How to learn sociality : Mandeville and Hayek

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How to learn sociality Mandeville and Hayek
Storep Seminars Cassino 4 March 2016
Marina Bianchi University of Cassino marina.bianc
hi_at_unicas.it
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Mainstream economic theory has encouraged us to
take institutions as given and to think in terms
of preordered outcomes, such as market-clearing
prices. The process of coordinating different
interests remains unexplained in this tradition.
The question of how cooperative norms emerge
among uncooperative individuals has a long
history, however, and a growing recent literature
on institutions stresses the importance of
explaining them as the endogenous and unplanned
result of the separate pursuit of individual
interests. The idea o f institutions as
spontaneous, unintended order may be traced to
Bernard de Mandeville, and the idea of economic
coordination as a complex process of acquiring
knowledge through trial and error belongs to
Friedrich Hayek. More recently analysts have
tried to formalize these insights in a
game-theoretic approach.
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Mandevilles view of unsocial sociableness
Mandeville published The Fable of the Bees, or
Private Vices, Publick Benefits in 1714. It was a
real revolution in political and economic
thought. The main idea is expressed in the form
of a paradox. Private vices enable societies to
live in splendour, while virtues bring them to
poverty. As the final verses of The Fable say
Fraud, Luxury and Pride must live, While we
the Benefits receive.
How could this be?
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Through the fable of the bees that live in
luxury and ease in the fruitful hive, Mandeville
compares two different images of society. One
is the image of a small, pacific and frugal
society, closed to external exchanges, with low
consumption and no money. The other is the
image of a large, commercial and military
society, based on mutual exchange of goods and
services.
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In Mandevilles view only in the limited and
easily controllable society
the social links among its members can be based
on their direct and voluntary agreement and
cooperation. Private moral principles such as
benevolence, altruism, frugality and temperance
may become the conditions for public benefits and
constitute the social amalgam of a compact
community. At the same time, for Mandeville,
this golden age society, small and virtuous, is
closed to development and prosperity, as well as
to sciences and political supremacy.
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In the second kind of society, the large and
commercial one, the social links are not based
on a moral sense of community among its members
but exclusively on their private drives and
self-interested behavior. In this society the
social coordination of the different
individual desires does not depend upon the
control of any one of its members.
Here there is is no direct connection between
private virtues and social benefits
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But how can a self-interested, unsocial
collection of individuals become a society?
What is the process through which harmful
inclinations and desires become the original
drives of social cohesion? It is the Work of
Ages to find out the true Use of Passions, and to
raise a Politician, that can make every Frailty
of the Members add Strength to the whole Body,
and by dextrous Management turn private Vices
into publick Benefits (Sixth Dialogue, 23 19).
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Mandevilles solution to the problem of social
coordination among self-motivated individuals
relies on the discovery of the role of the
institutional complex represented by the market,
extensive division of labor and competition,
guaranteed by a system of laws, in utilizing
for social ends private and uncoordinated
drives. Between social institutions and
individual desires a kind of feedback loop is
established by Mandeville. Institutions, while
shaping and channeling human passions, stimulate
and enlarge them into a cohesive community.
Individual passions, for their part, are the
inner motor that induces and (unwittingly)
promotes those social orderly rules.
The evolution of language
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In this unplanned, spontaneous mechanism of
evolving rules men learn to play the Passion
against itself and to exchange the natural
symptoms of the passions for other Symptoms,
equally evident with the first, but less
offensive, and more beneficial to others (Third
Dialogue, 2 125-26). Thus pride is turned into
honor and fear of shame (125 Remark C,
163-64), and force and violence are turned into
politeness and good manners (Sixth
Dialogue 2291,295). This spontaneous process
of social learning is never irreversible,
Mandeville always warns. He stresses how social
and moral codes, not being founded upon any real
principle of virtue or religion but being the
result of art and education, can easily be turned
into vices again The same Fear of Shame, that
makes Men sometimes appear so highly virtuous,
may at others oblige them to commit the most
heinous Crimes (Third Dialogue, 2124 A
Search, 1343). In this case, the conditions
for stabilizing the cooperative strategy must be
articulated and codified in a system of laws,
contracts, or mutual agreement
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Mandeville views this process of social learning
as the result of two things the presence of
obstacles and human ingenuity. The nature of
obstacles is either natural, such as the original
danger from beasts, or social, such as the
threats which men pose to each other (see the
steps toward society as narrated in Dialogues
2230-31 and 266-67). Human ingenuity, the
ability innovatively to overcome obstacles, is
rooted in and nursed by private passions (vices).
