David Emanuel Andersson

David Interviews David about F.A. Hayek and Jane Jacobs June 7, 2010

Posted by David in Economics, Personal stuff, Politics, Reflections, The Social Sciences.
Tags: Adam Smith, Carl Menger, Geoffrey Hodgson, Hayek, Helmut Schmidt, Jane Jacobs, Margaret Thatcher, Mises, Sandy Ikeda, Theodore Burczak
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David: Why did you choose Hayek and Jacobs as your favorite thinkers?

DAVID: I chose Hayek and Jacobs because they’re the only thinkers who have transformed the way I think about whatever social phenomena I’m interested in. Jacobs’s “The Death and Life of Great American Cities” suddenly made sense of things of which I had been vaguely aware but which I could not articulate. I had been struggling with urban economic theory, but found the abstract models difficult to reconcile with observed reality. To this day, it remains my favorite book.  This was while I was pursuing my PhD in regional planning around 1995.  The first book I read that was allegedly by Hayek was the Fatal Conceit, which I liked but which was not one of my favorite books. That must have been around 1991 or 1992. Then at about the same time that I was reading Death and Life I came across Hayek’s paper entitled “The Use of Knowledge in Society” which made sense of why I couldn’t make sense of standard equilibrium models in economics. The interesting thing is that the Jacobs book and the Hayek paper tell essentially the same story. One could almost say that Hayek’s 1945 paper is a generalized and more abstract summary of the central arguments in Jacobs’s book. To this day, I consider Hayek’s paper the best short article ever written in economics. So I would say that Hayek’s 1945 paper and Jacobs’s 1961 book changed my approach to economics, urban planning, and politics for good.

David: Could you summarize in one sentence the intellectual transformation that Hayek and Jacobs caused in your own thinking?

DAVID: I went from a world where information and knowledge were disregarded into a world where knowedge is subjective, imperfect, and local.

David: Were there any political implications of your theoretical shift?

DAVID: Yes, I would say that it would be very difficult indeed to keep conventional political views while being converted to a Hayekian-Jacobsian understanding of the human world. We have to remember that Hayek was the guy who showed that central planning is associated with massive knowledge losses as compared with markets while Jacobs showed how centralized city planning disregards the valuable local knowledge of residents in specific neighborhoods. So all kinds of top-down policies and plans become suspect and inherently unattractive. So while I have had liberal, democratic, and individualist values since when I was about 19 or 20 years old, my interpretation of the desirability of various specific policies have changed. To give you an example, the middle-of-the-road (Swedish) Liberal Party recently proposed that schools should be the responsibility of the national government rather than municipalities in order to ensure higher academic standards. Before 1995 I might have said that this seems like a worthwhile policy, but today I’m resolutely against it. The education system needs decentralized local experimentation in the same way that shoe stores, restaurants, and health care need decentralized local experimentation. So it’s not just a matter of being in favor of markets, democracy, and science. It’s a matter of being in favor of entrepreneurial markets, bottom-up democracy, and science with competing research programs.

David: Both Hayek and Jacobs have been criticized for lacking a consistent ideology, even though each has influenced a number of ideologues, politicians, and movements (and not necessarily the same people). What are your thoughts about this?

DAVID: Let’s look at Hayek first. He started out as a moderate left-winger until he came under the influence of Ludwig von Mises, who is of course known as a consistent defender of classical liberal institutions and a very small state. The followers of Mises (so-called “Misesian Austrians”) are as far as I know nowadays without exception minarchist or even anarchist libertarians. Hayek was much more moderate in the degree of government activity that he considered possible to combine with a well-functioning market economy, although his specific policy proposals tended to shift over time. In the Consititution of Liberty, for example, he states that he has no problems with government provision of education as long as private producers are allowed to compete with the public sector. He also accepts a safety net such as a minimum income as well as municipal zoning policies. On the other hand, in the 1970s he advocated the denationalization of money. Then in the Fatal Conceit he comes across as a pro-market conservative, but I don’t think we should put too much faith in that book. According to reliable sources, that book was mainly written by his “editor” (Bartley) when Hayek was almost 90 and not in very good health.  What I think is consistent in Hayek is not any specific policy proposal, but rather a sort of open-minded and open-ended liberal consequentialism that makes it possible to reassess policies when new information becomes available. It is also interesting that Hayek has had a much wider sphere of influence than Mises. Thatcher famously said that “this is what we believe in” while referring to the Constitution of Liberty. On the other hand, the moderate German Social Democrat Helmut Schmidt called himself a “Hayekian.” And two left-wing economists, Geoffrey Hodgson and Ted Burczak have recently either proposed (Burczak) or envisioned (Hodgson) post-capitalist economies with worker-controlled firms while acknowledging that Hayek won the Socialist Calculation Debate in the 1930s. What all these people have in common is that the Hayekian influence has made them more pro-market than others with similar values. Margaret Thatcher was more sensible than Richard Nixon; Helmut Schmidt was more economically literate than Michael Foot; and Ted Burczak ‘s socialism makes more sense than Oskar Lange’s.

