There are strong reasons for believing that what to us appear the worst features of the existing totalitarian systems are not accidental by-products but phenomena which totalitarianism is certain sooner or later to produce. Just as the democratic statesman who sets out to plan economic life will soon be confronted with the alternative of either assuming dictatorial powers or abandoning his plans, so the totalitarian dictator would soon have to choose between disregard of ordinary morals and failure.--Hayek (1944 [2001]) The Road to Serfdom, chapter 10, p. 139
In what follows, I'd like to show how, conceptually, the invisible hand and the road to serfdom are related as ideal types. And in order to exhibit this, I'll draw on my analysis of what I have called a 'Smithian Social Explanation' (or SSE; this was developed, in part, by building on Jim Otteson's work). A SSE is an unintended consequence explanation of a certain type, and in Adam Smith's writings it is the paradigmatic case of large scale social explanation of, say, the division of labor, the origin of money, the origin of justice and morality, and even of language. To be sure, the explanatory model was probably not invented by Smith (one can find anticipations of it not just in Mandeville and Hume, but in other earlier social theorists).
A SSE has three main components:
- (1) it is a causal account
- (2) it is a historical explanation of a long-term process. By “historical” I mean to capture two features:
(A) that the stable consequence would not have been in “view” (or predictable) to observers of human nature at an early time and, thus, not capable of being intended.
(B) that to be cause (of a SSE or within a SSE) does not require temporal contiguity between the cause and the effect.
- (3) After certain consequences become visible to observer-participants, they become self-reinforcing, or lock-in (because, say, these participants grow aware that they benefit from certain effects). That is, in the long run and in the aggregate, human propensities and incentives will produce initially unpredictable, albeit definite and determined outcomes.
In addition, it is characteristic of SSE's
- (4) That they can support counterfactual judgments—the process characterized by the Smithian social explanation describes not just what happened, but also how it differs from what would have happened without the process characterized by the Smithian social explanation. (This means that a SSE often presupposes a model or a theory of the 'natural' course of events absent the SSE.)
I am sure this is rather abstract even to regular readers, but you can either re-read this post or chapters 2& 10 of my book on Adam Smith. And, to repeat, this is the main explanatory template in Smith's writings. While I tend to avoid the language of 'spontaneous order,' it is natural to see similarities between SSEs and spontaneous orders as ideal types (see, for example, Jeffrey Young's review of my book).
Now, unlike Emma Rothschild, who famously argued that the 'invisible hand' is an ironic joke in Smith's writings, I show (in chapter 10 of my book) that it picks out a distinctive kind of explanation for Smith one that is, in fact, different from a SSE (or a spontaneous order).
In particular, any given iteration of an invisible hand process is (I) a relatively short-term process in which (II) the agent produces unintended and to him/her unknown consequences. Crucially, in an invisible hand process (III) these consequences are, in principle, knowable to the right kind of observer at the time of the agent's actions because the observer is theoretically properly informed or has access to accumulated common sense. In fact, (IV) Smithian invisible hand processes are cases where the agent could have known better epistemically.
The last feature (IV) is very important to the sole instance when Smith uses 'invisible hand' in Wealth of Nations. For the phrase occurs in the midst of a withering attack -- one might see it as a species of ideology critique (as my colleagues Paul Raekstad and Enzo Rossi have suggested to me) -- on mercantilism and the merchants that profit from the policies promoted by the propaganda that emanates from it in what we would call 'policy circles.' (In fact, Smith may be the first to describe a whole bunch of policy claims as a coherent system, 'Mercantilism,' in order to unmask it!) And in that context, the mercantilists claim falsely that a nation’s wealth consists of its holdings of gold and silver (something Smith challenges). And because the merchant class is committed to mercantile doctrines, they don't know how much their ordinary economic actions do promote national wealth.
So, while SSEs and invisible hand explanations are both unintended consequence explanations they operate (a) on different time scales and (b) they involve different kind of epistemic circumstances. They are also asymmetric in the following sense: an invisible hand explanation can be part of or a component of a SSE, but not vice versa.