Mandevilles solution implies that rules evolve
and are created because individual drives remain
in a sense unsocial that is, they are not bound
to obey a predesigned plan but are able to
create differentiation and novelty. This is what
gives substance to Mandevilles view of unsocial
sociableness society arises not despite but
because of individual conflicting interests
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This view of the emergence and role of social
institutions is surely new. It is deeply
different from the traditional answers to the
problem of the constitution of societal rules.
The theory of social contract, in which the
wise statesman directly creates the rules of
rational government, leaves unexplained how the
complex process which coordinates separate
individuals can be discovered and reproduced.
On the other hand, the utilitarian solution
in which private interests translate in an
orderly way into social welfare simply assumes
away any possible discrepancy between individual
and social needs and drives.
12
Both these solutions refer to the large society
and its social rules as if they had the features
of the small and controllable group, as if the
rules and goals which belong to one belong to the
other as well. In Contractarianism, the social
authority can combine the dispersed and
differentiated individuals of the large society
as if the rules of coordination were as easily
knowable as in small groups. Utilitarianism, on
its part. attributes to individuals a homogeneity
and uniformity of interests, as if they belonged
to that small society that had shaped and formed
their interests and goals in sameness and
cohesion.
13
Friedrich Hayeks spontaneous order
The correct vs the
corrigible society
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Hayek was the first to utilize Mandevilles idea
that sociality is based on individual drives and
opposes it to the classical equilibrium solution
of economic theory Hayek emphasizes the
spontaneous and unplanned order of social
institutions but gives this more precise form as
a process of social learning and discovery
(Hayek 1968, 253, 260 Hayek 1978, 269). The
process that in Mandeville transforms private
vices and inclinations into socially beneficial
outcomes is, in Hayek, specified as a process of
acquiring and transmitting knowledge through
trial and error.
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DESIGNED VERSUS
SPONTANEOUS ORDER In comparing different rules
of social order Hayek draws a first fundamental
distinction which remains the dominant theme of
all his reflections. The distinction is between
Norms that result from conscious design and
planned action and Norms that are a spontaneous
creation, the gradual result and accumulated
experience of many generations. The first set
of rules belongs to the internal behaviour of
organizations, the second describes the external
interdependencies among organizations The main
source of error in describing how institutions
emerge consists, for Hayek, in collapsing these
two different explanations of social structures
into one. Such collapsing occurs when we
consider all rules of social interaction to be
the result of a planning mind and when we
assimilate all social rules to the rules of
organizations.
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The visible hand
This is the artificer bias kind of explanation
(Ullmann-Margalit 1978) since social structures
show orderly, patterned rules, they are (must be)
planned . This view, which attributes the origin
of all social institutions to invention
or design, is sharply contrasted by Hayek to that
order of society that is due to a process of
experimentation and trials, which requires the
efforts and accumulated hard-earned experience
of many generations (Hayek 1960 60). This
pre-Darwinian evolutionary view is, for Hayek,
the great contribution of that tradition of
thought initiated by Mandeville and David Hume
and continued by the Scottish moral philosophers
of the eighteenth century, such as Adam Smith and
Adam Ferguson in the field of economics, and
Edmund Burke in the field of political thought
(Hayek 1948 89 1973 22).
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But what makes this view of evolutionary,
spontaneous order a better analytical tool than
the view of planned order?
The answer is based on what Hayek describes as
the use of knowledge in society, the way
knowledge is acquired and transmitted through
social interaction. The problem In the
complex order of modern society knowledge exists
only in the dispersed bits of incomplete and
frequently contradictory knowledge which all the
separate individuals possess (Hayek 194577).
The solution must rely on a mechanism that is
able to utilize individual knowledge without any
individual really needing to know the overall
outcome, a system that, though based on the
decentralized contribution of every one of its
members, does not rely, for its existence, on any
of them (Hayek 1946 12).
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• Evolved codes of law, languages, family
  organizations, moral rules as well as rules
• of conduct, are the result of this process, which
  gradually and tentatively selected
• better-fit and socially more beneficial
  institutions (see, for example, Hayek 1978253).
• The market with its system of property rights and
  legally enforceable rules, represents the best
  example of this evolved set of institutions.
• The problem that the market has to solve is in
  fact how the particular knowledge
• embedded in every individual plan can be diffused
  and made general.
• How, for example, can the minimum cost of
  production be discovered?
• how can the desires and attitudes of unknown
  customers become known ? (Hayek 19461001)
• which goods are scarce goods and just how scarce
  are they ? (Hayek 1978181).