David: And Jacobs?

DAVID: Jacobs had a great deal of influence on the “New Urbanism” movement, who understood the need for mixed uses but neglected the need for market feedback (unlike Jacobs herself). But then the New Urbanists are architects, and in my experience architects are especially hopeless when it comes to understanding the value of decentralized markets. Maybe that’s why so many of them like working for Arab sheiks and Chinese bureaucrats. She has also had some influence on the green movement, which tend to be strong on democracy and human rights (which I like) but weak on markets (which makes them impossible to vote for in my view).  Fortunately, there are a few Hayekian economists who have discovered Jacobs and are attempting a much needed synthesis. Sandy Ikeda is probably the most obvious example of a Hayek-Jacobs economist, but there are others. So I guess that one can say that Jacobs has influenced an uncommon variety of people with very different ideologies, including greens, libertarians, and confused technocrats. But if you look at her various specific proposals they are actually quite similar to Hayek’s: open-ended and open-minded liberal consequentialism that in her case focused on local entrepreneurship, decentralized democracy and trial-and-error experimentation.

David: Are there any specific policy proposals by Hayek or Jacobs with which you disagree?

DAVID: Sure. I think Hayek was superficial and plain wrong when he gave his stamp of approval to conventional zoning regulations. Jacobs is much better on zoning. On the other hand, Jacobs’s hostility to cars and suburbs is too categorical. Now I happen to share her dislike of cars (I like to walk) and monotonous  suburbs, but I think the fact remains that a large proportion of people actually like their cars and McMansions. I think we have to respect that, even if bustling and diverse downtowns are better for creativity and innovative start-ups. There are many other examples where I disagree with specific policies even though I agree with the big picture.

David: Speaking of creativity, do you think that Hayek and Jacobs were more creative than other 20th century social theorists?

DAVID: Indeed I do. I think Hayek to some extent and Jacobs to an even greater extent illustrate that while competence and creativity are great complements, these two by-and-large desirable characteristics are sometimes unfortunately substitutes. Consider the average guy defending his or her dissertation. For the most part, PhDs are competent in their chosen discipline but not terribly creative. They tend to specialize in a very narrow field and then spend a lifetime publishing a “theme with empirical variations,” say cost-benefit analyses of sugar mills. Now if you look at Hayek, in the first part of his career he undoubtedly emphasized competence over creativity. Hayek studied the Austrian variant of what was then the neoclassical mainstream, first under Wieser and then under Mises. What resulted was the most generally respectable part of his published output (let’s call it Hayek I). He extended a monetary theory of the business cycle and investigated the indirect effects of regulated rents in the housing market and so forth. It was all very competent and perhaps incrementally creative but not terribly exciting. It was only with his emphasis on subjective and dispersed knowledge (Hayek II) during the Socalist Calculation Debate that he created a totally new approach. I think it’s telling that this was also the start of his relative decline in his professional reputation among economists. And then he wrote a path-breaking book on theoretical psychology. And eventually he became Hayek III, with a focus on a mixture of economics, political philosophy, and cultural evolution. I think it’s noteworthy that Hayek himself said that he did not have the ability to construct the grand theoretical edifices for which Mises became famous; he said that he was instead experimenting and exploring at the margin. So Mises was probably more competent, but Hayek was more creative, I think that there can be no doubt about that. But more importantly, Hayek’s undogmatic open-endedness created a foundation for other social scientists to use as a strating point. “Misesian” economics, by contrast, has become a theoretical cul-de-sac where the members are repeating themselves. It is not a progressive research program, and I know of no eclectic Misesian fellow travelers. There are however plenty of Hayekian fellow travelers who are not usually considered Austrian economists — for example Douglass North, Vernon Smith, Oliver Williamson and so forth.

Jacobs is an even more clear-cut case. She never got a college degree, choosing instead to spend two years auditing a very diverse set of courses at Columbia University. So her competence was sketchy. But in her case that was a good thing, given the extremely unhelpful theoretical constructs used in urban planning. Maybe she could have used some more theoretical competence – her discussion of economic theories in some of her books sometimes betrays a lack of depth - but on the other hand it enabled her to offer a totally new approach to urban planning and urban economics which was based on observed reality rather than Platonic utopias.  It is difficult to imagine any of her books had she gotten a PhD in urban planning or economics. They would probably then have been totally forgotten dry academic treatises that applied the theories favored by her advisor.

