IT is some time since Michael Fry’s old column appeared in these pages and that has led me to the horrific realisation that I might now seem to be the token right-winger writing for The National, kept on purely to maintain an impression of balance.
It is not just to live down that reputation that I have started delving into the work of Friedrich Hayek. The name will probably be just about enough to have some soi-disant Morningside radicals choking on their flat whites.
Even worse, I found myself in broad agreement with him. It is not that I am a conservative but that after years of consorting with economists I find the economic way of thinking about life to be very congenial. No economist has better embraced the messiness of ordinary life than Hayek.
Non-economists do not understand this. Whenever I have encountered well-meaning people who believe that it should be easy to improve the operation of the economy, time and again they earnestly explain ideas for reducing its wastefulness. Almost always, this seems to involve some form of planning.
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Throughout his career, when Hayek criticised planning, he had in mind the central planning of state socialism. His objection was largely philosophical.
Suppose that we begin from individual markets. When we go to a supermarket, we expect the shelves to be full. Somehow, tomatoes find their way from Morocco or Spain or the Netherlands just in time for us to buy them. Clearly that involves a substantial amount of planning. But it does not require any central authority.
Hayek argued that it was impossible for any planner to acquire the knowledge needed to emulate decentralised market systems. Indeed, he believed that by allowing order to emerge spontaneously within society, the methods which we would adopt for the allocation of resources would be efficient in their management of information.
He argued that the only information which a potential seller needs to know is the amount which potential buyers will be willing to spend. So long as information about the prices achieved by sellers of goods is freely available, then markets will operate efficiently.
One of the ways in which economists describe a market is a system which ensures ownership of resources flows from the people who initially own them to the people who value, and can use them, best.
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Vernon Smith, the founder of experimental economics, talks about how it suddenly occurred to him that it would be possible to study the process by which prices emerge in a laboratory setting by giving the participants opportunity to practise trading among themselves before beginning the experiment properly.
Prices emerged in a sequence of rounds of trading, very much in the way which Hayek’s theory predicts. We may not be able to see the invisible hand but we can discern its operation.
All of this means that, as a profession, economists tend to set quite high thresholds before proposing intervention in markets, or more generally proposing government intervention.
Elinor Ostrom won the Nobel Prize for Economics for her work on the ways in which informal institutions emerge to manage resources which are held in common.
Her work rebutted arguments which had concluded government intervention – perhaps assigning of property rights to some already wealthy landowner – would be necessary for resource management, since people would never be able to recognise the harm which their activities would cause.
In many places, she found that resources such as rivers and lakes, fisheries and grazing land could be managed through voluntary agreements. As we face up to the need for action to avoid a climate disaster, the solution will not lie solely in inter-governmental agreements but in the work undertaken by concerned citizens, organised into local, national and global networks.
None of this is simple. If I had extolled the natural emergence of institutions 200 years ago, I might have ended up pointing to Sutherland and the way in which first Patrick Sellar, and subsequently James Loch, had put sheep on land which had never been profitable for its landlords.
Efficiency has its place in economics, but so does justice. The improvers did not have to compensate the people whom they drove off the Sutherland estates for the simple reason that they were not even tenants. It turned out to be easy to defend the rights of landowners in the civil courts.
Just because the structure of the economy emerges naturally does not mean that it is the only possible way in which it is possible to organise economic activity. And if what emerges is not the only way to organise the economy, it need not be the best way.
That is the point which Hayek’s fan club in the Tory party fails to understand. They are the beneficiaries of a system which they themselves have designed. Rule by old Etonians who have been through the Bullingdon Club is no more natural than the perpetual Labour administrations which existed in so many Scottish local authorities before electoral reform.
We support independence because we believe that Britain has failed, is continuing to fail and cannot rebuild itself. We look on the self-harming Brexit and the folly of the Jubilee, and we are certain that Scotland, unshackled, can be a much better place than it is now. For that, we will need to build the institutions of liberty.
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Callum Baird, Editor of The National
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