Notes On Hayek the Fatal Conceit

http://ir.nmu.org.ua/bitstream/handle/123456789/136402/ccbd1e1658fe2e5314d0e642e754ade4.pdf?sequence=1

If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it.

Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once. To apply the name `society’ to both, or even to either, is hardly of any use, and can be most misleading (see chapter seven).

Competition is a procedure of discovery, a procedure involved in all evolution, that led man unwittingly to respond to novel situations; and through further competition, not through agreement, we gradually increase our efficiency.
To operate beneficially, competition requires that those involved observe rules rather than resort to physical force. Rules alone can unite an extended order.

Shaped by the environment in which individuals grow up, mind in turn conditions the preservation, development, richness, and variety of traditions on which individuals draw. By being transmitted largely through families, mind preserves a multiplicity of concurrent streams into which each newcomer to the community can delve. It may well be asked whether an individual who did not have the opportunity to tap such a cultural tradition could be said even to have a mind

Many of the evolved rules which secured greater cooperation and prosperity for the extended order may have differed utterly from anything that could have been anticipated, and might even seem repugnant to someone or other, earlier or later in the evolution of that order. In the extended order, the circumstances determining what each must do to achieve his own ends include, conspicuously, unknown decisions of many other unknown people about what means to use for their own purposes. Hence, at no moment in the process could individuals have designed, according to their purposes, the functions of the rules that gradually did form the order; and only later, and imperfectly and retrospectively, have we been able to begin to explain these formations in principle (see Hayek, 1967, essays 1 and 2)

The fruitless attempt to render a situation just whose outcome, by its nature, cannot be determined by what anyone does or can know, only damages the functioning of the process itself.

Man’s inventiveness contributed so much to the formation of super-individual structures within which individuals found great opportunities that people came to imagine that they could deliberately design the whole as well as some of its parts, and that the mere existence of such extended structures shows that they can be deliberately designed.

in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralising decisions, and that a division of authority will actually extend the possibility of overall order.

In chemistry, and even more in biology, we must use self- ordering processes in an increasing measure; we can create the conditions under which they will operate, but we cannot determine what will happen to any particular element. Most synthetic chemical compounds are not ‘constructible’ in the sense that we can create them by placing the individual elements composing them in the appropriate places. All we can do is to induce their formation. A similar procedure must be followed to initiate processes that will coordinate individual actions transcending our observation. In order to induce the self-formation of certain abstract structures of inter-personal relations, we need to secure the assistance of some very general conditions, and then allow each individual element to find its own place within the larger order. The most we can do to assist the process is to admit only such elements as obey the required rules. This limitation of our powers necessarily grows with the complexity of the structure that we wish to bring into being

Indeed the whole idea of `central control’ is confused. There is not,
and never could be, a single directing mind at work; there will always
be some council or committee charged with designing a plan of action
for some enterprise. Though individual members may occasionally, to
convince the others, quote particular pieces of information that have
influenced their views, the conclusions of the body will generally not be
based on common knowledge but on agreement among several views
based on different information. Each bit of knowledge contributed by
one person will tend to lead some other to recall yet other facts of whose
relevance he has become aware only by his being told of yet other
circumstances of which he did not know. Such a process thus remains
one of making use of dispersed knowledge (and thus simulates trading,
although in a highly inefficient way – a way usually lacking competition
and diminished in accountability), rather than unifying the knowledge
of a number of persons. The members of the group will be able to
communicate to one another few of their distinct reasons; they will
communicate chiefly conclusions drawn from their respective individual
knowledge of the problem in hand. Moreover, only rarely will
circumstances really be the same for different persons contemplating the
same situation – at least in so far as this concerns some sector of the
extended order and not merely a more or less self-contained group.

That a mere change of hands should lead to a gain in value to all
participants, that it need not mean gain to one at the expense of the
others (or what has come to be called exploitation), was and is
nonetheless intuitively difficult to grasp

trade in raw materials and semi-finished products is a
precondition for increase in the physical quantities of many final
products that could only be manufactured at all thanks to the
availability of (perhaps small quantities of) materials fetched from far
away. The quantity of a particular product that can be produced from
resources found at a particular place may depend on the availability of
a very much smaller quantity of another substance (such as mercury or
phosphor, or perhaps even a catalyst) that can be obtained only at the
other end of the earth. Trade thus creates the very possibility of
physical production

As individuals reciprocally align with one another, an
undesigned system of a higher order of complexity comes into being,
and a continuous flow of goods and services is created that, for a
remarkably high number of the participating individuals, fulfils their
guiding expectations and values.

