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Leo Rosten interviews Friedrich A. Hayek (Part III)

  
  
  
  
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Dr. Hayek challenges modern methodologies in economics, emphasizing the importance of theory over data. He describes the failure of governments to manage the money supply, the development of observed business cycles, and the morality of the market. The limits of politicians relying on advice from economists as well as the importance of legal positivism in shaping laws are also examined. Finally, he discusses changes he would like to see made to the U.S. Constitution and the influence of modern anthropology.

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Interview with Friedrich A. Hayek by Leo Rosten (Part III)
Thanks to Pacific Academy Advanced Studies for permission to distribute this program.

Digitized by: New Media - UFM.
Digitization: Mario Estrada, Jorge Samayoa; content analysis: Alex Weller; content reviser: Daphne Ortiz, Jennifer Keller; publication: Rebeca Zuñiga

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ROSTEN: Dr. Hayek, I'm interested in your impressions of the empirical work that was being done by American economists.  When you came here, it must have struck you rather forcibly--the stuff that was being done at the National Bureau [of Economic Research], stuff on business cycles, in which I think you were interested at one point. 
HAYEK: Well, I got interested by my visit to the United States.  You see, when I came here as a young man in '23, I found they had nothing here to learn in economic theory.  The American economic theorists had a great reputation at that time, but by the time I arrived, the few who were surviving were old men.  
And current teaching wasn't really interesting from a theoretical point of view.  I was actually attached to New York University, but I gate-crashed into Columbia [University].  
Then I was working in the New York Public Library on the same table with Willard Thorp and other people from the National Bureau.  I was drawn into that circle, and I learned a great deal about descriptive statistical work; in fact, I owe part of my later career to the fact that I learned the technique of time-series analysis at that time and was the only person in Austria, anyhow, who knew it.  So I became director of that new institute of business-cycle research. 
ROSTEN: This was in Vienna? 
HAYEK: That was in Vienna, yes.  Information about current affairs is very valuable; the expectation that you willl earn much for the explanation of events is largely deceptive.  You cannot build a theory on the basis of statistical information, because it's not aggregates and averages which operate upon each other, but individual actions.  
And you cannot use statistics to explain the extremely complex structures of society.  So while I will use statistics as information about current events, I think their scientific value is rather much more limited than the American economists of the last thirty or forty years have believed. 
ROSTEN: I've left you at one point.  If you say that the description of aggregates and the uses of statistics don't help you much to explain things, and if you say that they help with contemporary events, they cease to be contemporary very soon. 
HAYEK: Oh, yes. 
ROSTEN: And, you have built up a body of data: now, how important are those data? 
HAYEK: Well, they give you an indication of what has probably happened in society during the last six months. 
ROSTEN: Do you see any more optimistic possibility for the application of statistics? 
HAYEK: Not really, in economics.  Demography, yes.  In all fields we have to deal with true mass phenomena, but economics has not to deal with mass phenomena in the strict sense.  You know where you have a sufficiently large number of events to apply the theory of probability, and proper statistics begins where you have to deal with probabilities. 
ROSTEN: Well, all the sciences begin with that amassing of what might seem to be formless data.  Would you tell us a little more about why you think this is not true in economics?  Do you really think that most of economics takes place in discrete, isolated events, decisions, judgments? 
HAYEK: Well, this leads very deeply into methodological issues; but the model of science--physical science, in the original form--has relatively simple phenomena, where you can explain what you observe as functions of two or three variables only.  All the traditional laws of mechanics can be formulated as functions of two or three variables.  
Now, there is another extreme field of mass phenomena proper, where you know you cannot get the information on the particular events, but you can substitute probabilities for them.  
But there is, unfortunately, an intermediate [type of] event, where you have to deal with complex phenomena, which, on the one hand, are so complex that you cannot ascertain all the individual events, but, [on the other], are not sufficiently mass phenomena to be able to substitute probabilities for information on the individual events.  
In that field I'm afraid we are very limited.  We can build up beautiful theories which would explain everything, if we could fit into the blanks of the formulae the specific information; but we never have all the specific information.  Therefore, all we can explain is what I call-- I like to use the term "pattern prediction."  