Now, what I'd like to do next is to offer an analysis of a road to serfdom thesis at the same level of generality as that I have described SSEs and invisible hand processes. For, the road to serfdom thesis is also an unintended consequence explanation.
At a high level of generality, a road to serfdom thesis holds (p) that an outcome unintended to political decisionmakers is, given some fairly minimal assumptions about human nature and the role of incentives, (q) foreseeable to the right kind of observer and that in addition the (r) outcome leads to a loss of political and economic freedom (s) over the medium term. I use ‘medium’ here because the consequences tend to follow in a time-frame within an ordinary human life, but generally longer than one or two years, which is the relative short-run of the invisible hand process, and shorter than the potentially centuries’ long process covered by Smithian Social Explanations. Crucially for a road to serfdom thesis, (t) in order to ward off some unintended and undesirable consequences, along the way further decisions, forced moves really ("assuming dictatorial powers or abandoning his plans,"), are taken that tend to lock in a worse than intended and de facto bad political unintended outcome(s).
To illustrate a road to serfdom thesis, I have quoted a passage from Hayek's famous book at the top of this post. This passage is singled out in a famous (1995) paper by Pete Boettke to illustrate the point that totalitarianism is a logical consequence of "the institutional incentives of the attempt to centrally plan the economy." (p. 12) It's worth noting that in context, Hayek is here echoing a point one can also find in Machiavelli's Discourses on Livy and Spinoza's Theological Political Treatise, that is, why, in dictatorships/tyranny, to quote the title of Hayek's chapter 10 "the worst get on top."
So, in common with an invisible hand process, in a road to serfdom process, there is a mismatch between an agent's decision-making and what better informed outsiders can foresee. And part of the problem in both instances is that the decision-maker is in the grip of a false social theory and crucially that this is knowable if not known to others. In fact, invisible hand processes and road to serfdom narratives are often trotted out by critics of existing policy!
And not unlike a SSE, in a road to serfdom process, there is a moment of lock-in once initially unforeseen effects become visible to the decision-makers. This is illustrated nicely by another passage quoted by Boettke (p. 13) this time from a (1938) review by Frank Knight of Lippmann's The Good Society in the Journal of Political Economy):
[the planning authority would] exercise their power ruthlessly to keep the machinery of organized production and distribution running.... They would have to do these things whether they wanted to or not; and the probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping-master on a slave plantation. Knight 1938: 869 [emphasis added]*
Of course, in a SSE decision-making tends to be dispersed and we're dealing with outcomes that have wide benefits. Whereas in a road to serfdom process, decision-making tends to be concentrated and benefits tend to accrue to a few. What I hope this exercise has shown is that if one is immersed in what one might call Smithian political economy (with SSEs and invisible hands) then a road to serfdom thesis involves fairly minimal conceptual extra steps given some modest variation of time-scales.
Let me close with two observations. First, as Foucault (correctly) noticed (recall, especially, the fifth lecture of the Birth of Biopolitics on 7 February 1979) [but also the qualifications (recall) in the eight lecture on 7 March 1979], in Hayek and the ordoliberals, the road to serfdom thesis was by the 1940s something experienced (and not just merely a speculative prediction about the future of the welfare state). For they treated the development of Weimar Germany as one in which collective planning, socialization of various industries, and toleration of cartels created the pre-conditions for the inevitable rise of Nazi totalitarianism (see especially chapter 12 of The Road to Serfdom).
Second, it is important to see that at this level of generality the road to serfdom process does not require commitment to free or efficient markets. As I noted, building on Hobhouse's (1911) Liberalism ((recall), which defends a left liberalism, Belloc (recall), who is more akin to a property owning democrat, developed the template of a road to serfdom thesis without such commitments.** In fact, as my mention of Machiavelli and Spinoza above suggests, I would argue the road to serfdom template predates debates over collective planning and socialism altogether. But about that another time more.
*In context, Knight is attributing to Lippmann commitment to a road to serfdom thesis held by Mises. As I have argued elsewhere, this seems to me a misinterpretation of Lippmann's position (although it is true that Lippmann seems to side with Mises in the socialist calculation debate).
** Hayek mentions Belloc approvingly in the Road to Serfdom, but makes no mention of Hobhouse.
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