One of the common complaints about allowing people to live their lives largely free of political interference is that many people simply aren’t smart enough to run their own lives. Such critics are often responding to the argument made by many on the other side that the reason that people be allowed such freedom is precisely that we are smart enough to manage our own lives just fine.
Overestimating human rationality is a recipe for some humans to exercise control over other humans that no human is fit to have.Let’s start with a point that is perhaps obvious: if humans aren’t smart enough to run their own lives, why should we believe that there are humans smart enough to run the lives of others? What would ensure that, for example, we elected or appointed the small number of people actually smart enough to run their own lives to political office to direct everyone else’s lives?
And what would ensure that they were smart enough to know what was best not just for themselves but for others? The “people aren’t smart enough” argument can be turned back against its defenders in just this sort of way.
But there are also problems with the “people are smart enough” argument. It is an empirical question of just how smart people generally are and whether they really are good at making decisions. Experimental evidence from psychology and behavioral economics suggests that most people are very far from the perfect rationality of Economic Man.
Even if it’s true that we’re smart enough to run our own lives, doesn’t that suggest that we might be smart enough to run other people’s lives? Historically, the argument for socialism and less comprehensive forms of government intervention was often premised on strong claims about human rationality. If we were smart enough to take control over nature, surely we could do the same with society.
The Fatal Conceit
Such arguments were often framed in terms of wanting the best for society and as sincerely believing that we could improve the lot of the least well off by putting more decision-making power in the hands of the government or the people as a whole.
However, such a false confidence in the powers of reason, what Hayek called “the fatal conceit,” could and did easily slip into power for power’s sake when attempts at rational social planning failed, or turn into the inhumane attempts at social control associated with eugenics in the Progressive Era.
Overestimating human rationality is a recipe for some humans to exercise control over other humans that no human is fit to have.
So if humans aren’t that good at decision-making, including those with political power, what exactly is the case for freedom if it’s not that people are very capable of running their own lives?
We might wish to distinguish two different claims:
“I am very smart and therefore able to manage my own life just fine.”
and
“I don’t know much, but no one knows better than I do how best to run my own life.”
The first is an absolute statement about human rationality. The second is a much more modest claim that relative to others I am more able to make the best decisions for me.
But that second statement still overlooks the key factors that justify allowing even irrational and cognitively biased people free to run their own lives. If humans have the right economic, political, and social institutions, they are able to observe each other’s behavior and determine what sorts of behaviors “work” and what ones don’t, and they can imitate the choices of others that are successful.
Social processes are learning processes, and we all become better at living our lives by imitating the successful innovations of others. Biological and social evolutionary processes both require some process by which innovation takes place, some way to determine whether such innovations are beneficial, and then some process of imitating or duplicating that innovation in others. These processes of innovation and imitation are the source of progress in both the natural and social world.
Biological evolution, of course, has all three. Innovation takes place through genetic mutation. Mutations that enable a gene or an animal or a group to survive are then passed on to the next generation. Survival is the standard of success and passing the mutation on through reproduction is the act of imitation.
The Market as a Learning Process
Individually, we may not know much, but together, with the right institutions, we can learn from each other and, collectively, know a lot.We see the same processes at work in the market. Entrepreneurs come up with a new idea, and that is the innovation piece. The profit and loss signals of the market are an indicator of success or failure in having created value for others. Other producers respond to the profit signals by entering that industry and producing a similar good, and that’s the process of economic imitation and learning.
In both processes, progress is defined in terms of learning, and such learning takes place by being able to identify the successful innovations of others and having a way to imitate them. What constitutes progress is being better able to survive (in biological evolution) or create value (in the market). Hence the beauty of Matt Ridley’s claim that social progress comes from “ideas having sex.” A similar process is at work in the culture, where innovations can be recognized and imitated, which is the original understanding of a “meme.”
Individually, we may not know much, but together, with the right institutions, we can learn from each other and, collectively, know a lot.
The only way we can progress is by leaving people free to innovate.The justification for human freedom is not that we are so smart that we can manage our own lives really well, but rather that we are not all that smart individually and the only way we can get smarter is by learning from each other.
Such learning requires the freedom to innovate and the freedom to imitate, and it must involve some sort of reliable process for indicating success. None of us knows enough to run our own lives flawlessly, nor enough to do so for others. That is why we need freedom, and especially economic freedom, to experiment, succeed or fail, and imitate to improve. Similarly, what John Stuart Mill called “experiments in living” are just as important for social and cultural progress as entrepreneurship is for economic progress.
The case for freedom made by classical liberals such as Hayek is premised not on highly rational individuals capable of making optimal decisions. Instead, it is a humble creed that assumes that we have real limits to our rationality.
And it is that humility that is the foundation for the case for freedom: the only way we can progress is by leaving people free to innovate and imitate by developing institutions that provide the information and incentives necessary to gauge success and motivate imitation.
That is precisely what free markets and the social freedom of an open, liberal society provide. We are not smart enough to design it into being, but we can easily suffer from enough hubris to destroy the emergent order of institutions that make freedom work despite the cognitive biases and limited rationality that characterize the most advanced occupants of planet earth. The case for freedom is what we learn from each other, not what each of us knows.
Steven Horwitz
Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.