You can predict what sort of pattern will form itself, but the specific manifestation of it depends on the number of specific data, which you can never completely ascertain.  Therefore, in that intermediate field--intermediate between the fields where you can ascertain all the data and the fields where you can substitute probabilities for the data--you are very limited in your predictive capacities.  
This really leads to the fact, as one of my students once told me, that nearly everything I say about the methodology of economics amounts to a limitation of the possible knowledge.  It's true; I admit it.  I have come to the conclusion that we're in that field which someone has called organized complexity, as distinct from disorganized complexity. 
ROSTEN: Warren Weber. 
HAYEK: Yes, exactly.  Warren Weber spoke about this.  Our capacity of prediction in a scientific sense is very seriously limited.  We must put up with this.  We can only understand the principle on which things operate, but these explanations of the principle, as I sometimes call them, do not enable us to make specific predictions on what will happen tomorrow.  
I was just listening to the wireless here, where people were speaking about the inevitable depression.  Oh, yes, I also know a depression will come, but whether in six months or three years I haven't the slightest idea.  I don't think anybody has. 
ROSTEN: Yes, life is a terminal disease.  But could you give me some examples of questions to which you-- I mean about economics, or in economics--questions to which you would like answers, or to which you do not have any satisfactory--
HAYEK: Oh, any price movement of the future.  
ROSTEN: Any price movements?
HAYEK: Yes.  I have no way of predicting them.  Well, that's exaggerating.  There are instances where you can form a shrewd idea of what's likely to happen, but in that case, of course, the price movements which you anticipate, which you expect, are already anticipated in current prices, and they are no longer true.  The only interesting things are the unforeseen price movements, and they, by definition, you cannot foresee. 
ROSTEN: You were expressing your respect for Frank Knight, and once he said with great exasperation that the difference between the physical sciences and the social sciences is that in the physical sciences they don't care what you say about them, but in the social sciences you affect the subject matter by talking about it.  
Now, to the degree to which people in government think they can affect economic policy, whether fine-tuning, to use that old phrase, or large-scale changes, by either changes in money supply or attempts to influence credit or so on, do you feel that we know enough to be able to make any of that kind of prediction plausible? 
HAYEK: I'm sure not.  I don't think all this fine-tuning-- Well, you see, that really comes back to my basic approach to economics: economic mechanism is a process of adaptation to widely dispersed knowledge, which nobody can possess as a whole.  And this process of adaptation to knowledge, which people currently acquire in the course of events, must produce results which are unpredictable.  
I mean, the whole economic process is a process of adaption to unforeseen changes which, in a sense, is self-evident, because we could never have planned how we would arrange things once and for all and could just go on with our original plans. 
ROSTEN: You mean, if those who knew, really knew, and acted upon what they knew.  Are you saying that the social sciences, particularly economics, as an example, are much more complicated than the physical sciences? 
HAYEK: Well, not the sciences; it's the subject that's much more complicated, simply in the sense that any [economic] theory would have a larger number of data to insert than any physical theory.  
As I said a moment ago, all the formulae of mechanics have only two or three variables in them.  Of course, in real life you can use this to explain an extremely complex phenomenon, but the underlying theory is of a very simple character.  With us, you can't have a theory of perfect competition without at least having a few hundred participants.  
And you would have to be informed about all their knowledge in order to arrive at a specific prediction.  The very definition of our subject is that it's built up of a great many distinct units, and it wouldn't be a subject of that order if the elements weren't so numerous.  You cannot form a theory of competition with only three elements in it. 
ROSTEN: You could certainly have a theory. 
HAYEK: Well, it would be wrong, because it wouldn't be competition with only three acting persons in it. 
ROSTEN: Well, just explain that.  What about four? 
HAYEK: No, I don't think it's the approach.  But you have to have a number where it's impossible for anyone of them to predict the action of the others, and there must be a sufficient number of others for the one to be unable to predict it. 
ROSTEN: You say that's in the order of a hundred, or hundreds, or thousands, and so on.
HAYEK: Yes. 
ROSTEN: It's a startling theory, and I've not heard it put quite this way. 
