Cass Sunstein, guest-blogging for Lessig this week, has had a number of posts on Hayek (here and here). Most of the posts have actually been on why certain institutions, such as blogs, open-source software, Wikipedia, etc., are not actually Hayekian information-processing mechanisms. That is correct. There is a fundamental difference between a Hayekian information-processing mechanism, such as the price system, and the type of information-processing mechanism that Sunstein is exploring.
Oversimplified, the distinction is between those systems where the purpose is simply to centralize dispersed knowledge in one place versus systems that centralize knowledge for the purpose of decentralizing it again.
[Continue reading "Sunstein on Hayek" under hidden text]
Hayek is interested in coordination among many decentralized actors, not the centralization of information as an end in itself. He is interested in the way in which seemingly centralized systems, such as prices, emerge as an unintended consequence of decentralized individual decision-making. Nobody who is using the price cares if the price system produces the "correct" or "right" price (unlike the Wikipedia)--each individual just wants to know whether if they want to buy or sell something that they will be able to find someone to trade with. The price system helps them to identify one another and to conduct transactions. The marvel, Hayek notes, is that through individuals acting selfishly at all of these decentralized decision nodes, you get this spontaneous generation of a "price" that is a short-hand for all of their decentralized knowledge and decisions. The price, however, was nobody's intentional design--unlike the Wikipedia or open-source software. In fact, this squarely contradicts the central purpose of the Hayekian insight--Hayek's argument is that the value in prices is in the tacit knowledge that it conveys (i.e., the decisions and expectations of many decentralized actors), whereas Sunstein is interested in the explicit knowledge captured in these systems.
The value of prices, contra Sunstein's information-aggregation systems, is that prices permit the "centralization" of information in a short-hand form (market price) for the "purpose" of then decentralizing back to the individual market decision-makers for whom it provides incentives and information about the relative scarcity and preferences of many disaggregated market decision-makers. I put "purpose" in quotes, because of course, spontaneous orders have no purpose of their own, but in some sense market actors are responding to the information and incentives that prices provide in taking their own actions.
Thus, Hayekian information-aggregation mechanisms are not centralized information-collecting mechanisms of the type Sunstein discusses. Rather, they are short-hands for each dispersed individual being able to predict how other people are likely to act, which then allows each of us to plan our own actions and to coordinate better. Even better than the price system in illustrating Hayekian information aggregation may be language. Given terms within a language are wholly conventional--all that matters is that everyone else understands what you trying to communicate. So the correct word, like the correct price, is simply that word/price that enables people to interact with the maximum degree of coordination and minimal degree of friction. It is largely nonsensical to think about what would be the "correct" word for "car," "boat," or "train".
Similarly, customs and traditions, Hayek argues, are like this. They are created in a decentralized manner, and to the extent that people act in accordance with them (or more precisely, respond predictably to the incentive structures that they produce) the existence of these "rules" can help people to predict one anothers' behavior. You don't have to know why a given tradition was "created" in order to follow it (sometimes traditions such as dietary restrictions or other "taboos" may actually have a sound scientific basis, but that is largely beside the point). Here, however, Hayek does take the next step and argues that there is a metalevel competition among different sets of rules and traditions, cultural group selection, which does in fact select for the "best" rules, but again, in the empirical sense that groups that follow those rules will prosper relative to others. (I have written about this aspect of Hayek's thought here.)
Law too, is such a system. Hayek argues, in a forerunner to modern law & norms, that the "best" legal system is one like the traditional common law, which collected information from case-by-case adjudications of specific disputes that arise among people and infer more abstract principles from those, rather than law-making by centralized legislatures. Again, the point is not just that the decentralized information is being centralized; rather, the central point is that by collecting information from decentralized actors, and aggregating them into coherent rules, judges can then send the information back out to individual actors who can then make use of that knowledge to predict how others are likely to behave. The point of the information aggregation is simply that the rules produced are more likely to be "good" rules in that the reflect how individuals are actually acting already and so that rules grounded on that foundation are more likely to further coordination among decentralized actors, as opposed to rules that lack this foundation. Again, the point is that these rules will enable each individual to better predict each other's likely behavior, and to make his or her plans accordingly.
In other words, legal rules that build on spontaneous orders will, in general, promote coordination better than rules that run against the grain of spontaneous order. (Whether there is some normative reason to dislike the rule, or whether a given rule may be only a local rather than global optima and so should be altered, are different questions from the observation that rules that follow rather than contradict individuals' settled expectations will promote coordination better than those that run against them).