• These are all problems that measure the
  efficiency of the communication system of the
  market.

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The price system is the communication system
here. Prices are the informational device which
enables individuals to acquire the information
necessary constantly to change and readjust their
choices. Prices direct their attention to what
is worth finding out about market offers for
various things and services . Prices detect
potential and unused opportunities and transform
them into effective ones. Simply by letting
themselves be guided by these common indicators
(Hayek 1978 60), people have learnt to
substitute abstract rules for the needs of known
fellows and for coercive, imposed ends (ibid.
61). Through this system an entire new set
of opportunities to be exploited has been opened
up. Market prices, therefore, do not simply
constitute a matching-of-expectations device.
Beyond this, they signal where new opportunities
are present, where as yet unexplored needs can be
satisfied, and how completely unknown people can
be reached., In this way they activate a process
of discovery
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Communication Failures Rules of order are
viewed by Hayek mainly as a solution to a problem
of co-ordination, as the gradual discovery of
that system of general rules of communication
that enables people to make the best use of their
specific knowledge, without any recourse to
conscious social control (Hayek 1944 36).
From the legal system to the rules of language,
we constantly observe a progressive displacement
of the concrete by the abstract. (Hayek 1952 and
1967). But not all
institutions are expressions of communication
failures.
21

Cooperation failures There is another set
of rules which we may expect to emerge as a
solution to a different class of problems those
related to failures to co-operate. Cooperation
failures arise in those strategic situations in
which the players, by pursuing their private
interests obtain an equilibrium outcome that is
worse than the outcome that they would have
obtained had they played more co-operatively.
These game situations are, as is widely
understood, situations of a Prisoners Dilemma
(PD) type. Is Hayeks model of the emergence of
co-ordination rules still usable in these other
cases?
22
2
R
L
2 2
R
0 0
Coordination failures Common interests
1
2 2
0 0
L
2
D
C
Rules of traffic Game
2 2
C
3 0
Cooperation failures Discordant interests
1
1 1
D
3 0
Prisoner Dilemma game
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It is clear that the reason for co-operation
failures does not depend uniquely on the
existence of dispersed knowledge. A players
choice of defection is made irrespective of other
players choices. Even perfect intelligibility
of ones opponents willingness to adhere to a
co-operative rule does not change the dominant
strategic choice to defect. The origin of a
failure to co-operate is due to the contrast of
interests that arises from the gains associated
with the possibility of outcompeting the rival.
Unless the rules of the game are changed, and a
new incentive structure is provided so that the
reasons for contrast disappear, the mutual losses
that accompany this symmetric competitive
behaviour are the unique solution in PD
situations.
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The market system and competition are not only
the place only for arbitrage gains but also of
the searchfor new forms of gain. And a
developed system of laws In cooperation games
On the one hand, a complex system of moral
codes, rules of fairness, as well as an
articulated system of punishments for the
violators, has to be continuously discovered and
adjusted. On the other hand, the search for
competitive gains must always find new channels.

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Mandeville, we have seen, has a powerful
expression which applies to this form of
competitive behaviour In the market process
players learn to play the passion against itself.
Vices are not replaced by virtues they remain
vices, only they become more sociable in their
effects. Nothing guarantees that this form of
socialization proceeds steadily and irreversibly
. But the learning procedure that is implied in
the process will provide the flexibility for
adjustments and corrections. The meaning
oforder changes it is
not a state of affairs, but a process
it is not not a correct state, but
a corrigible one.
26
Hayek, F.A. (1937) Economics and Knowledge,
Economica, 4 3354, repr. in Hayek 1948, pp.
3356. (1944) The Road to Serfdom, Chicago
University of Chicago Press. (1945) The Use
of Knowledge in Society, American Economic
Review 4 51930, repr. in Hayek 1948, pp.
7791. (1946) The Meaning of Competition, in
Hayek 1948, pp. 92106. (1948) Individualism
and Economic Order, Chicago University of
Chicago Press. (1952) The Sensory Order,
Chicago University of Chicago Press. (1960)
The Constitution of Liberty, Chicago University
of Chicago Press. (1968) Competition as a
Discovery Procedure, in Hayek 1978, pp.
17990. (1967) Studies in Philosophy, Politics
and Economics, Chicago University of Chicago
Press. (1973) Law, Legislation and Liberty,
Chicago University of Chicago Press, vol. 1.
(1978) New Studies in Philosophy, Politics,
Economics and the History of Ideas, Chicago
University of Chicago Press. (1988) The Fatal
Conceit The Errors of Socialism, London
Routledge.