HAYEK: But, you know, the whole market is due to the fact that people are aiming at satisfying needs of people whom they do not know, and use for their purposes facilities provided by people of whom they also have no information.  It's a coordination of activities where the individual can, of necessity, be only a small part of it--any individual, not only the participating individuals but even any outsider.  
The mistaken conception comes from a very curious use of the term "data."  The economists speak about data, but they never make clear to whom these data are given.  They are so unhappy about it that occasionally they speak even in a pleonasm about "given data," just to reassure themselves that [the data] are really given.  But if you ask them to whom they are given, they have no answer. 
ROSTEN: You mean "revealed"? 
HAYEK: They are fictitiously assumed to be given to the explaining theorists.  If the data were such and such, then this would follow.  But of course the data are not really given either to them or to anyone other single person.  They are the widely dispersed knowledge of hundreds of thousands of people, which can in no way be unified; so the data are never data. 
ROSTEN: It's almost as if you were talking about nuclear physics and the difficulty, or impossibility, of talking about an atom and how it's going to behave. 
HAYEK: Yes.  It's a different argument.  You see, in nuclear physics, up to a point, you can substitute information about individual elements by probability calculations.  There the numbers are big enough for the law of large numbers to operate.  In economics they are not.  They are too big to know them individually and not big enough to be described by probability calculations. 
ROSTEN: Do you think that this is a permanent and unbreakable prison? 
HAYEK: Yes.  I don't think we can ever get beyond that. 
ROSTEN: --because earlier you had said something about the processes of proof and the fact that you couldn't prove anything.  And I was reminded of the work, of which I know very little and which I know you know a great deal about, of Caddel, at Princeton [University]. 
HAYEK: Yes. 
ROSTEN: --on the terrible, to me tragic, built-in trap that he has discovered in the uses of logic, and in what you earlier had talked about as the uses of reason. 
HAYEK: You see, I became aware of all this not by my work in economics but--I don't know whether you know that I once wrote a book on psychology. 
ROSTEN: No, I did not know. 
HAYEK: On physiological psychology--a book called The Sensory Order--in which I make an attempt to provide at least a schema for explaining how physiological processes can generate this enormous variety of qualities which our senses represent.  [The schema is] called "the sensory order."  
[The book] ends up with the proof that while we can give an explanation of the principle on which it operates, we cannot possibly give an explanation of detail, because our brain is, as it were, an apparatus of classification.  And every apparatus of classification must be more complex than what it classifies; so it can never classify itself.  It's impossible for a human brain to explain itself in detail. 
ROSTEN: And this was called The Sensory Order?
HAYEK:  The Sensory Order.  It came out in '52, but it was an idea which I conceived as a student when I divided my time more or less--I was officially studying law--but actually dividing it between economics and psychology. 
ROSTEN: You're talking here about the philosophy which has not engaged the biochemists and the bioengineers.  What was their response to this?
HAYEK: Respectful but incomprehending. 
ROSTEN: You mean, they really did not believe it, or didn't understand it, or both? 
HAYEK: Well, psychologists, at that time particularly, had a great prejudice against what they regarded as a philosophical argument.  And I begin the book by saying, "I have no new facts to present; all I am trying is to put order in the facts which you already know."  They were no longer interested.  
I mean, one or two of the great people of the time, like [Edwin] Boring, were very respectful in the way they treated the book, but it's had practically no influence till recently.  Now they're beginning to discover it, incidentally, but after thirty years. 
ROSTEN: I had no idea that you had cut into the field from this direction at all. 
HAYEK: It taught me a great deal on the methodology of science, apart from the special subject.  What I later wrote on the subject, "The theory of complex phenomena," is equally the product of my work in economics and my work in psychology. 
ROSTEN: And you had not then been working in statistics. 
HAYEK: No, although I've nearly all my life had the title of Professor of Economics and Statistics, I've never really done any statistical work.  I did do practical statistics as the chief of that Austrian Institute of Trade Cycle Research. 
ROSTEN: Did you know [Albert] Einstein at all? 
HAYEK: I've just seen him once.  No, I didn't know him. 
