OF all the great insights that Friedrich August von Hayek bequeathed to us in his work, one in particular shines out today. For its truth has never been more evident, its application never more universal. It is that running through the ideological and political divisions of human history are two distinct and different ways of looking at the world. Between them is a deep and irreconcilable divide. One Hayek called constructivist rationalism. The other he called evolutionary rationalism.
Hayek spent a lifetime arguing that constructivist rationalism is economically and philosophically flawed because it assumes that “all social institutions are, or ought to be, the product of deliberate design”. Hayek later famously called this the Fatal Conceit.
Those who follow this route believe they have it within their power to build, organise and mould society so that it conforms to their concept of what is just and efficient. But it leads, he argued, to economic decline, poverty, social regression and, in extremis, famine, starvation and the collapse of civilisation. Historic examples of this mindset, said Hayek, included Sparta, the French Revolution, communism in general and the Soviet Union in particular, fascism, Nazi Germany – indeed all the tyrannies that blighted the 20th century. As Hayek famously put it, it is the Road to Serfdom…
Evolutionary rationalists such as Hayek argued that the liberal market economy, for all its apparent duplication, unfairness, inequalities and instability, leads to wealthier, freer and fairer societies than all the great plans of constructivist rationalism. Indeed, he argued, it was the only way to run and sustain a successful advanced economy, a matter of some relevance, we shall see, as Europe struggles to cope with the rise of Asia…
It has become fashionable to argue that the past 20 years have seen something of a political consensus congeal around the Hayekian worldview. But Hayek would not recognise his apparent triumph. The intellectual battle between collectivist central direction and the decentralised market economy has not ended with the collapse of the Soviet Union.
Today, of course, everybody – apart from the new Marxists of the radical environmental and anti-globalisation movements – broadly accepts that societies should be largely market economies. But if Hayek were alive today, he would be deeply concerned at the way the large European economies, including Great Britain, have succumbed to the allure of constructivist rationalism, with its concomitant inexorable rise in the size and power of the state….
But he would be dismayed how Europe, over the last few decades, has turned its back on many of his principles – and paid the inevitable price in terms of lower growth, fewer jobs and less wealth creation. Hayek would consider today’s levels of European public spending, tax, red tape and state intervention to be in the red zone that is dangerous to your economic health.
Om EU og euroen:
The rise of the European Union, on which so many of us pinned our hopes for so long, was rumbled as a grandiose project by Hayek long before Euroscepticism became fashionable.
To a Hayekian, there are few starker instances of his Fatal Conceit than the EU’s hubristic launch of a single currency.
The euro’s supporters, of course, were hardcore Cartesians. They devised what they thought was a purely rational currency, abstracted from history, experience, culture or even economics.
Their aim was to get rid of the messy, seemingly irrational patchwork of different currencies across Europe, all irritatingly lacking uniformity and harmony.
To them, it was self-evident that Europe ought to be a single country; and that countries should have their own currencies. Any economic objections to the single currency, and there were many, were dismissed as irrelevant.
The argument always was that if there were enough political will and clever administrators to push it through, the project would triumph.
Today Hayek would be telling us that the Cartesian result was wholly predictable: the creation of an inappropriate, one-size-fits-all monetary policy in an area which is far removed from what economists call an optimal currency area. It is now widely accepted that the single currency has helped keep Germany and Italy in recession or near-recession while fuelling an inflationary boom at the periphery of the euro zone, in Spain and Greece. Hayek would not have been surprised: it is the stiff price you pay for abandoning evolutionary rationalism.