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The Counter-Revolution of Science An Explanatory Review on F.A. von Hayek’s “Studies on the Abuse of Reason”

Prepared By: Mathias Royce [ID3915] Doctoral Candidate in Political Economy Swiss Management Center University Prepared For: Prof. Kurt R. Leube Swiss Management Center University


December 6 , 2009

Abstract: In the first part of his book “The Counter-Revolution of Science: The Abuse of Reason”, von Hayek postulates a number of principles that aim to break the traditionalist-conventional approach of how scientists treat economics as a subject of study. In his essays, von Hayek elucidates on the essentially divergent nature of social sciences compared to natural sciences and uses scientism to illustrate the interaction between these two fields of study. In a rather philosophical digression he describes the importance of applied subjectivism and methodological individualism vs. collectivism – the latter being rather highly opposed by von Hayek. He goes off at a tangent to explain triggers of human behaviour that impact the degree of conscious control on social wholes, and as such he discusses these wholes in the context of constructivist-rationalism and spontaneous order. From an analytical perspective concerning the theory of spontaneous order – which he declares to be at the heart of social wholes, von Hayek extends his arguments on the Kantian principle that the world from a spectator’s view is largely in a state of inapprehensible disorder. Using this essential view of Kant, he buildsout this argument further on the fundamental thought of the Austrian School of Economics that markets are essentially dynamic processes. Further afield, von Hayek delivers strong philosophical arguments in his essay criticising historicism and taking sides with Popper’s stance on anti-positivism, highlighting that social sciences became positivistic and economics as a science, has been transformed into natural sciences. In his final essay – chapter X of the first part of his book, he positions himself against socialism in any form by using argumentative exegeses from largely philosophical derivations he manifested in previous chapters. By using the engineer/planner analogy, he arrives at the conclusion that no entity could possess and use all the information necessary to make efficient economic decisions and by doing so, he rejects central planning and subsumes that fundamentally, socialism as a theory of economic organisation, is to be rejected.

Scientism Von Hayek sees social sciences compared to natural sciences as a different entity altogether. He manifests this hypothesis through the definition of interaction models within the science itself: borrowing from an explanation about subjectivism further afield, von Hayek sees the interaction in social sciences based on the relations between men and things or man and man. His view on social sciences is unlike natural sciences, where he sees the interactions based

upon relations between things (Hayek, 1952). Von Hayek’s belief that social and natural sciences should be methodologically treated separately attests itself in his opinion, that imitation of methods of physical and biological science will not yield any good and valid science (Nadeau, 1987). In his later writings (Hayek, 1967) he states, that [influenced by Popper] he acknowledges that the transposition of the scientific method on social science studies remains a mere illusion – a figment of one’s imagination observable as early as 1934 (Popper, 1934) and leading consequentially to the theory of antipositivism, which objected to the positivist teachings of Mach and the First Vienna Circle. With his unanimous stance on refuting the consolidation of methodologies of natural and social sciences, he sought explanation in the philosophical view on scientism – a term von Hayek coined with derogatory connotations, implying the inappropriate use of scientific methods. For von Hayek, research in the field of social sciences cannot be done in a purely linear-quantitative approach. Studies in the field of social sciences for von Hayek encompass a complex derivation of comprehensive social, political and economic theories that stem from a cognitive theory about structure and operation of the human brain (Posner, 2003). With this in mind, von Hayek explores in his book the human psyche – touching base on subjectivism, objectivism, individualism, and collectivism thereby making the analysis of behavioural aspects of the human mind the underlying and central thread of social science studies. He embeds in doing so the praxeological school of thought of Ludwig von Mises or as Henderson (2009) puts it inversely: “[scientism]… is in contrast to the Praxeological approach introduced by Professor Mises”. One of von Hayek’s core assertions is that the human mind is to a greater degree composed of a structure that is of variable appearance, which in itself is philosophically in unison with praxeological thought of methodological individualism advocated by von Mises and this idea carried forth by Rothbard (1997), where he discusses logical implications on human actions that employ means to attain ends. Von Hayek, in a philosophically pragmatic approach contests [constructivist] rationalism favouring the theory of spontaneous order that prevails as construct which essentially remains unplanned, unordered and above all – not designed. Leube (1976/1977) claims: “Society itself is not an organisation, but a spontaneous order”. This [spontaneous order] – in the reviewer’s opinion, stands diametrically opposed with econometrics – or, as a matter of fact, any scientific method that relies on empiricism in social science studies, since behavioural science remains unaccounted for. I am emphasising that econometrics in its elements is concerned with the study of the history of an economy and as such abstracts economic canons by means of historic data analysis. In von Hayek’s opinion, econometrics therefore remains

largely non-scientific, interpretative and nonsense – the latter according to Wittgenstein’s definition of this term.

