Notes on Hayek's "The Pretense of Knowledge" (1974)
- political economy
Key Takeaways:
- “men’s fatal striving to control society—a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”
- No knowledge > some “knowledge” if it forces you to act with some humility and avoid decisions with big, unintended, difficult-to-reverse, negative consequences
- Gardener > Craftsman, when it comes to social order. Gardeners cultivating an environment for plants, not like a craftsman shaping his handiwork. [You don’t need to understand the details of photosynthesis in order to have a beautiful gardener.
- Key question: When trying to influence an outcome, are you able to observe all the factors that may influence that outcome? If not, you might not like what you find when you try to influence that outcome.
Most recent example where I see all this playing out in current affairs: Nixon-era effort to increase food production towards stamping out hunger led to the subsidization of corn and Big Farming and the creation of high-fructose corn syrup.
What is the scientistic error?
- “mechanical and uncritical application of habits of thought to fields different from those in which they have been formed”
Why don’t methods from the physical sciences work when applied to influencing the social order?
- Short answer: relative complexity
- In the social sciences:
- “the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. ”
- “in the social sciences often that is treated as important which happens to be accessible to measurement.”
- Whereas, in physical sciences:
- “any important factor which determines the observed events will itself be directly observable and measurable”
What makes the physical sciences different from the social sciences?
- Higher penalty for over-confidence (talking about people’s lives)
- Complexity
- “structures whose characteristic properties can be exhibited only by models made up of relatively large numbers of variables. Competition, for instance, is a process which will produce certain results only if it proceeds among a fairly large number of acting persons.”
- In particular, organized complexity
- “character of the structures showing it depends not only on the properties of the individual elements of which they are composed, and the relative frequency with which they occur, but also on the manner in which the individual elements are connected with each other.”
Impact of scientistic error?
- Broadly: Making huge decisions based on a not just imperfect but necessarily distorted and biased view of reality
- [unknowable facts/data that] “cannot be confirmed by quantitative evidence…are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.”
- Counterproductive [inflationary?] policy
- “assertion that there exists a simple positive correlation between total employment and the size of the aggregate demand…belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level.”
What is the chief cause of unemployment, to Hayek?
- “discrepancies between the distribution of demand among the different goods and services and the allocation of labor and other resources among the production of those outputs.”
Impact of “scientistic” policies:
- Efforts to engineer the way to equilibrium (and subsequently full employment) end up backfiring, because you can’t know the equilibrium price in the first place. And by intervening, you end up making it harder for the market to get to equilibrium:
- “the increase of aggregate demand [has] become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable”
To Hayek, why didn’t most economists see it this way?
- Bias to use only directly observable/quantitatively measurable magnitude or phenomena