In an article I published several years ago, I argued that this is also the purpose of law, properly understood--to distribute information outward to individual decision makers on the periphery about incentives and expectations so as to allow individuals to better coordinate their affairs with one another and to allow the spontaneous order of the market to flourish. In turn, recognizing this tells us about what our legal rules should look like. Unfortunately the article is not available on-line, but the cite is Epstein & Polanyi on Simple Rules, Complex Systems, and Decentralization, 9 Const. Pol. Econ. 143 (1998). The rule of law, properly understood, also furthers this end of promoting coordination by dispersed individuals; it does not have an "end" of its own.
Conclusion: So Sunstein is absolutely correct to note that the information-processing mechanisms in which he is interested are not actually Hayekian systems. Hayek is not interested in the centralization of knowledge for knowledge's sake. Rather, he is interested in the way in which certain institutions (such as prices, language, and traditions) centralize huge amounts of information, boil it down into tacit knowledge, and then redistribute it to decentralized decision-makers in the form of prices, rules, traditions, etc. The "purpose" is not to collect the information at the center in order to make it more "accurate" or "better"; the purpose is to send it back out to decentralized decision-makers in order to allow them to better coordinate their affairs with one another.
If I have time later today, I will explain that I think the model of information-processing that Sunstein has in mind may actually be something more like the Condorcet Jury Theorem than Hayekian information aggregation.
My understanding is that there is a Burkeian/Oakshottian conservative tradition that favors common law lawmaking. (Posner's early, semi-abjured, work on the efficiency of the common law is arguably a Darwinian analogue of this line of thinking.) I am not very familiar with either the historical or current analytical literature on these ideas. However, my sense is that they are based on, among other things:
-- a belief that systematic theorization in law, as elsewhere in human life, is inherently highly fallible and that this fallibility is not confined to grand theories like Marxixm or Jeffersonian democracy but extends to the level of theorization needed to, e.g., codify the law of torts or negotiable instruments.
-- a belief that judges are likely to make better decisions even on issues of law if they focus, to a very considerable extent, on the facts of concrete cases before them and on the practical consequences of different legal choices in the specific factual situation. This belief is based on the traditional Burkeian etc. view that human intelligence is much better at dealing with concrete situations of modest scope trying to predict the benefits and costs of a policy over an extended period of time and over a wide variety of circumstances. Consistent with this, focus on concrete, small scale factual situations arguably allows the judge to take advantage of his or her own tacit knowledge (Karl Llewellyn's "situation sense").
-- a belief that policy change, including legal change, works best if it is gradual, with oppurtunities to obtain feedback concerning practical consequences and stop or adjust the course of change and with reduced risk of wholesale destruction or abandonment of current practices that have unrecognized benefits. The common law system of change by stretching or distinguishing precedents to produce results that make sense in response to particular facts seems, with a new rule sometimes recognized as having emerged from enough stretching and distinguishing in many cases is consistent with this sort of gradualism.
Your discussion of common law as a method of aggregating information from social practices sees like an interesting variant of these traditional conservative reasons for favoring a common law system. I don't know enough, and do not have enough time for research and thinking to see just how it fits in or differs.
More broadly, I don't have a clear sense in my mind as to how the common law model described above empirically or normatively applies to the work of the US Supreme Court. (Indeed, I don't really have a firm sense as to how well the model applies to its home turf of, e.g., state contract or tort law.)
Nevertheless, the common law model clearly has been very influential (for all Anglosphere lawyers and political thinkers, not just conservative). I would have expected more discussion of it in connection with Justice O'Connor and with candidates for future appointment to the Court.
My understanding is that there is a Burkeian/Oakshottian conservative tradition that favors common law lawmaking. (Posner's early, semi-abjured, work on the efficiency of the common law is arguably a Darwinian analogue of this line of thinking.) I am not very familiar with either the historical or current analytical literature on these ideas. However, my sense is that they are based on, among other things:
-- a belief that systematic theorization in law, as elsewhere in human life, is inherently highly fallible and that this fallibility is not confined to grand theories like Marxixm or Jeffersonian democracy but extends to the level of theorization needed to, e.g., codify the law of torts or negotiable instruments.