On von Hayek’s Theory of Spontaneous Order and Economic Wholes Obedient to Conscious Control – or why von Hayek is an advocate of Subjectivism and Methodological Individualism: Austrian Economics projected on intellectualism has produced meaningful concepts to social sciences, such as social wholes. Menger perpetuated Schumpeter’s initial idea about social [economic] wholes and delivered a composite method – as explained by Smith (1994), that “analyses a given subject-matter into simple and basic elements [economic parts] together with an investigation of the systematic ways in which these elements may be combined into wholes”. Von Hayek developed Menger’s thoughts on the philosophically intellectual topic of holism and studied its application on phenomena such as language, law [politics] or morals. Von Hayek went further and applied the philosophical meaning of social wholes on to studies of social sciences, viz.: economics, where wholes represented economic markets that were driven by spontaneous order and through conscious control. He established the concept that human knowledge is disseminated throughout the human population to a degree that makes assimilation of this knowledge by a single entity – either a person or an organisation, impossible. He concludes that no entity alone could acquire and absorb enough knowledge to allocate and disperse a society’s resources efficiently and consequentially, the social whole as such cannot be [re-]designed. Von Hayek illustrates this in his book by taking an almost defeatist deportment on constructivist-rationalism in which he embarks on Moore’s utopianism – or the search for the ideal society that relies on knowledge pretence, in illreputing such apparent anterior societies that are being artificially constructed. The demand for conscious control according to von Hayek is “equivalent to the demand for a control by a single mind” (von Hayek, 1952) – thus, it is central to spontaneous order and rather an evolutionary theory established by von Hayek, that progress in a society advances to a more complex form if design through conscious control is not being exerted upon the society by an individual or a collective (Caldwell, 1997 / Pennington, 2007). In his essay, von Hayek does not elide the fallaciousness that revolves around the increase of powers of a human mind by consciously controlling its growth and he draws his conclusions on a valid analogy of the theory that claims to be able to explain that exact growth through an implied possession of a

super-mind. By doing so, he puts the ability to explain existing beliefs and knowledge in question (von Hayek, 1952). On the subject of methodological individualism, von Hayek veers away from Menger and von Mises which traditionally stand for supporting the positivism-atomistic philosophy, or as Smith (1990) puts it: “the view that all that exists is atoms associated together in accidental and unintelligible ways and that all intelligible structures and all necessities are merely the result of thought-constructions introduced by man”. He [von Hayek] explains, that overstated fears of teleological concepts might have been triggered by scientific methods transcending in aspiration from the field of natural sciences to the field of social sciences and consequently, contemporary economists naturally would favour a correlative-analytical approach on economic variables, rather than trying to understand and develop interpretative social sciences. Menger and von Mises rejected methodological individualism on the grounds of the “Philosophy of the Ineffable” - a doctrine by Neurath, and perhaps even in verificationism, as embodied by the First Vienna Cycle, von Hayek affirmed in his book his belief in Popper’s “Criterion of Demarcation”, that theories are only then classified as scientific, if these are falsifiable. Von Hayek stresses that the centrepiece of methodological individualism is manifested in a framework of rational action and as such it is not a form of rationalism, but merely catalyses the emergence of inadvertent underlying economic phenomena contained within the body of rational action. But, von Hayek doesn’t stop here – he goes beyond that: in his essay ““Conscious” Direction and the Growth of Reason” (von Hayek, 1952), he distinguishes between an individualist and collectivist approach on the growth and direction of society. Individualism in the following abridged definition, according to von Hayek, sees its boundaries at the limitations of the human mind and as such resorts to inter-individual processes that enables human society to exist, whereas collectivism “bases its demands for conscious control on the assumption that it can comprehend this process as a whole and make use of all knowledge in a systematically integrated form”. On the theory of subjectivism, von Hayek further elaborates on Menger who used the theory of subjectivism to describe the value of goods. Value, so Menger is convinced, is an associated attribute of the subjective state of mind dissociated with the physical [objective] value, e.g. the value added to a good in manufacturing. Consequently, von Hayek’s declaration on the subjective character of social sciences with regards to subjectivism in value declaration was: “that [the] object of economic activity cannot be defined in objective terms but only with reference to a human purpose… (von Hayek, 1952)”. Leube (2002) adds,

that “Menger’s subjective revolution amounted to the recognition that value has never been nor will it ever be a property or a substance inherent in goods”. With favouring this subjective theory of value, Hayek pays little attention to the labour theory of value which is known for taking into account the amount of labour that was needed to produce the good when assessing the value of a good.

