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Volume 7 Issue 5 + 6 2020 COSMOS + TAXIS A Galbraithian Perspective on Epistemic Institutionalism and True Liberalism THEODORE BURCZAK Denison University Email: [email protected] Web: https://denison.edu/people/theodore-burczak Near the end of his book on F. A. Hayek, Peter Boettke advocates for a “true liberalism” growing out of Hayek’s the institutional framework that best enables epistemically thought that is “most conducive to human flourishing” limited individuals to strive and flourish. (Boettke 2018, p. 252). A consistent theme in Hayek’s oeu- This is a seriously truncated vision. A “true” liberal rec- vre is a careful investigation of what Boettke calls “epis- ognizes that a “valid image of the modern economy” is not temic institutionalism.” For Boettke, it is Hayek’s explora- one where most individuals are responding to price signals tion of epistemic institutionalism that helps produce this that emerge from competitive markets (Galbraith 2001, p. true liberalism. This short paper sketches a counterargu- 118). People shaping tin are not typically working in a small ment that Hayek’s epistemic institutionalism is hobbled, shop, buying raw material from and selling their product 5 making Hayekian liberalism itself truncated and “false,” directly into the global market. Much more likely, the metal more akin to a species of conservatism. A genuine liberal- worker is employed by a large organization with production ism based on a more thoroughgoing epistemic institution- units spread around the globe, where flows of sheet metal alism is far more progressive than the typical Hayekian is are directed by administered prices and decisions of pur- likely apt to accept. chasing managers. A “true” liberal embraces the reality that COSMOS + TAXIS + TAXIS COSMOS For Hayek, the primary problem for social theory is to un- we live in an organization economy more than we live in a derstand how societies can be organized to best coordinate market economy (Simon 1991). the actions of diverse and dispersed individuals, each of Hayek’s “Use of Knowledge” essay emphasizes individu- whom is epistemically limited with partial, tacit, potentially al market actors with specific knowledge about the circum- unique, and often erroneous knowledge. In his famous “The stances of time and place. In his book The New Industrial Use of Knowledge in Society” essay, Hayek ([1945] 1948) State, Galbraith starts by asking how scientific knowledge modernizes the defining insight of Scottish enlightenment is applied in modern, large-scale production processes. thinkers that diverse, dispersed, creative, and bumbling in- However, this difference in knowledge types—contextual dividuals can be led by price signals in competitive markets, knowledge versus scientific knowledge—is not crucial since when lured by profit and repelled by losses, to take actions successful application of scientific knowledge necessar- that will coordinate their separate behaviors to yield wealth, ily depends upon the context of time and place. The criti- innovation, and a rising standard of living. Under the right cal point for Galbraith is that scientific knowledge grows by institutional framework, market prices serve as a “system of educating separate individuals narrowly but deeply about telecommunications” (Hayek 1948, p. 87) serving a coordi- some specific aspect of reality, whether it is the adhesive nating function. In a nutshell, the right institutional frame- qualities of different paint types or the weight and durabil- work requires private property, freedom of contract, a legal ity of different kinds of metal. “Technology means the sys- and enforcement system constrained by the rule of law that tematic application of scientific or other organized knowl- secures property and enforces contracts, and democratic edge to practical tasks. Its most important consequence … government—limited in scale and also in scope by the rule is in forcing the division and subdivision of any such task of law—to change rules when they evolve in a wealth-reduc- into its component parts” (Galbraith 2007, p. 14). “Technol- ing manner, to provide public goods, and to limit externali- ogy requires specialized manpower,” (Ibid, p. 18) both in ties when doing so has greater benefits than costs. This is terms of people educated in particular scientific fields and A Galbraithian Perspective ON Epistemic Institutionalism AND TRUE Liberalism people who are expert at organizing and planning the ac- considerable room for both buyers and sellers to engage in tivities of the scientists. opportunistic behavior, which can threaten the ultimate re- For Galbraith, organization and organization specialists alization of consumption goods that can be profitably sold, exist precisely to perform a function that markets