The moment that
barter is replaced by indirect exchange mediated by money, ready
intelligibility ceases and abstract interpersonal processes begin that far
transcend even the most enlightened individual perception.

Like
morality, law, language, and biological organisms, monetary institu-
tions result from spontaneous order – and are similarly susceptible to
variation and selection. Yet monetary institutions turn out to be the
least satisfactorily developed of all spontaneously grown formations.
Few will, for example, dare to claim that their functioning has improved
during the last seventy years or so, since what had been an essentially
automatic mechanism based on an international metallic standard was
replaced,
under the guidance of experts, by deliberate national
`
monetary policies’. Indeed, humankind’s experiences with money have
given good reason for distrusting it, but not for the reasons commonly
supposed.
Rather, the selective processes are interfered with here more than
anywhere else: selection by evolution is prevented by government monopolies that
make competitive experimentation impossible.

Though an indispensable requirement for the functioning of
an extensive order of cooperation of free people, money has almost from
its first appearance been so shamelessly abused by governments that it
has become the prime source of disturbance of all self-ordering
processes in the extended order of human cooperation. The history of
government management of money has, except for a few short happy
periods, been one of incessant fraud and deception.

In
his account of
The Child’s Conception of the
World
(1929:359), Jean Piaget
writes: `The child begins by seeing purpose everywhere.’ Only
secondarily is the mind concerned with differentiating between purposes
of the things themselves (animism) and purposes of the makers of the
things (artificialism). Animistic connotations cling to many basic words,
and particularly to those describing occurrences producing order. Not
only `fact’ itself but also `to cause’, `coerce’, `distribute’, `prefer’, and
`
organise’,
terms indispensable in the description of impersonal
processes, still evoke in many minds the idea of a personal actor.
The word `order’ itself is a clear instance of an expression which,
before Darwin, would have been taken almost universally to imply a
personal actor.

. Of particular relevance to our
discussion is the unfortunate fact that many words that we apply to
various aspects of the extended order of human cooperation carry
misleading connotations of an earlier kind of community. Indeed, many
words embodied in our language are of such a character that, if one
habitually employs them, one is led to conclusions not implied by any
sober thought about the subject in question, conclusions that also
conflict with scientific evidence.

The unsatisfactory character of our contemporary vocabulary of political
terms results from its descent largely from Plato and Aristotle who, lacking
the conception of evolution, considered the order of human affairs as an
arrangement of a fixed and unchanging number of men fully known to the
governing authority – or, like most religions down to socialism, as the
designed product of some superior mind

Whately suggested ‘catallactics’ as a name for the theoretical science
explaining the market order, and his suggestion has been revived from
ti
me to time, most recently by Ludwig von Mises. The adjective
`
catallactic’ is readily derived from Whately’s coinage, and has already
been used fairly widely. These terms are particularly attractive because
the classical Greek word from which they stem,
katalattein
or
katalassein,
meant not only `to exchange’ but also `to receive into the community’
and `to turn from enemy into friend’, further evidence of the profound
insight of the ancient Greeks in such matters (Liddell and Scott, 1940,
s.v. katallasso).
This led me to suggest that we form the term
catallaxy
to
describe the object of the science we generally call economics, which
then, following
Whately, itself ought to be called catallactics. The
usefulness of such an innovation has been confirmed by the former
term’s already having been adopted by some of my younger colleagues
and I am convinced that its more general adoption might really
contribute to the clarity of our discussion