ROSTEN: The work that you started on business cycles, I assume, was not unlike the work later done by [Simon] Kuznets and his group at the institute. 
HAYEK: Well, again, you see, it was an abstract schema without much empirical work.  I had some very elementary data which were commonly accepted [to demonstrate] that in every boom there was an excessive development of production of capital goods, much of which afterwards turned out to be mistaken.  
And I didn't need many more facts for my purpose to develop a theory which fits this, and which exclusively shows us, [using] other accepted data, that a credit expansion temporarily allows investment to exceed current savings, and that it would lead to the over-development of capital industries.  Once you are no longer able to finance a further increase of investment by credit expansion, the thing must break down.  
It becomes more complicated in conditions when the credit expansion is no longer done for investment by private industry but very largely by government.  
Then you have to modify the argument, and our present booms and depressions are no longer explicable by my simple scheme.  But the typical nineteenth- and early-twentieth-century [phenomena], I think, are still adequately explained by my theory--but not adequately to the statisticians, because, again, all I can explain is that a certain pattern will appear.  
I cannot specify how the pattern will look in particular, because that would require much more information than anyone has.  So, again, I limit the possible achievement of economics to the explanation of a type-- One of my friends has explained it as a purely algebraic theory. 
ROSTEN: An algebraic theory? 
HAYEK: Yes, you get an algebraic formula without the constants being put in.  Just as you have a formula for, say, a hyperbola; if you haven't got the constants set in, you don't know what the shape of the hyperbola is--all you know is it's a hyperbola.  So I can say it will be a certain type of pattern, but what specific quantitative dimensions it will have, I cannot predict, because for that I would have to have more information than anybody actually has. 
ROSTEN: And sooner or later you'd reach the point where you couldn't do it no matter how much information you had, in your theory.  Do you blame the layman or the workingman or the amateur for wondering why, in a society which has extolled the increased production of goods and services and the growth of the national product, it is now dangerous to have too-rapid growth?  
And, we must now cut back to an annual growth of 3 1/2 percent or 4 percent; we're going too fast and producing too much? 
HAYEK: I am not at all surprised that the layman is greatly puzzled by this, but the actual explanation is very simple.  You see, we have suspended the self-steering mechanism of the market by feeding in false information and by producing money for that purpose.  So it's quite easy to show how we have destroyed it. 
ROSTEN: The money's more dangerous than the information, or is it the other way around?  You say we feed false information? 
HAYEK: In the form of money.  You know that by adding money, injecting money, at some point you distort the price system artificially, and it leads you to do things, which if the price system were really inherently determined, it wouldn't happen.  It leads ultimately to-- Another thing which you probably haven't heard about is that I am convinced we shall never have good money again so long as we leave it in the hands of government.  
Government has always destroyed the monetary systems.  It was tolerable so long as government was under the discipline of the gold standard, which prevented it from doing too much harm; but now the gold standard has irrevocably been destroyed, because, in part, I admit, it depended on certain superstitions which you cannot restore.  
I don't think there's any chance of getting good money again unless we take the monopoly of issuing money from government and hand it over to competitive private industry. 
ROSTEN: Well, we did have that in the United States. 
HAYEK: Not really.  You see, they were all issuing dollars.  The essential point is that they must issue different moneys under different names so that people can choose between them. 
ROSTEN: Different names?  Oh, we had different banks printing different money; so that you built up a body of trust in one bank's paper as against another.  It was one of the problems of the federal government, actually. 
HAYEK: Well, to a very limited extent, because, on the whole, the mass of the people took one dollar bill as equivalent to another dollar bill.  They must have a current currency market in which they tell you which currency is stable in terms of which others, and which fluctuate.  Then they will leave any money which is unstable and float to the one which is stable. 
ROSTEN: Yes.  Do you think there's any chance of that ever being adopted?  Or will we be driven to adopt it? 
HAYEK: Ever?  Yes.  Not in my lifetime, and probably noting the next fifty years.  But the kinds of money which we are having is going to get so much worse in the course of time--we have so many experiences of alternating inflation, and price controls being clapped on in order to prevent inflation--that people will ultimately despair of it, and if anyone starts my system, I think it will spread very rapidly.  But I won't live to see it. 