are not whenever specialized labor and capital must be coordinat- always able to realize: the coordination of dispersed knowl- ed in a time-consuming, sequential production process. edge. “The inevitable counterpart of specialization is orga- Organization reduces these market uncertainties, making nization. This is what brings the work of specialists to a co- roundabout, technically demanding production increasing- herent result” (Ibid, p. 19). As Galbraith puts it in one of his ly possible and desirable. Hayekian moments, what happens inside a large firm is that Galbraith argues that the coordination of fragmented “[f]ragments of information, each associated with a person, technological knowledge in time-consuming production are combined to produce a result which is far beyond the processes requires dialogic forms of communication, not capacity of any one of the constituent individuals” (Ibid, p. just transactional forms of communication, in which in- 426). But why is it that markets are not always able to com- dividuals can test through conversation how their separate bine the fragments of information by guiding separate indi- ideas might work together. These dialogues are facilitated viduals, with profit incentives and threats of loss, to act in a by organization, not market exchange. While Galbraith coordinated fashion? Why not build a car with the paint en- agrees that entrepreneurs are able to create new enterprises gineer selling his knowledge, and the metallurgic engineer of which they are in charge, managing a hierarchical struc- selling her knowledge, and so on, to various painters and ture under their authority, when a firm begins to grow, at metal fabricators, who then in turn sell the product of their some point the knowledge requirements of organization activities to an automobile entrepreneur, who orchestrates by central authority become too large. The firm slips from 6 the time-consuming production of a car through a long se- the control of the entrepreneur who initiated the firm to the COSMOS + TAXIS COSMOS ries of sequential exchanges? technostructure. Very much like Hayek, Galbraith maintains that increases Galbraith coins the term technostructure to refer to all in productivity require time-consuming, roundabout pro- the knowledge workers inside the large firm, as distin- duction methods, which involve large investments in spe- guished from the production workers engaged in routine cialized, heterogeneous tools and human capital. But appar- labor relying primarily on physical effort. The technostruc- ently unlike Hayek, Galbraith believes that there are often ture includes the scientists, engineers, designers, legal and difficulties associated with coordinating the various stages financial analysts, marketers, human resource managers, of production through market exchange. For one, markets etc., who apply some sort of skilled, scientific, and techni- for specialized capital and talent are not competitive and cal knowledge in the production process. Galbraith empha- are thus subject to uncertainties arising partly from the sizes that members of the technostructure typically work changing circumstances of time and place and partly from in groups or teams; it “is an apparatus for group decision- the possibility of strategic bargaining. Galbraith appeals to making—for pooling and testing the information provided what Oliver Williamson (1985) was later to call “asset speci- by numerous individuals to reach decisions that are beyond ficity:” the knowledge of any one” (Ibid, p. 96). This group dynamic cannot be orchestrated from above and, to be effective, “re- [T]he short-run supply price of highly specialized ma- quires…a high measure of autonomy” (Ibid.). In a nutshell, terials, components and labor is inelastic. So is the Galbraith proposes that large firms make use of knowledge demand for highly technical products. In the first in- by committees. As he describes it, “business organization stance large (and punishing) increases in prices will, [is] a hierarchy of committees. Coordination, in turn, con- in the relevant time period, bring no added supply. sists in assigning the appropriate talent to committees, in- In the second case large (and equally punishing) de- tervening on occasion to force a decision, and as the case creases will bring no added customers (Galbraith may be, announcing the decision or carrying it as infor- 2007, p. 28, fn. 1). mation for yet further decision by a yet higher committee” (Ibid, p. 78). The planning that takes place in the large firm While Galbraith focuses on the difficulties that change is thus not centralized, entrepreneurial planning but a type and uncertainty pose for market coordination of special- of decentralized planning by the technostructure in which ized talent
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