Exploring the Political Economy and Social Philosophy of F. A. Hayek

Peter J. Boettke, Virgil Henry Storr, Jayme Lemke

• Publisher: Rowman & Littlefield International
• Year: 2018
• ISBN:
  9781786605658
• Edition: 1
• Topic: Economics
• Subtopic: Political Economy
• Index: Economics

This volume critically explore and extend Hayek’s Nobel Prize-winning work on knowledge and social interconnectedness from the disciplines of law, economics, philosophy, anthropology, political science, and history. Hayek’s insights about knowledge become even more important once it is recognized that nothing in the social world occurs in isolation. There is no such thing as a distinct economic, political, or social sphere—they are inextricably intertwined. Given the range of both Hayek’s work and the contributing authors’ perspectives, the range of topics covered in this volume is extraordinarily wide, running the gamut from immigration, to white supremacy, to ancient agricultural practices, to the nature of what it means to be free.

Part I

Epistemic Limitations

Chapter 1

The Disciplinary Role of Market Prices

A Hayekian Critique of Chinese Socialist Governance

Adam Frost

In the middle of the twentieth century, the People’s Republic of China suffered the largest famine in human history. The famine was not the result of natural forces, but of human engineering. In 1958 the Chinese Communist Party (CCP), under the direction of Chairman Mao Zedong, launched the “Great Leap Forward,” a mass-political campaign aimed at transforming China’s agrarian economy, practically overnight, through rapid industrialization and socialist collectivization. But, instead of achieving massive gains to productivity as was envisioned, the overzealous policies and brutal systems of extraction pressed the rural Chinese population into hunger, sickness, and starvation. Though the exact death toll remains unclear, scholars have estimated that the Great Famine (1959–1961) claimed as many as 45 million lives.¹ But even more surprising than the sheer quantity of deaths was the fact that this man-made disaster seems to have gone on for well over a year without China’s central government being fully aware of its magnitude or scale.² Tens of millions of Chinese starved while the state, largely ignorant of their suffering, continued to tax farmers and export grain abroad.

More than a half-century later, scholars still struggle to explain how a famine of such massive scale and scope was ever possible. Historian Frank Dikötter (2011) and journalist Yang Jisheng (2012) have each taken great pains to assign the blame squarely with China’s Great Helmsman, Mao Zedong. Both scholars inculpate Mao for his dictatorial style of rule, his misguided utopianism, and the violent state apparatus that he presided over and designed.³ Other China scholars, such as Gail Hershatter (2011), have focused more on the role of ideology in the production of misinformation, arguing that it was the competitive frenzy to achieve increasingly unrealistic production targets combined with the social pressure to blindly pursue utopian goals that ultimately precipitated systemic food shortages. While these scholars have each deepened our understanding of the multivalent factors that contributed to the Great Famine as well as the social and political contexts in which it occurred, they have largely failed to address the more fundamental question of why the Chinese state, in its supposedly expansive capacity, was not fully aware of the existence of widespread famine within its sovereign territory. If Maoist China was, as these scholars suggest, a Foucauldian society in which state power permeated the most basic of human activities, why then did the central government lack information about the dire conditions in rural society?

Economist Amartya Sen (Sen and Drèze 1989) perhaps came closest to tackling this knowledge problem in the development of his entitlement approach. Sen argued that China’s Great Famine, like other major catastrophes, resulted from dire maldistributions of resources made possible by a lack of free press and democratic institutions. If China had been democratic rather than socialist, Sen’s theory goes, then people would have spoken up, information would have flowed, and there never could have been a Great Famine. For, as Sen (2000) boldly claims, “no substantial famine has ever occurred in a democratic country—no matter how poor.”

Yet, even if we accept Sen’s argument as true, the absence of democracy alone seems an insufficient answer. In the example of China’s imperial past, we find that even though the structures of governance put into place by paternalistic rulers were far from democratic, officials were acutely aware of the many famines that occurred within their governed territory. Their Maoist counterparts, it seems, were not. Even though the Chinese empire lacked a free press, democratic institutions, and modern communication technologies, it was not until the mid-twentieth century that China faced this type of knowledge problem. Clearly, something changed.