ROSTEN: But in terms of the next decade or so, you're predicting a chaotic, almost catastrophic, alteration in people's assumptions about the value of money and the value of their governments. 
HAYEK: Well, I'm afraid the worst thing which will happen is that in the mistaken way of combating inflation, we will be driven into a completely controlled economy.  Since people believe inflation consists in the rise of prices and not an increase in the quantity of money, they will be fighting the rise of prices and continue to inflate at the same time. 
ROSTEN: You mean, it would be their way of keeping prices rising. 
HAYEK: And, you know, if there's anything worse than an open inflation, it's a repressed inflation, when there's more money than you can buy for it and all the prices are artificially fixed.  Now, how that will ultimately end I don't know, because, as I always say, you Americans have one advantage: you are willing to change your opinions very rapidly on some subject, and if you get really disgusted with the money you have, you might well try something completely different.  
But in the present state of opinion, I don't see any hope, only alternating periods of inflation repressed by price controls; then the price controls being taken off and the inflation, which already has been going on, exploding again; then people getting so alarmed about the exploding inflation that we clap on new price controls; and that may go on for several cycles like this. 
ROSTEN: Have price controls ever worked except in one case: wartime?  Have they ever been successfully administered?  I think in wartime they were. 
HAYEK: I doubt even whether they have been successful in wartime.  They have disguised from the people some of the unpleasant effects and perhaps have been politically effective by preventing discontent.  But I don't think they've made the economic system more efficient, and certainly for the pursuit of war, a functioning price system would have been more effective than price controls. 
ROSTEN: Even in wartime?
HAYEK: Even in wartime.
ROSTEN: But, again, the business of the sense of inequity comes in, and the political consequences that have to be dealt with by the politician, by the political leader, by the legislator.  This is a terrible problem about human behavior. 
HAYEK: It's a terrible problem.  You can preserve the existing economic system only by making concessions to the people, which will ultimately destroy the same system. 
ROSTEN: Well, the numbers, too.  There were a great many-- Even [George Bernard] Shaw, who was very silly about many things, but he got off a very acute line about democracy when he said, "When you rob Peter to pay Paul, remember how few Peters there are and how many Pauls."  
And he went on from that to hint at the growing unwieldiness and difficulty of mass suffrage in a society where there are a limited number of goods to be parceled out. 
HAYEK: You see, it's all in the destruction of the meanings of words.  Everybody's convinced it has a meaning.  And when you begin to investigate what it means, you find it means precisely nothing. 
ROSTEN: No, but the people who think they know what it means would surely give you a meaning. 
HAYEK: They all believe it will benefit the particular causes in which they are concerned. 
ROSTEN: Or that things would be more "fair"--the whole concept of what is "fair" or what is "just." 
HAYEK: Yes, but it's not facts which are fair, it's human action which is fair or just.  To apply the concept of justice, which is an attribute of human action, to a state of affairs, which has not been deliberately brought about by anybody, is just nonsense. 
ROSTEN: Yes, but can people accept that?  They don't seem to be willing to accept that.  Under the training of voting, mass education, and so on, we are raised on the assumption that problems can be solved, that we can solve them, and we can solve them fairly. 
HAYEK: That brings us back to things we were discussing much earlier: the revolt against this is an affair of the last 150 years.  Even in the nineteenth century, people accepted it all as a matter of course.  
An  economic crisis, a loss of a job, a loss of a person, was as much an act of God as a flood or something else.  It's certain developments of thinking, which happened since, which made people so completely dissatisfied with it.  On the one hand, that they are no longer willing to accept certain ethical or moral traditions;
on the other hand, that they have been explicitly told, "Why should we obey any rules of conduct, the usefulness or reasonableness of which cannot be demonstrated to us?"  Whether man can be made to behave decently, I would even say, so long as he insists that the rules of decency must be explained to him, I am very doubtful.  It may not be possible. 
ROSTEN: Well, in a sense, you're also talking about what has happened in the 1960s, when precisely those kinds of arguments were involved.  The thing that seemed to me to be most conspicuous was that they weren't afraid of anything.  That is, the young people on the campuses and elsewhere were not afraid.  
