can apply their knowledge of potential profit and loss. But hard money has given way to fiat money, in order to keep the supply of money needed for it’s uses available, while limiting inflation. Had government the inability so spend money itself, this process of inflation targeting would work.
Fiat money is also a form of insurance. It makes government the insurer of last resort. It increases productivity by socializing risk. It will not prevent booms and busts. Instead, such easy credit encourages them. But human society has made the decision to tolerate this risk of credit distortion in exchange for the ability to provide each other with national insurance – the ability to borrow from everyone by printing money, and providing restitution of losses to those who have catastrophes.
And as the Anglo-Rothschild-French alliance has proven, and the USA has taken to extremes, the most heady insurance a nation state can make use of, is the ability to print money as debt in order to wage war.
And, as all developed nations have demonstrated, fiat money also permits governments to create social programs by borrowing against a future that is uncertain.
In the absence of hard money – hard money that must be willingly lent – we can no longer rely upon the wisdom and knowledge of property holders we call lenders. Instead, we rely on mathematical prediction — which specifically does not contain the wisdom of property holders and their predictions of the future.
Nor is our government debt actually comprehensible. It is simply too complex and vast, and speculative to understand.
A SOLUTION THAT ALLOWS COOPERATION AND CALCULATION
Thankfully, we already have the model of banking and credit. We’ve just allowed banking and credit to embrace precisely what we have warned politicians from embracing: the error of aggregation, called ‘pooling’ in fixed categories inherent in our current accounting technology, which is further enabled by an erroneous application of probabilism that violates the primary principle of property: it’s dependence upon knowledge of it’s dynamic utility.
Hayek identified the problem but not the solution. We have a solution. We have the technology to implement it. It’s implementing it that’s now the problem. The fundamental problem for any civilization is increasing the granularity of economic calculation and keeping the temporal pace of their categories of measurement with the dynamism of their utility. In addition, if we are to have the self-insuring system of fiat money, then we must also have a means of capturing knowledge of lenders, and practitioners that was inherent in hard money. Then, possessed of that means, alter our form of government to take advantage of that knowledge.
So Hayek was right. Kling is right. But they answer to WHY they are right has not yet been articulated.
And the truth is, that since freedom is a minority sentiment, it is very difficult for such changes to be implemented in a polity. Even if it would satisfy the opposing side’s materialist desires. Because it would not satisfy their desires for status parity. Collectivism is largely an effort to attain status parity.