In this chapter I will argue that the root cause of the inability of the Maoist state to understand the changing conditions of Chinese society can be found in neither the charismatic despotism of Mao Zedong nor the oppressive authoritarianism of Maoist politics. Rather, it arose from the suppression of agrarian markets and the gradual breakdown of competitive systems of information aggregation. Drawing upon Hayek’s notion of competition as a procedure for the discovery of information, I will attempt to show that the Maoist state effectively blinded itself to the food shortages caused by its own misguided actions by eliminating the primary mechanism for knowledge discovery: market prices.

Famines, Knowledge, and Prices

In the premodern world, food shortages were a universal fact of life. In even the most advanced of civilizations, agricultural productivity was relatively low, and the accumulation of surpluses was limited by transportation and spoilage. Any drought, flood, or civil disturbance could easily exhaust grain stores and push agrarian populations to the brink of subsistence. However, these frequently recurring declines in absolute food availability did not directly translate into famine. Generally speaking, if shortages were identified in time, then they could be ameliorated by market or state actors before they led to extreme hunger, sickness, and starvation. Dire famines tended to occur only when there was a concurrent breakdown in the information systems that guided public and private grain circulation. In other words, the central problem of famine management and prevention was a knowledge problem.

As Hayek showed us, human knowledge exists in a diffuse state, dispersed among all actors in society. Knowledge, Hayek (1945) argued, cannot be “given to anyone in its totality” because each constituent member of a social system possesses unique “knowledge of the particular circumstance of time and place.” And because this type of informal knowledge cannot be readily rendered into statistics, it is impossible for a single agent “to survey more than a limited field, to be aware of the urgency of more than a limited number of needs.” For this reason, Hayek cautioned governing agents against exercising judgment on behalf of a great number of people. Decision making should be decentralized, left up to the multitude of individuals who know best their particular needs and circumstances (Hayek [1944] 2008, 44).

From this understanding of the nature of knowledge, Hayek arrived at an even deeper insight about the use of knowledge in society: the most efficient mechanism by which individual agents can receive and communicate information is the price system. In a market economy, prices are an emergent property of the dynamics of preferences and scarcity. As individuals compete over finite resources, they are compelled to operate in social cooperation to achieve their ends. To buy a loaf of bread, have a tractor repaired, or travel on a train, an economic actor must engage in mutual benefit with a multitude of other actors who are working to obtain other goods and services. Prices serve as a mass communications system, disseminating relevant information to all the members of an economic system, thus enabling them to act as a coordinated whole (Hayek 1945). The market process is thus a disciplinary process, because it forces individual market participants to orient themselves toward the interests of others and thus creates the social function of the market economy (Hayek [1968] 2002).

In addition to communicating knowledge horizontally, among the participants in an economic system, prices also enable the aggregation and vertical transmission of preferences. In society, preferences exist within individuals, and they generally go unrevealed until such time as those individuals engage in transactions. Transactions influence prices, and prices thus reflect preferences. Because prices keep account of changing individual preferences and communicate these changes in an informational form, it renders local society legible. Governments and other institutional actors can thus look to prices to better understand what is happening in the economy. And, if monitored closely, prices can provide important feedback on the effects of government action in local society. As we shall see, nowhere was the price system’s capacity for information discovery more important than in the realm of famine prevention and management.

Mencius and Markets

Throughout China’s long imperial past, governing regimes took highly active approaches to managing grain. This was partly because in the Confucian political economy, the legitimacy of rulers was intrinsically tied to the welfare of their agrarian subjects. Emperors held the Mandate of Heaven only so long as they continued to fulfill certain obligations to society, the foremost of which was “nourishing the people.” Hunger and famine, it was thought, were not caused by natural or economic forces, but by improper governance. If an emperor placed too great a tax burden on his people, removed them from labor during the agricultural season, or otherwise allowed them to fall into poverty and hunger, then Heaven would rescind its Mandate, and the people would be justified in overthrowing their imposter-king.

