Rules, Function, and the Invisible Hand An Interpretation of Hayek's Social Theory

Abstract

Hayek's social theory presupposes that rules are unintended consequences of individual actions. This essay explicates one kind of Hayekian explanation of that claim. After noting the kinds of rules that Hayek believes are subject to such a theory, the essay distinguishes three functional explanations advocated by Hayek. He combines one of these functional explanations with an invisible hand explanation. A schema suitable for constructing invisible hand-functional evolutionary theories is employed to outline this combination.

Embedded markets: A dialogue between F.A. Hayek and Karl Polanyi

“…The argument here is rather familiar in Liberal theory and speaks to the process of 'creative destruction' that experimental attempts operated by individuals free to choose would result not only in more efficient economic results but also in better social structures surrounding economic activity. Social rules then emerge (and survive) not as a result of planning but in an unintended manner through the interaction of a multitude of actors (Heath 1992). Spontaneous order is extended to the social and legal side of a polity.…”

Uncertainty: the Curate's egg in financial economics

“…Since rules are just and, he alleges, ‘accepted’, the inequalities of recompense are ‘exempt from deliberate control’ (Hayek [1976]: 70–71) – and ‘therefore’ fair for all. This non sequitur (Heath : 37 lists others) continues, in claims that lack of ‘deliberate control’ is ‘the only procedure yet discovered’ to ensure that information from price signals can be used by millions for ‘the benefit of all’, yet always for ‘unpredictable results’ and ‘unmerited disappointment’ (Hayek [1976]: 71). Bargaining may not clear the market but failures only require a full marketization of individual lives (Ingham : 97–8; Friedman: lauded in Hayek [1979]: 43–6, Vol III).…”

“…Heath : An approving reconstruction of Hayek's theory of ‘invisible hand‐functional evolution’ where the origins of social and moral rules are unintended consequences of self interested actions, and their persistence is functional for social adaptation to change and efficiency. Health endorses, then, a predictive element of inevitability.…”