Boudewijn Bouckaert and Annette Godart-van der Kroon (eds) (2000) Hayek Revisited Cheltenham, UK, and Northampton, MA: Edward Elgar/The Locke Institute (for the Ludwig von Mises Institute). pp xxii + 157. ISBN: 1-85898-449-1 Hbk. £49.95/$80.00.

Hayek Revisited is a loosely related collection of papers deriving from four conferences on Hayek held by the Ludwig von Mises Foundation between 1993 and 1996. It consists of an introduction, and three substantive parts – on spontaneous order (6 papers) , the welfare state (3), and European federalism (2). The very first words of the Introduction speak of “The awesome scope of Friedrich A. Hayek’s work…” (xiii), so we know exactly where we are from the outset: this is an exercise in celebration, not evaluation.

Hayek (like von Mises) is, of course, a well-known proponent of laissez-faire policies and the contributors to Hayek Revisited share that standpoint. The editors themselves say that ‘it is not very clear why not all services with an excludable character (e.g. schooling) should not be simply privatised’ (xx). Health and education, unlike, say, defence or law and order, are ‘excludable’ in that it is physically possible to withhold the service until the user pays for them. So the editors cannot see anything obviously wrong with extending privatisation, which has done so much damage to British railways in recent years, to education and health care. The ‘welfare state’ is something akin to totalitarianism for these writers, who decry ‘the relentless drive towards the extreme ‘welfare state’-end of the continuum between totalitarianism and liberty’ (xix). Other contributors describe the welfare state as ‘organised lawlessness’ (104) and note that ‘the simplest solution, of course, would be to eliminate the state’ (124).

Just because I don’t share the policy standpoint of these writers doesn’t mean they have nothing interesting to say – far from it. But the papers are often only loosely related and I’ve only space to look at one – so I’ll say a few words about one of the most interesting: ‘Rules and Order’ by Dieter Schmidtchen. Applying simple game theory to Hayek’s notion of spontaneous orders, Schmidtchen grapples with a central point for our understanding of Hayek: the relationship between spontaneity and efficiency. In my opinion, Hayek says two things: firstly, that societies are the result of a spontaneous order which emerges unplanned from the interactions of individuals pursuing their own ends, and secondly that these spontaneous orders are efficient, socially desirable, optimal in the sense that a planned order, one modified by conscious collective action could not do better. No one would deny that the first proposition is characteristic of Hayek, and few would disagree with him. The second proposition is highly contentious: both as to whether Hayek held this view, and as to whether he was right if he did. So any serious research exploring the link is going to be of great interest.

Schmidtchen addresses the issue in the first paragraph of his paper: ‘Hayek … maintains that spontaneous rules … are more effective than those which could be rationally constructed … this claim means that … the spontaneous order of actions governed by the rules, [is] efficient’ (32). Later on he adds ‘Hayek has rightly been called an evolutionary optimist … rules created spontaneously are judged superior to those of design’ (41). However, Schmidtchen is not blind to the possibility that this optimism is less than perfectly warranted: ‘what’, he asks, ‘about the possibility of misdirected spontaneous order?’ Here he cites Buchanan’s objections that ‘the institutions that survive and prosper need not be those that maximise man’s potential. Evolution may produce social dilemmas as readily as social paradise’. After some hesitation, he concedes that ‘Buchanan’s statement would have to be judged correct’ in that Hayek did not explicitly offer a criterion for judging proposals for state intervention. But he does feel that such a criterion is implicit in Hayek’s writings. We need to discover ‘what he really means’ (42). This he finds in the concept of network externalities: ‘Theory tells us that in the presence of positive network externalities, it would be an illusion to rely on spontaneous order as a cure. These settings clearly make a case for the visible hand’ (43).

Here, I think, Schmidtchen is quite right – though any externalities will have the same effect, whether they are positive or negative, and whether or not they have anything to do with networks. That is a valuable point; but it is just tantalising that he doesn’t set out what, if anything, this has to do with Hayek. In my own opinion, this is not just a matter of reading between the lines, so much as reading off the edge of the page, (as Alan Coddington once remarked about some interpretations of Keynes).

The analytical part of Schmidtchen’s paper applies the crossroads game to the spontaneous emergence of the conventions which will underpin a spontaneous order. Two drivers approach a crossroads and have to decide whether to slow down (S₁) or maintain speed (S₂). The payoffs are negative if they both choose S₂, zero if they both choose S₁ and positive if they both choose differently – (S₁S₂) or (S₂S₁). The game is indefinitely iterated and both players have an probability of 0.5 of being driver A or driver B. From this game, the author draws the conclusion that a convention will emerge of either driver A or B always slowing down and the other driver always maintaining speed. This is the best the drivers can do in the circumstances, so the spontaneous outcome is optimal. The editors comment that the model ‘proves that precisely the kind of rules which define private domains and constitute ‘society’ … will emerge spontaneously’. But it doesn’t prove that spontaneous outcomes must be optimal: the only reason the optimal social outcome occurs in this game is that the two players have identical interests. In a multi-player prisoners’ dilemma game a socially inefficient convention would have emerged. Indeed, the editors recognise this: ‘this chapter does not justify [Hayek’s] evolutionary optimism’ (xv).

All of which leaves us a bit up in the air: was Hayek an ‘evolutionary optimist’ or not? If so, was he right?

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Last updated: Saturday, 13 September 2003