How did F.A. Hayek influence the course of economic history? What is the fate of his liberal project in the 21st century? Tune in to the latest episode of the Governance Podcast featuring Professors Mark Pennington (King’s College London) and Peter Boettke (George Mason University).

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The Guest

Peter Boettke is a University Professor of Economics and Philosophy at George Mason University. As a teacher, Boettke is dedicated to cultivating enthusiasm for the economic way of thinking and the importance of economic ideas in future generations of scholars and citizens. He is also now the co-author, along with David Prychitko, of the classic principles of economics texts of Paul Heyne’s The Economic Way of Thinking (12th Edition, Prentice Hall, 2009). His efforts in the classroom have earned him a number of distinctions including the Golden Dozen Award for Excellence in Teaching from the College of Arts and Sciences at New York University and the George Mason University Alumni Association’s 2009 Faculty Member of the Year award.

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0:50: Why did you decide to write this new book about Hayek?

5:10: It’s interesting that you divide Hayek’s work into four phases: Phase 1 is economics as a coordination problem… Phase 2 is the abuse of reason project… Phase 3 is the liberal principles of justice… and Phase 4, where he is addressing these concerns of cultural evolution. The book focuses on the first three phases—why did you decide to break the book down this way?

13:20: I think the common core of those three phases is the idea of Hayek developing epistemic institutionalism… what do you mean by this term?

17:44: Reading Hayek over the years, the idea of ignorance has always struck me as absolutely essential to his project- the idea that agents are not fully rational, that they stumble around in the world, they are purposeful, and they have limited information processing powers. And what we have to do is think about how institutions enable them to cope and to learn in these very non-ideal circumstances.

18:55: Why do you think there are so many misconceptions about what Hayek actually said? You’ll repeatedly hear people say that Hayek’s case for the market assumes that agents are fully rational or fully informed—or if they’re not fully informed, the price system acts as a surrogate for perfect information.

24:08: To push back on the way economics is taught, I definitely agree that if you look at the dominant textbooks, market failure is a dominant theme. I think that what some people in that movement are suggesting… is the idea that the economist’s model, the 101 model, starts from the assumption of there being some kind of a market, and then you talk about there being market failures which the government might correct. But the idea that the market is the primary mechanism of resource allocation is taken as given. What Knight and Johnson say is that you shouldn’t start with any presumption in favour of anything- a market or anything else… Institutions should be more about negotiating that uncertainty. The Econ 101 model doesn’t really recognize that problem. Is that a fair argument?

27:18: Hayek’s argument is that, in a democratic, pluralistic society, we are not going to be able to agree on ends… so the only thing we can agree on is the means by which we interact with each other. [What if we disagree on the means, too?]

31:04: Let me ask you a little about Elinor Ostrom. One of the characterizations you get of Hayek goes something like this: he made very important arguments based on the limits to human knowledge that a broadly competitive market system helps people overcome– and it helps people overcome those limitations more effectively than some kind of top down or centrally planned economy. There are many people now across the political spectrum who would accept at least part of that argument… but they would then say, for example, that we’ve learned from people like Elinor Ostrom that there’s more to economic allocation than markets and states.

42:36: The Hayekian critique of the central planner is that the planner can’t have access to the information which needs to feed into prices… the Ostrom argument which is analogous is that a central rule-maker can’t frame rules to overcome collective action problems given that the circumstances of time and place which affect those collective action problems on the ground are radically dispersed across many different sorts of agents… so you need to have something like a discovery mechanism.

48:15: In the same way that Hayek sees competition between firms as a kind of discovery procedure where firms can copy the successful models and avoid the failing ones– likewise in a polycentric order where we’ve got multiple decision centres which are public entrepreneurs, if you like, who are trying to cope with collective action problems in different ways, the different localities can observe what other localities are doing to try to learn themselves how to adapt to their own particular condition.

52:38: You mentioned that reconstructing the liberal project is a key part of… Hayek’s work. If we’re thinking about today’s world, many people would argue that that project, in so far as it has been implemented (or attempted), is actually collapsing. We’ve got declining faith in free trade, protectionism is on the rise, we have a much greater scepticism of markets of any time in the last 30-40 years. Is there anything in Hayek’s attempt in that 1960-80 period… that can help us address these problems?

1h:02: One mechanism to deal with our human divisions is democracy. The problem there is that people like myself think that cosmopolitanism is wonderful and we embrace creative destruction… but there are others who see creative destruction as the destruction of their identity.