The great Confucian philosopher Mencius (372–289 BCE) once chastised a ruler for failing to adequately provided for the welfare of his people. Mencius said: “When men starve along the roadside, you fail to recognize that it is time for [grain] distribution. When people die, you say, ‘It is not of my doing. It is the fault of the harvest.’ In what way is this different than killing a man with a blade, all the while saying, ‘It is not of my doing! It is the fault of the weapon’? Stop blaming the harvest!”⁴ A generation later another Confucian philosopher, Xunzi (313–238 BCE), made the relationship between governance and famine more explicit, arguing that: “If [a ruler] follows the Way without deviation, then nature cannot cause misfortune. Flood and drought will not cause famine, heat and cold will not cause illness, and evil spirits will not cause misfortune . . . [Famine and suffering] cannot be blamed on Heaven.”⁵ Present in two thousand years of philosophical texts, this simple idea became the ideological cornerstone of the imperial state.

Applying this Confucian principle to practical governance, imperial regimes fixated on solving what they viewed as the perennial threat to the welfare of agriculturalists: short-term deficits in the grain supply. To militate against shortages, China created what would become premodern history’s largest and most networked granary system. During times of plenty, local officials across China taxed surplus grains and stored them in warehouses for disbursement during periods of hardship. Though the specific mechanisms by which they carried out these goals changed significantly over time, the goal remained the same: keeping the people nourished. From a practical standpoint, ensuring the subsistence of agriculturalists helped the state militate against the persistent threat of food riots.⁶ These efforts also had the enormously beneficial (yet largely unintended) consequence of making rural citizens more willing to move away from subsistence farming and toward specialization in handicrafts or the monocultural production of cash crops.

Yet within the Confucian political economy, it was not enough for the government to simply ameliorate food shortages. Rather, a moral leader was one who maximized the welfare of agrarian producers. Confucian thinkers held, rightly or wrongly, that peasants were overly local in their thinking and had limited time horizons. The common man, they believed, lacked the ability to apperceive how his present actions would bear upon his future self, his descendants, and greater society. When building a dam to irrigate their fields, for instance, farmers did not rightly consider how it would affect the water supply of the village a hundred kilometers downstream. Or when taking their crops to market at the close of a harvest, they did not properly calculate how much more they might earn by waiting until winter to sell. It was, therefore, the role of a Confucian state to adopt on behalf of its subjects a wider temporal and spatial perspective, designing institutions that could bring the decisions of individuals in harmony with greater social good.

The key institution developed to maximize the welfare of agriculturalists was a market-stabilizing system originally proposed by Mencius, the so-called “ever-normal granaries.” Ever-normal granaries were part of a national buffer stock scheme that attempted to smooth cyclical fluctuations in grain prices (i.e., keep them “ever-normal”) through directed purchases and sales (Will, Wong, and Lee 1991). In ordinary times, granary administrators actively traded grain on rural markets, buying when prices were at their yearly lows and reselling a portion of their reserves when prices were at their height.⁷ It was hoped that through such acquisitions the government could both elevate minimum grain prices after the spring and autumn harvests, thus protecting farmers from unscrupulous speculators, and militate against sharp price spikes in winter, thus ensuring that people could afford enough to eat year-round. In periods of critical shortage, when it was determined that prices in a given area were beginning to approach socially unacceptable levels, granary administrators further intervened through subsidized disbursements of grain in an attempt to secure the food rights of the poor.

E...

Table of contents

• Cover
• Half-Title
• Series
• Title
• Copyright
• Contents
• Introduction
• PART I: Epistemic Limitations
• PART II: Political and Legal Rights
• Spontaneous Order
• Index
• About the Contributors