In his 1933 lecture at the London School of Economics titled The Trend of Economic Thinking, Frederich Hayek identified a shift in economic thought toward planning and interventionism. He argued that the German Historical School and the institutionalists were major contributors to this trend. However, what actually laid the foundation for planning and interventionism in the following years was the formalism of neoclassical theory itself. Hayek and his mentor Ludwig von Mises in the 1910s and 1920s were part of the neoclassical tradition, and the idea that “formalism” itself initiated this shift in economic thinking is what Boettke calls, “Where Hayek went wrong.” Hayek was being left behind by his profession. Once among the most referenced economists in England, by the postwar era, some economists questioned whether his work even qualified as economics. The best example of this was when he submitted his Nobel lecture to Economica, and they asked him to revise it. What caused this departure from the market to the plan? The major intellectual forces of the time: scientism and statism, which always seem to co-exist.
The followers of scientism — those who hold a dogmatic belief in the validity and certainty of their theories — tend to believe that the only obstacle to solving social ills is a problem of execution. Since they believe they already have all the answers, the temptation toward statism becomes irresistible.
The Man of Good Will
Paul Samuelson, in his famous 1948 textbook Economics — one of the best-selling books in the history of the discipline — criticized Hayek, writing: “No immutable ‘wave of the future’ washes us down ‘the road to serfdom,’ or to utopia. Where the complex economic conditions of life necessitate social coordination and planning, there can sensible men of good will be expected to invoke the authority and creative activity of government.” In his view, one day well-intentioned men who act solely in the public interest will enter politics, and economists should guide them in solving social ills like unemployment, inflation, recession, and poverty.
This dream is what Robert Nelson calls the “secular religion of scientific management” in his 2001 book Economics as Religion. The secular religion of scientific management is the idea that we can solve the problems of society in the same way we solve problems in science. This mindset assumes that the means and ends of a society are given, and in such a world, the only issue is a problem of “allocation,” not “coordination.” And what better tool to solve the allocation problem than applied mathematics — A field in which the means and ends are assumed to be known? Why tolerate the chaos of capitalism, with all its business cycles and monopolies, when we could achieve a world of “perfection”? At the same time, the so-called “news” from the Soviet Union seemed appealing — so much so that Samuelson wrote, “Russia with its communistic government appears to be on the march.”
The Scientific Management of Society
In this historical context, it seemed regressive for post-World War II America not to embrace the idea of scientific management of society.I. If the entire world was moving in that direction, and the numbers from the Soviet Union appeared to demonstrate success in postwar reconstruction, then the only question was: when should the United States begin the process of saying goodbye to the invisible hand of the market and welcome the man of good will, who will help us solve our societal problems? The dream was to manipulate the market mechanism to achieve desired social outcomes, as envisioned by the “planner,” presumed to act in society’s best interest.
When reading the texts of the Progressive Era, one finds a passion for discovery in the writings of its thinkers. A belief that they were uncovering something entirely new. A confidence that makes one exclaim: “Why has no one thought of this before!” These thinkers shunned the past and embraced science as the path forward. And while the reformers of the New Liberalism in the late 19th century shared a similar enthusiasm — though perhaps to a lesser extent — the Progressive Era was especially marked by its confidence in the power of scientific solutions..
Social Physics and Its Unintended Consequences
What’s interesting about Comte is that his starting point was similar to Hayek’s: the idea that society possesses a spontaneous order, not directed by a rational plan but emerging from countless individual plans. This is evident in his works like Social Statics, or Theory of Spontaneous Order of Human Society. But where Comte diverged from this vision is in his theory of positive philosophy. For Comte, spontaneous order was not the root of progress, nor should it be the foundation for a rational society. Instead, society should be guided by science and scientists. The relationship between man and nature — and between men — should be directed by science.
As the Stanford Encyclopedia of Philosophy describes Comte’s view: “The moral question, ‘What should I do?’ is no longer asked in the first person, and is transformed into an engineering problem: ‘What should be done to make men more ethical?’” The question that social scientists must answer thus becomes an engineering problem. In this literature, as emphasized by Comte, the dogma of liberty is seen as an obstacle to reorganization.
Comte’s vision of reorganization is tied to his theory of the three stages of history. The first is the Theological Stage, in which society and politics are primarily influenced by religion. The second is the Metaphysical and Abstract Stage, which one might argue is closest to Adam Smith’s grand plan of liberty. The third is the Scientific or Positive Stage, in which society is no longer directed by religion or liberty, but by science. This is the trajectory of history in Comte’s view, and any resistance to it is reactionary — an impediment to the development of civilization.As Comte famously put it, “The goal of every science is foresight.” He regarded the Positive Stage as “the highest accomplishment of the human mind.”
This idea, described by Frank Knight as “salvation by science,” is a recurring theme in the history of social thought. As shown in this article, the belief in scientific management of society stretches from Comte to Samuelson. It assumes that scientists have either found or will soon find the solutions to our social ills. The only remaining obstacles are those “reactionary” classical liberals who resist the execution of these plans and seek to limit state power. Even if the theorists of a positive science of human society try to remain apolitical, their assumptions inevitably lead to statism. They assume that we already possess all the knowledge and solutions to our problems, and yet those problems persist — therefore, the market must be inadequate, and we need the visible hand of the state.
The unintended consequence of this thinking is captured well by Hayek: “Once one understands this, it also becomes clear why methodological and political differences so frequently go together: those who believe that it is in the power of science to predict particular individual events, or the position of individuals, naturally also want to use that power to produce the particular results they desire.”
Then, What Is the Role of Economists?
In light of this, one may reasonably ask: What is the role of the social scientist? And more specifically, what is the role of the economist? This question has been answered in different ways by various thinkers, including Samuelson, as discussed earlier. One compelling answer comes from James Buchanan in his book What Should Economists Do? The role of economists is not social engineering but aiding in the process of social understanding. Economists have this role because of the subject matter they study: the inevitable ignorance of mankind and the fundamentally different nature of solutions to social problems — solutions that involve trade-offs, not final answers.
And when society faces trade-offs, it is better for individuals to be autonomous contractors — free to choose and free to preserve their liberty — rather than servants of a state, whether that state is theological or scientific.