I like to use an analogy from jazz, which also benefits from creativity among its practitioners. Friedrich Hayek is like Keith  Jarrett – a classically trained pianist who switched to free-form solo improvisations and eclectic modern jazz – first with two quartets and later with his own trio. Nevertheless, he managed to record pieces such as the Goldberg Variations and the Well-tempered Clavier (by Bach) as well as modern pieces by Shostakovich. Jane Jacobs is more like Miles Davis – the enormously creative jazz trumpeter who created three new genres (cool, modal jazz, and fusion) but who would never be able to play a classical concerto with the required competence. Most social science professors, however, are like Wynton Marsalis – a jazz and classical trumpeter with a very high level of competence (“virtuosity”) but with no style to call his own.

David: How come you have not listed any of the thinkers who had a decisive influence on Hayek among your favorite thinkers? I’m thinking of people like Adam Smith, David Hume, Carl Menger, and Ludwig von Mises.

DAVID: Now, Smith, Hume, and Menger are clearly at least as creative as Hayek. Smith created economics as a discipline, Hume a school of philosophy, and Menger created the distinctive Austrian schoold by generalizing his real-world observations while working as a financial journalist for the Wiener Zeitung (Menger was in this similar to Jacobs). Mises filled in the gaps in Menger’s system, although unfortunately he tried (and thought he succeeded) to bring closure to economics as a discipline. I think Mises’s Human Action is the best textbook there is in economics, but please skip the first 100 pages, where he more or less delimits economics as equal to Human Action (Mises was only interested in those economic laws that are universally true – in other words if it’s not true of all rational economic actors it’s not economics, which makes interesting empirical economic problems something else than economics). Now Menger is very open-ended; unfortunately his work is also very incomplete although with a number of insights that were revolutionary at the time. Smith is still interesting and mostly correct, but some parts are downright wrong such as his view of economic value. The good thing about Hayek is that he integrates all the really valuable parts in Smith, Menger, and Mises into his theoretical framework, while not keeping the questionable parts. So Hayek is indispensable in my view, whereas Smith, Menger, and Mises are good and interesting but not truly required reading any longer.

David: Are there any undeservedly neglected parts in Hayek’s and/or Jacobs’s work:

DAVID: In Hayek, I think that most of the really important stuff is being reused and expanded by at least a few economists. However, Hayek’s idea of spontaneous orders has rarely been applied to other fields than markets or perhaps the legal system. Fortunately, the Foundation for the Study of Spontaneous Orders has been sponsoring a new journal and a few conferences where contributors are encouraged to apply spontaneous order theory to new domains (I have been involved in this). Regarding Jacobs I think her excellent little book entitled “Systems of Survival” offers up a new approach to informal institutions with her description of two patterns of moral behavior — Moral Syndrome A and Moral Syndrome B. Moral Syndrome A gives priority to values such as honesty, workmanship, and openness whereas Moral Syndrome B favors honor, duty, loyalty and so on. Jacobs hypothesizes that Moral Syndrome A is more common among businesspeople, scientists, and traders whereas Moral Syndrome B dominates politics, the military, religious hierarchies and so on. I can think of interesting empirical applications for studying cross-cultural and international conflicts on the basis of this dichotomy, but so far I don’t think that anyone has attempted this.

David: To what extent have Hayek and/or Jacobs penetrated your own work.

DAVID: Everything I write on economics is built on a Hayekian foundation. And everything I write about problems with a spatial dimension has a Jacobsian foundation. This does not mean that I always refer to them, but it’s the default position for me. On the other hand, I don’t slavishly follow everything Hayek or Jacobs claim. I stick to their core assumptions, but not necessarily to their more detailed analyses. I do however not accept Hayek’s methodological individualism, even though I share his normative individualism. Hayek almost rejected methodological individualism himself in a footnote to Law, Legislation, and Liberty, but ultimately I think we have a rare instance – in Hayek’s case – of too much competence (read: too much Mises) and not enough creativity.

David: Is there anything outside of their theoretical contributions which you find particularly inspiring?

DAVID: Yes, I find Hayek’s insistence that the state should have no goals of its own very inspiring. What he was saying was that the state is ok if it is like the municipal provision of a power grid or street-cleaning but it has exceeded it’s authority if there are any national goals or ideas about a shared collective purpose. These are ultimately very liberal sentiments in the European sense of the word, but then again I’m a European liberal. The most inspiring part of Jacobs’s message is her belief in cities rather than nations as the basic unit of political organizations, and further that governance within cities should itself be decentralized to neighborhoods. I also find their anti-nationalism inspiring. Hayek became a British citizen and claimed that it’s possible and perhaps common to feel more at home in a culture other than the one into which one is born (he expressed a preference for British over Austrian culture). Jacobs emigrated from the US to Canada because she preferred it there and because of opposition to the Vietnam War. Particularly in the Jacobs case, there is therefore also a strong dose of anti-militarism that I share.

David: Any hopes for the future?

DAVID: Yes, I hope that the combination of ideas from Hayek and Jacobs will become the future mainstream in urban economics and urban planning.

David: Thank you for taking time to answer these questions!

DAVID: My pleasure.