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The Breakdown of Spontaneous Order: Smith and Hayek Diverge

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The Breakdown of Spontaneous Order: Smith and Hayek Diverge THE BREAKDOWN OF SPONTANEOUS ORDER: SMITH AND HAYEK DIVERGE Brian C. Albrecht* ABSTRACT: In papers on the history of thought, writers often lump Adam Smith and F. A. Hayek together. Both Smith and Hayek are classical liberal, free-market economists. Each emphasized the spontaneous order that develops without any person planning the order. They also discuss the benefits of such spontaneous orders. Yet, as with any two great thinkers, Smith and Hayek had important differences. This paper adds to the literature by clarifying * M.Sc. 2014, Barcelona Graduate School of Economics; Ph.D. Candidate 2019, University of Minnesota Student, Department of Economics, University of Minnesota. Email: [email protected]. I would like to thank Doug Casson for suggesting that I further study Smith and Hayek and participants of The Philosophy, Politics & Economics of Liberty colloquium at The Mercatus Center for providing excellent feedback. All remaining errors are mine. 346 THE BREAKDOWN OF SPONTANEOUS ORDER 347 one such difference. Smith believes that on some margins, particularly education, ends that are not achieved through the spontaneous order should be promoted by governmental action. Hayek is skeptical of the ability and benefit of picking particular ends to promote through government intervention. For Hayek, the beneficial attribute of a spontaneous order is its general application. INTRODUCTION Imagine a farmer who notices his crops aren’t growing. Any fool on the street can see the general problem: it is obvious that the corn is struggling to grow. One horticulturist comes by and suggests using fertilizer on the parts that are barely out of the ground. The right medicine will help. Another suggests the need to completely resoil the bad parts. The suggestions for improvement are different. Both name the same general issue, yet they offer different solutions. That is roughly the difference between Adam Smith and F. A. Hayek on the patchy parts of spontaneous order. The academic literature up to this point has focused on how these authors agree on the good parts of spontaneous order. This paper highlights the areas where Smith and Hayek disagree about what can be done to remedy the bad parts. Smith and Hayek are both spontaneous order theorizers. Both write about the historical importance of spontaneous order. Both write about the normative value of spontaneous order. Both fall under the title of classical liberal. In many ways, Smith and Hayek are in strong agreement on many areas of philosophy, politics, and economics. Of all the twentieth-century theorists, Hayek has added the most to Adam Smith’s vision of a self-correcting, spontaneous system. It is fair to say that spontaneous order is modern jargon for the “invisible hand” that Smith made famous. 348 New York University Journal of Law & Liberty [Vol. 11:346 The “spontaneous order” tradition of classical liberalism clashes with the “rationalism” framework of thinkers such as Thomas Hobbes. Rationalists believe that “natural reason” is needed to decide the right rules of society. 1 For the rationalist, reason pervades humanity at both the levels of the individual and society. In contrast, for the spontaneous order theorist, reason only exists at the level of the individual. From the perspective of spontaneous order theorists, a human being has reason but a society does not. For people like Smith and Hayek, a society cannot have reason because a society is not the result of human design.2 Unfortunately, the spontaneous order versus rationalist division is the point where many previous writers have stopped. Scholars lump Smith and Hayek together in the spontaneous order tradition. Steven Horwitz traces the similarities between Smith, Hayek and Carl Menger, saying “These three theorists belong to a continuous line of intellectual inquiry that constitutes a distinct approach to social analysis and to the discovery of the most desirable political order.”3 Norman Barry similarly identifies Smith and Hayek solely as spontaneous order theorists. 4 Even Hayek stops at the distinction between spontaneous order and rationalism.5 However, the distinction between rationalism and spontaneous order theorists leaves something missing. Writers have not wrestled with the differences between Smith and Hayek on the problems with spontaneously developed orders. Craig Smith makes a finer 1 See Norman Barry, The Tradition of Spontaneous Order, LITERATURE OF LIBERTY, Summer 1982, at 7, 9. 2 Id. at 9–10. 3 Steven Horowitz, From Smith to Menger to Hayek: Liberalism in the Spontaneous-Order Tradition, 6 INDEP. REV. 81-82 (2001). 4 See Barry, supra note 1. 5 F.A. HAYEK, THE CONSTITUTION OF LIBERTY 108-11 (Ronald Hamowy ed., Univ. Chi. Press 2011) (1960). 