-- a belief that judges are likely to make better decisions even on issues of law if they focus, to a very considerable extent, on the facts of concrete cases before them and on the practical consequences of different legal choices in the specific factual situation. This belief is based on the traditional Burkeian etc. view that human intelligence is much better at dealing with concrete situations of modest scope trying to predict the benefits and costs of a policy over an extended period of time and over a wide variety of circumstances. Consistent with this, focus on concrete, small scale factual situations arguably allows the judge to take advantage of his or her own tacit knowledge (Karl Llewellyn's "situation sense").
-- a belief that policy change, including legal change, works best if it is gradual, with oppurtunities to obtain feedback concerning practical consequences and stop or adjust the course of change and with reduced risk of wholesale destruction or abandonment of current practices that have unrecognized benefits. The common law system of change by stretching or distinguishing precedents to produce results that make sense in response to particular facts seems, with a new rule sometimes recognized as having emerged from enough stretching and distinguishing in many cases is consistent with this sort of gradualism.
Your discussion of common law as a method of aggregating information from social practices sees like an interesting variant of these traditional conservative reasons for favoring a common law system. I don't know enough, and do not have enough time for research and thinking to see just how it fits in or differs.
More broadly, I don't have a clear sense in my mind as to how the common law model described above empirically or normatively applies to the work of the US Supreme Court. (Indeed, I don't really have a firm sense as to how well the model applies to its home turf of, e.g., state contract or tort law.)
Nevertheless, the common law model clearly has been very influential (for all Anglosphere lawyers and political thinkers, not just conservative). I would have expected more discussion of it in connection with Justice O'Connor and with candidates for future appointment to the Court.
Arbitrage, for the most part, gets around this problem with pricing, because if you go out to drive up prices through overbidding, someone is likely to slip in and sell high, with the expectation that they can buy low later at the correct price, etc. Wikipedia, et al., don't have this built in mechanism.
I think the distinction is that the Supreme Court interpreting the Constitution is not the type of common law court that Hayek (or I) have in mind. The Supreme Court is an intensely centralized body that decides cases differently from the traditional common law, which dealt with very concrete cases of tort, contract, property, and the like. The main difference is that there is no real way in which the Supreme Court collects dispersed knowledge or coherent feedback on its rulings.
I argued in an article a few years ago that even though the Supreme Court sometimes looks like and fancies itself to be common law in nature, in fact there are very big differences between it and a traditional common law court.
In other words, the ultimate purpose of the Wikipedia is centralizing a certain type of knowledge very much for the purpose of decentralizing it again. It does not satisfy your criterion. If you want a system designed to centralize knowledge without redistribution, I think you need to look at something like overseas espionage, where knowledge flow is carefully designed to be strictly centripetal.
Maybe what you're talking about is a distinction between knowledge apparently useful to the individual by itself, like knowing whether red light or green has the longer wavelength, and knowledge that seems a priori meaningless except in a market context, like the price of goods and services.
But while that distinction seems less forced it is still not clean. I suggest even "abstract" knowledge is in fact put to use in a market context, e.g. to get a better job or do your present one better, or maybe to impress girls. And also that the price of things does incorporate non-market-related knowledge about human beings, e.g. that the price of the death of a human being is far higher than the price of the death of a large wild animal says something interesting about our species psychology.
Also, in re other comments about, the Supreme Court enforces "abstract" principle only in the short run. Since the Constitution can be amended arbitrarily if the votes are there (i.e. there is no super-Constitution restricting the ways in which the Constitution can be modified), and because traditions in how the thing is interpreted are sensitive to political trends over time, then over a long enough time scale (e.g. centuries) even Supreme Court jurisprudence can reasonably be argued to simply codify "what works".
My point here is that the distinction between just "what works" and "principle" in human law is mostly just a difference in time scales. That is, "principle" tends to be just "what works" but with a much longer time scale for its change.
Now, note that those current lawyers with actual business experience/knowledge can actually appreciate the current economic consequences of the decisions out of which these M&A "doctrines" are evolving. This latter fact leads me to wonder:
What would Hayekians like Zywicki, who like the (shall we say) "fact-minimizing" understanding of common law adjudication think of the idea that we may someday have an corpus of M&A doctrine that could decide
these cases? Understanding this doctrine would not require, according to this line, understanding the economic history involved... however large developments like Paramount Time Warner seem presently.
Of course the threat of SEC intervention may loom (as Prof. Mark Roe argued in his article Delaware's Competition). But this does not mean the question is unanswerable.