They were not afraid of the police, they were not afraid of their parents, they weren't afraid of their teachers, and this was something rather new.  At least to me it was an entirely new phenomenon.  We had never stopped to think of whether we were afraid or not, but there was an order of respect and an order of obedience, even in the rather free society of the Westside of Chicago. 
HAYEK: Well, of course, my explanation of this is that it's the effect of the teaching of the generation of teachers who taught in the forties, which we saw happen in their twenties.  They essentially told the young people: "Well, all the traditional morals are bunk." 
ROSTEN: In the twenties?  
HAYEK: No, in the forties.  The height of the influence of the modern psychoanalysis of "uneducation" was in the forties and fifties.  And it was in the sixties that we got the products of that education. 
ROSTEN: Yes.  It was more, I think, the vulgarization of psychoanalysis--I want to put in a word of defense there--and the silliness of the people who were the practitioners and the counselors.  I doubt very much that Freud would ever have approved of this, because certainly his work is not lacking in severe moral strictures. 
HAYEK: Freud himself, probably not.  Certainly not [Carl] Jung, but nearly all the next generation of well known psychoanalysts were working in that direction.  And if you take people like Erich Fromm and such people, or that man who became the first secretary of that international health service--that Canadian psychoanalyst--
ROSTEN: Oh, yes, yes.  His name will come [Brock Chisholm--ed.].  The World Health Organization.
HAYEK: Yes.
ROSTEN: You were talking about the forties, and I was reminded of, I think it's [Ludwig] von Mises, who had this extraordinary description of Germany before the First World War, with bands of young people with the equivalent of guitars and mandolins roaming the countryside, and so on. 
HAYEK: Oh, yes. 
ROSTEN: Perfectly remarkable passage. 
HAYEK: The Wandervögel
ROSTEN: The Wandervögel.  And all that they left, he said, was not a single work of art, not a single poem, nothing but wrecked lives and dope!  Were you familiar with that at all? 
HAYEK: Oh, I saw it happen; it was still quite active immediately after the war.  I think it reached the highest point in the early twenties, immediately after the war.  In fact, I saw it happen when my youngest brother was full time drawn into that circle; but they were still not barbarians yet.  It was rather a return to nature.  
Their main enjoyment was going out for walks into nature and living a primitive life.  But it was not yet an outright revolt against civilization, as it later became. 
ROSTEN: Let me get back, as our time draws to a close.  If we can't get from the economists any reasonably precise guidelines--I say "precise" simply in the earlier sense we were talking about: controls and so on--to whom do the leaders of the society turn for judgment?  
You've presented the politician, and I'm using "the politician" not in a negative sense, because I think it's an honorable profession and one which requires great skill--the mediators, if you want; the ones who have to make the recommendations to the Congress.  If they can't get it from the economists, on economic problems--and the core of the problems we've been talking about are surely economic--where do they get their advice? 
HAYEK: You can tell the people that our present constitutional order forces politicians to do things which are very stupid and which they know are very stupid.  I am not personally trying to blame the politicians; I rather blame the institutions which we have created and which force the politicians to behave not only irrationally but I would say almost dishonestly.  But they have no choice.  
So long as they have to buy support from any number of small groups by giving them special privileges, nothing but the present system can emerge.  My present aim is really to prevent the recognition of this turning into a complete disgust with democracy in any form, which is a great danger, in my opinion.  
I want to make clear to the people that it's what I call unlimited democracy which is the danger, where coercion is not limited to the application of uniform rules, but you can take any specific coercive measure if it seems to serve a good purpose.  And anything or anybody which will help the politician be elected is by definition a good purpose.  
I think people can be made to recognize this and to restore general limitations on the governmental powers; but that will be a very slow process, and I rather fear that before we can achieve something like this, we will get something like what [J. L.] Talmon has called "totalitarian democracy"--an elective dictatorship with practically unlimited powers.  
Then it will depend, from country to country, whether they are lucky or unlucky in the kind of person who gets in power.  After all, there have been good dictators in the past; it's very unlikely that it will ever arise.  But there may be one or two experiments where a dictator restores freedom, individual freedom. 