2017] THE BREAKDOWN OF SPONTANEOUS ORDER 349 taxonomy on classical liberal thinkers, but puts Smith and Hayek together. 6 When can political economists spot a problem and suggest improvements? When might it be beneficial to instruct the government to improve something? These are important questions of normative political philosophy. But this margin is missing when the distinction is between Hobbes (rationalism) and Hayek (spontaneous order). This margin also happens to be where two giants within spontaneous order theorizing, Adam Smith and F. A. Hayek, disagree. Smith and Hayek offer conflicting ideas for managing the problems of spontaneous order. The goal of this paper is to distinguish their different advice. This paper has two objectives. The first is to explain some of the benefits that Smith and Hayek see in spontaneous order. I show that Hayek and Smith give spontaneous order great credit in the structuring of economic and legal issues, which is true from a positive and normative perspective. The second and main point engages with the differences between the two authors. I explore how the authors disagree about the beneficial limits of spontaneous order in the “Great Society”7 and the ways in which spontaneous order may be improved, finding that Smith is more optimistic about specific government actions to achieve noble ends. Whereas Smith identifies government interventions, such as education and poor relief, as necessary to correct the failures of a spontaneous market order, Hayek believes that law should support the structure that has already developed 6 See CRAIG SMITH, ADAM SMITH’S POLITICAL PHILOSOPHY 2 (2006). 7 A term used by Hayek to describe “where millions of people interact.” 1 F.A. HAYEK, LAW, LEGISLATION AND LIBERTY 8-9 (Univ. Chi. Press 1973). Smith uses the term to describe an extensive division of labour. 1 ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS 96 (Edwin Cannan ed., Univ. Chi. Press 1976) (1776). 350 New York University Journal of Law & Liberty [Vol. 11:346 spontaneously without government action. I conclude this paper by considering the cause of this disagreement. For the purposes of this analysis, I focus on Smith’s two works, The Wealth of Nations and The Theory of Moral Sentiments, and Hayek’s exposition in his magnum opus, the three volumes of Law, Legislation, and Liberty. I. SPONTANEOUS ORDER The main contribution of this paper is the second objective stated earlier, elaborating on the differences between Smith and Hayek on spontaneous order. Yet, readers should not underestimate the importance of spontaneous order for Smith. As I will show, both writers are concerned with a well-functioning order and never go so far as to try to construct any part of society. Previous writers are correct in describing both Hayek and Smith as spontaneous order theorists. In Norman Barry’s essay on the spontaneous order tradition, he defined spontaneous order as “those regularities in society, or orders of events, which are neither (1) the product of deliberate human contrivance (such as a statutory code of law or a dirigiste economic plan) nor (2) akin to purely natural phenomena (such as the weather, which exists quite independently of human intervention).”8 Spontaneous order is a third realm, consisting of human action, but not human design. The study of spontaneous order has a long history in Western thought. It falls within methodological individualism and has its clearest beginning in the Scottish Enlightenment with writers such as Adam Smith, David Hume, and Adam Ferguson.9 These Scottish writers and Hayek are in agreement on the major benefits of 8 Barry, supra note 1, at 8. 9 Id. at 21. 2017] THE BREAKDOWN OF SPONTANEOUS ORDER 351 spontaneous order. 10 In The Wealth of Nations Smith writes that “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man.”11 Smith and Hayek are not only in broad agreement on the positive claims about spontaneous forces in history, but also on the normative implications.12 In most of the 20th century, the spontaneous order tradition was overshadowed by what Hayek called “constructivistic rationalism.” 13 Rationalism holds that “human institutions will serve human purposes only if they have been deliberately designed for these purposes. [W]e should so re-design society and its institutions that all our actions will be wholly guided by known purposes.”14 This is an appealing notion, given the success of the physical sciences and their control. However, rationalism conflicts with the spontaneous order theories, especially about the basis of society. Hume articulates the classic critique of rationalism by arguing that reason alone is incapable of determining and implementing a moral and legal order.15 Hume means that reason, separate from experience, is not enough to design an order. 16 Tradition, experience, and habits of human nature are vital tools in this development of a social order. Spontaneous order theories do not reject the power of individual reason.
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