Von Hayek’s Views on Engineers vs. Planners and Socialism as a Theory of Economic Organisation: In his essay “Engineers and Planners”, von Hayek explains how engineering, central planning and socialism are intrinsically linked with each other. He makes the reader understand that socialism idolises engineering and glorifies the people exercising an engineering role. To that extend, Taylor (1957) makes the appropriate comment, that: "...the task of "building" socialism was conceived in terms of engineering". For von Hayek, the role of the engineer is above all, a primarily theoretical function that sees its assignment in the exertion of incomplete knowledge to the advance of a technocratic society. Von Hayek clarifies quickly, that the major shortcoming of engineers is the dangerously incomplete level of knowledge knowledge that seems to be of only scientific nature, the engineering role traditionally and inherently internalises. He expands on this in disclosing that under socialism – whether it be under reformist-fabianist or revolutionary societies favouring Marxism [or oppressive societies under Stalinism, for that matter], the idea of a central organisation responsible for planning, designing and engineering all social and physical structures in a “top-down approach” is prevalent. Since engineers possess only scientific knowledge, so von Hayek exemplifies, their knowledge is incomplete since it lacks socio-local knowledge. In one example, von Hayek mentions that engineers would very well be in a position to understand the resource requirements to complete a particular task but would not take into consideration e.g., the effort that correlates to obtaining these resources. These efforts, depending on the socio-local situation (e.g. markets in different economies) might be easier or harder to be obtained, depending on the socio-local conditions and the amount of socio-local knowledge that is being exercised in obtaining these resources. The unawareness of variations in sociolocal conditions (market conditions) and the inability of central planning to account for a potentially self-governing economy led von Hayek to theorise that central planning is a highly ineffective an inoperative method of organising an economy. Von Hayek enforces this

view even further: asides from the economic inefficiencies of socialism he saw also incisive totalitarian aspects of a demagogic elite exerting its visions of utopianism onto a society that was forced to believe in any propaganda, the central planners deemed fit publicising. In the reviewer’s opinion, von Hayek draws a parallel between utopianism and socialism, seeing in utopianism the ancestor of modern socialism. He states: “Most of the schemes for a complete remodelling of society, from the earlier Utopias to modern socialism, bear indeed the distinct mark of this influence (Hayek, 1952)”. Yet, as a final comment I shall accentuate that despite von Hayek’s despairing opinion of socialism and his consideration of Marxist theories being odious at best, an underlying resemblance between Hayekianism and Marxism can be seen characteristically – essentially on the stance of the role of utopianism and the limits of reason. Sciabarra (1995) explains that “he [Marx] criticises utopians for their belief that people can achieve collective competence instantaneously”. Sciabarra outlines further, that for Marx, collective competence emerges through historical action, not through constructivist plans based on contrived premises. This idea of thought bears a strong resemblance with Hayek’s view on dismissing constructivist-rationalism in favour of spontaneous order.

Synthesis At the time of writing, von Hayek delivered sound arguments to support his theory of the “abuse of reason”. Even nowadays, his writings stipulate a thought process that would lead the educated mind to question, whether societies have indeed advanced since von Hayek first publicised his theories. In giving von Hayek the praise and credit he deserves, the reviewer though understands that Hayekianism is a strain – a particular flavour, in the subject matter of social sciences. The reviewer remains assured, that followers of the neo-classicistic or Keynesian school of economics at any time would question von Hayek’s concepts, which he fundamentally bases around libertarianism of societies or the flawed approach of confounding social and natural sciences – which von Hayek aptly labelled scientism. His ground-breaking work he delivered on his concepts of social wholes, spontaneous order and conscious control remain confirmed economic theories, and von Hayek has evidently shown, that these concepts – still in this day and age, find applicability within the field of social sciences.

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The Counter Revolution of Science