ROSTEN: I can hardly think of a program that will be harder to sell to the American people.  I'm using "sell" in the sense of persuade.  How can a dictatorship be good? 
HAYEK: Oh, it will never be called a dictatorship; it may be a one-party system. 
ROSTEN: It may be a kindly system.
HAYEK: A kindly system and a one-party system.  A dictator says, "I have 90 percent support among the people." 
ROSTEN: That's already been said by several recent occupants of the White House, and it raises a terribly interesting and difficult question.  
At one point during the worst days of the Vietnam War, when President [Lyndon] Johnson suddenly realized that he had been misled, that he had been given a totally false picture and that he really faced a different, terrible kind of problem, there was a Cabinet meeting, and one member of the Cabinet said, "If we only knew what the American people want us to do!"  
Johnson looked up and said, "And let us suppose that we did know what the American people wanted us to do.  Would that necessarily be the right thing for us to do?"  It's extraordinary insight into the problem of a statesman who is elected, who feels that responsibility, and yet has a degree of power that, as you have pointed out, today exceeds anything that we have ever known in the United States.  
How do you dismantle the bureaucracy?  Remember Lenin, who certainly didn't hesitate to use power and chop off heads and send people into exile and terrible things without the slightest mercy, and without anything to stop him, complained after three years, he said: "We've been carrying on a fight against bureaucracy and there are 24,000 more bureaucrats in Moscow now than when I began!"  
And he could not understand why he couldn't get rid of the bureaucracy.  Do you have any ideas on that? 
HAYEK: I think, again, it comes ultimately to the question of restraining the power of the so-called legislature, which is now omnipotent.  There is a long intellectual tradition which has led to this whole idea of positivism--that the only possible limitation of power is the legislature. 
ROSTEN: When you say positivism, are you talking about the philosophical-- 
HAYEK: Legal positivism. 
ROSTEN: The legal positivism.  Would you explain that for a minute? 
HAYEK: Well, that all law derives from the will of an ultimate legislature, which is omnipotent; while of course law, in the sense of rules of private conduct, is a process supported by evolution and the sense of justice for the people, which would put very definite limits [on it].  It's by no means inevitable that you give some supreme authority unlimited powers. 
Positivism insists on the necessity of some supreme authority.  Now, the authority can consist in the agreement of the people to form a union for certain purposes and not for others, in which case, of course, the power is automatically limited, and that power might well limit all coercive activity to the enforcement of certain uniform rules, which would exclude the granting of privileges to some and not to others. 
ROSTEN: Well, in other words, if you could rewrite the drama or the story of the United States, and make certain changes in the Constitution, we could avoid many of the problems we have now. 
HAYEK: Yes, I am now-- 
ROSTEN: Of course, we didn't know.  But-- 
HAYEK: You said before what great men, really, the writers of the American Constitution were.  They were probably the wisest political scientists who ever lived.  But I will give you just one illustration of how their intention has been completely misunderstood.  Do you remember--I will test you--the contents of the Ninth Amendment to the Constitution? 
ROSTEN: No, don't test me at this hour.  It's bad enough in the morning.  Go ahead. 
HAYEK: Well, I've tried it with American lawyers, even constitutional lawyers, and they first don't remember the text, and then don't know what it means.  "Nothing in this Constitution is to restrict the people of the rights retained by the people."  It has never been used, though I believe there is a single decision in which it is referred to.  
The intention was, of course, that the rights of government should be enumerated by the Constitution. 
ROSTEN: And that comes back to my earlier statement that it never occurred to them that there would be a problem with federal government over the states. 
HAYEK: Oh, no; it's partly the same thing, yes. 
ROSTEN: But it would be interesting to speculate how changes of this order, made in this place and in this place, would have prevented us from many of the-- 
HAYEK: I think if instead of a Bill of Rights enumerating particular protected rights, you had had a single clause saying that government must never use coercion, except in the enforcement of uniform rules equally applicable to all, you would not have needed the further Bill of Rights, and it would have kept government within the proper limits.  
