Let's look at Friedrich Hayek, Ludwig von Mises, and the Austrian school. Now they have
lots of similarities between Hayek and Mises, but I want to identify what I see as the significant
differences between these two thinkers. And the first place, you can see this difference,
I think, is in their methodology. How do you decide what the role of government should
be? Hayek tends to emphasize the limits of knowledge, that there are limits of reason
and understanding what we should do. He's much more willing to give deference to tradition,
to how the rules that have evolved over a period of time. So for example, he's much
more interested in the whole question of a spontaneous order, how we come to work together
without any central planner that tells how we should behave. He's interested in the
common law, how traditional law has developed over the ages.
So he's cautious about self-evident proofs that, for example, the Founders of the United
States Constitution examined. He thinks that many of the order that we do see in society
were the result of human action but not of human design. So for example, the English
language: no group or institution decided this is what the English language is meant
to be; it's something that has naturally evolved over time. But we recognize what those
rules are and we can live with those sorts of rules.
Ludwig von Mises, another Austrian, had a totally different approach. He adopts what
he calls or what's called the a priori deductive reasoning. He believes that we can identify
certain truths, what he calls axioms, that we can discover these axioms through our experience
and through the use of reason. So in this view, economics is more like math than it
is like physics that Chicago School often talk about. So let me give you some examples.
He has many axioms. Let me give you a couple examples of these axioms that Mises identifies.
Firstly, he says that human action is purposeful. That is, what humans do is they seek to achieve
certain goals. Actions are neither random nor are they predetermined. We can identify
what people's goals are, what it is they're trying to achieve through their actions. A
second axiom is that the individuals are the only actors. The technical term for this is
methodological individualism. In so much political debate, we tend to say, "France does this."
Of course, it's not that all the French people do this. What it is actually is a small
number of ministers at the top of the French government decide to oppose American foreign
policy. So who are the specific individuals who are actually carrying out this action?
Actions are only conducted by individuals; they're not conducted by broad groups. Another
example would be Muslims. We should say that some Muslims carried out terrorist acts but
that we should not say that Muslims carried out terrorist acts. That implies that all
Muslims did. So whenever we try and understand any particular choice, we should try and identify
who are the actual individuals who are making these specific decisions.
And the third axiom is that value is in the eye of the beholder, the so-called subjective
theory of value. That is, things do not have value in themselves but only that to which
people attribute to it. So for example, I think rap is crap, but some people like rap.
Some people think it's a good thing. There's no objective value to rap. So you often hear
the criticism of economists that they know the price of everything and the value of nothing,
but that assumes that we can know what the value is of something. But no, the value for
the same thing is different for different people. So Mises argues that simply using
our reason, we can identify these axioms or these truths. Now, Mises and Hayek tend to
agree about why government should be limited: because government policymakers lack the knowledge,
they can't understand what the goals are of people. Because everybody has a variety
of different goals, we can't predict you want this, you want this, you want that. Goals
are so diverse. And secondly, government can't work out what is the best means for people
to achieve these goals. It can't plan that in advance. If we do X, the results will be
Y.
So they're very skeptical about the government's ability to identify what people's goals
are and to satisfactorily meet those goals. That's why the Soviet Union collapsed. It
wasn't able—it suffered from the knowledge problem of knowing what people wanted, and
it suffered from the knowledge problem of knowing how to achieve those goals. So it's
a consequentialist view. That consequences of government in their action is often bad
or usually bad.
When it comes to the question about what is the role of the state though, Hayek and Mises
again diverge. Hayek says the criteria for deciding what government should do is what
he calls the rule of law, by which he means there are certain general principles that
we should apply to any government action or any piece of legislation. Just like in the
United States, the Supreme Court will often look at the law signed by Congress, passed
by Congress, signed by the president. But the Supreme Court will sometimes say, "No,
that's illegitimate. We strike this down under the U.S. Constitution." Well, Hayek
argues that every society has these general principles that he calls the rule of law that
we should apply to every government action. He has a long list of what these examples
of the rule of law, just mention some of them. These are laws that should apply to everyone;
there shouldn't be particular exceptions. So for example, it's very common for the
U.S. Congress to pass a law which applies to everyone else except themselves.
So a classic example of that was the American's for Disabilities Act. They passed a law saying
that all buildings needed to adjust in a certain way to enable disabled access. But then, during
the debate on the bill, they realized it would cost the U.S. Congress hundreds and hundreds
of millions of dollars to adapt the Capitol Hill to meet those standards. So they excluded
themselves from that bill. That's an example of something where we're not getting equality
before for the law. They're creating exemptions for themselves.
Another example would be earmarks, which is where they're saying that government should
spend the money with this particular company, in this particular way. He argues all those
things should be considered illegitimate because they go against the rule of law. Another example
would be that law should always be prospective. That is, they should be future-oriented; they
shouldn't punish something that happened in the past. So you may have done something
in the past which was legal then, then they pass a law, it's illegal. You should not
be punished for something that occurs in the past. So that's his criteria of any government
action. Does it meet the rule of law? Does it meet these higher principles? And his conclusion
is somewhat similar to Milton Friedman's in terms of what government should do, although
he comes from it, his approach to it is based on a different methodology.
He does believe, for example, that some form of limited welfare state can be justified
by following the rule of law. Whereas Ludwig van Mises says following these axioms, it
leads us to conclude that there should only be a minimal state. That is, the job of government
is solely and exclusively to guarantee the protection of the life, health, liberty, and
private property. There's no role for the welfare state, only a minimal state. So here
we have two Austrians broadly agreeing on many sorts of questions, but they have a different
methodology. And they have a different conclusion about what the role of government should be.