It doesn't exclude government rendering services apart from this, but its coercive powers would be limited to the enforcement of uniform rules equally applicable to all. 
ROSTEN: You wouldn't have needed a First Amendment; you wouldn't have needed-- 
HAYEK: Oh, this First Amendment is very limited to a specific field.
ROSTEN: Sure. 
HAYEK: I would begin my amendment with the same words: "Congress must make no law"--but not to restrict in particular things, but quite generally [to restrict the] coercing of people except to obey uniform rules equally applicable to all.  But it includes all the existing protections to society. 
ROSTEN: But suppose the uniform rules applicable to all were bad: illegal, unconstitutional, unjust.  But they are equal to all.  You've got to have some prior code or test, don't you? 
HAYEK: It's hardly conceivable that-- Well, the definition has to be much more complex than I gave you.  It has to be rules applicable to an unknown number of future instances, referring to the relation of persons to other persons so as to exclude internal affairs and freedom of thought and so on.  
But there was, in the nineteenth century, a development of the concept of law which defined what the legal philosophers then called "law in the material sense," as distinguished from law in the purely formal sense.  [Law in the material sense] gives practically all the required characteristics of law in [the formal] sense and reproduces, I am convinced, essentially a conception in which law was being used in the eighteenth century.  
That law is no longer something which has a meaning of its own, and the legislator is confined to giving laws in this sense; but that we derive the word law from legislature, rather than the other way around, is a relatively new development. 
ROSTEN: Well, again, to come back to the religious foundations of a society, you of course remember that Plato wrestled with the idea and said that democracy-- He had to have one royal lie--and of course he lived in a pagan and a polytheistic society--and I've often wondered what he meant by that "one royal lie," because it must have meant something like the divine right of the king.  
Someone has to carry that, or some institution.  The curious thing about the Founding Fathers, the most marvelous thing about them, was they all agreed on Providence.  So it was possible for the religious, for the Episcopalians, for the nonbeliever, to agree on this vague thing called deism, but it was a tremendous cement.  
And as that cement erodes, consequences follow for which there seems to be no substitute.  I am wondering whether, when you talk about the rule of law, you aren't, in a sense, talking in that tradition.  Can you have a functioning society without some higher dedication, fear, faith? 
HAYEK: I believe, yes.  In fact, in my persuasion, the advanced Greek society, the Greek democracy, was essentially irreligious for all practical purposes.  There you had a common political or moral creed, which perhaps the Stoics had developed in the most high form, which was very generally accepted.  I don't think you need-- 
This brings us back to something which we discussed very much earlier.  There is still the strong innate need to know that one serves common, concrete purposes with one's fellows.  Now, this clearly is the thing which in a really great society is unachievable.  
You cannot really know.  Whether people can learn this is still part of the emancipation from the feelings of the small face-to-face group, which we have not yet achieved.  But we must achieve this if we are to maintain a large, great society of free men.  It may be that our first attempt will break down. 
ROSTEN: Has the growth of anthropology, with the emphasis on kind of a cultural relativism and an indifference, as it were, to the "innate superiority" or not of one customs against another, done a great deal to erode one's confidence in whatever moral order-- 
HAYEK: I would say it's rather a reflection of a more general public belief, a general belief.  This idea that the anthropologists now frequently teach that every culture is as good as any other.  Well, good for what?  If you want to live in small tribal groups, some other [culture might] be good; but if you want not only to have a world society but to maintain the present population of the world, you have no choice.  
If that is your ultimate aim--just to assure to the people who live a future existence and continuance--I think you must create and maintain essentially a market society.  If we now destroy the market society, then two-thirds of the present population of the world will be destined to die. 
ROSTEN: As they did before we had one.
HAYEK: Oh, yes.
Dock windowTable of Contents
Early economic work and statistics
Methodology and aggregating data
Unanswered economic questions
Economic prediction and complexity
Psychology and The Sensory Order
Business cycles
Information in business cycles and inflation
Predictions and inflation
Redistribution
Markets and morals
Economists advising politicians
One-party systems
Legal positivism
Rewriting the Constitution
Religion and the market
Anthropology
Final credits
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