The proletariat was
enabled by the activity of owners of capital to survive and increase, and
was in a sense actually called into being by them. It is true that owners
of capital made the extended order of human intercourse possible, and
this
might have led to some capitalists proudly accepting that name for
the
result
of their efforts. It
was nevertheless an unfortunate
development in suggesting a clash of interests which does not really
exist.
A somewhat more satisfactory name for the extended economic order
of collaboration is the term `market economy’, imported from the
German. Yet it too suffers from some serious disadvantages. In the first
instance, the so-called market economy is not really an economy in the
strict sense but a complex of large numbers of interacting individual
economies with which it shares some but by no means all defining
characteristics. If we give to the complex structures resulting from the
interaction of individual economies a name that suggests that they are
deliberate constructions, this yields the personification or animism to
which, as we have seen, so many misconceptions of the processes of
human interaction are due, and which we are at pains to escape. It is
necessary to be constantly reminded that the economy the market
produces is not really like products of deliberate human design but is a
structure which, while in some respects resembling an economy, in
other regards, particularly in not serving a unitary hierarchy of ends,
differs fundamentally from a true economy.
A second disadvantage of the term market economy is that in English
no convenient adjective can be derived from it, and such an expression
indicating the appropriateness of particular actions is indeed needed in
practice.
Hence I proposed some time ago (1967/1978b:90) that we
introduce a new technical term, one obtained from a Greek root that
had already been used in a very similar connection. In 1838 Archbishop

To call by the same name such completely different formations as the
companionship of individuals in constant personal contact and the
structure formed by millions who are connected only by signals
resulting from long and infinitely ramified chains of trade is not only
factually misleading but also almost always contains a concealed desire
to
model this extended order on the intimate fellowship for which our
emotions long. Bertrand de Jouvenel has well described this instinctive
nostalgia for the small group – `the milieu in which man is first found,
which retains for him an infinite attraction: but any attempt to graft the
same features on a large society is utopian and leads to tyranny’
(1957:136).
The crucial difference overlooked in this confusion is that the small
group can be led in its activities by agreed aims or the will of its
members, while the extended order that is also a `society’ is formed into
a concordant structure by its members’ observance of similar rules of
conduct in the pursuit of different individual purposes. The result of
such diverse efforts under similar rules will indeed show a few
characteristics resembling those of an individual organism possessing a
brain or mind, or what such an organism deliberately arranges, but it is
misleading to treat such a `society’ animistically, or to personify it by
ascribing to it a will, an intention, or a design. Hence it is disturbing to
find a serious contemporary scholar confessing that to any utilitarian
`
society’
must appear not `as a plurality of persons … [but] as a sort of
single great person’ (Chapman, 1964:15

I
have seen it suggested that `social’ applies to everything that
reduces or removes differences of income. But why call such action
`social’? Perhaps because it is a method of securing majorities, that is,
votes in addition to those one expects to get for other reasons? This does
seem to be so, but it also means of course that every exhortation to us to
be `social’ is an appeal for a further step towards the `social justice’ of
socialism. Thus use of the term `social’ becomes virtually equivalent to
the call for `distributive justice’. This is, however, irreconcilable with a
competitive
market order, and with growth or even maintenance of
population and of wealth. Thus people have come, through such errors,
to call `social’ what is the main obstacle to the very maintenance of
`society’. `Social’ should really be called ‘anti-social’

the
extended order of human cooperation (or the catallaxy)

Thus, if the common interest is
really
our interest, we
must not give in to this very human instinctual trait, but instead allow
the market process to determine the reward. Nobody can ascertain, sav

through the market, the size of an individual’s contribution to the
overall
product,
nor can it otherwise be determined how much
remuneration must be tendered to someone to enable him to choose the
activity which will add most to the flow of goods and services offered at
large.
Of course if the latter should be considered morally good, then
the market turns out to produce a supremely moral result.
Mankind is split into two hostile groups by promises that have no
realisable content. The sources of this conflict cannot be dissipated by
compromise, for every concession to factual error merely creates more
unrealisable expectations.
Yet, an anti-capitalist ethic continues to
develop on the basis of ‘errors by people who condemn the wealth-

generating institutions to which they themselves owe their existence.
Pretending to be lovers of freedom, they condemn several property,
contract,
competition,
advertising,
profit,
and even money itself.
Imagining that their reason can tell them how to arrange human efforts
to serve their innate wishes better, they themselves pose a grave threat
to civilisation.

Different skills, natural or acquired, become distinct scarce
factors, often
manifoldly complementary; this makes it worthwhile to
workers to acquire new skills which will then fetch different market
prices.
Voluntary specialisation is guided by differences in expected
rewards.
Thus labour may yield increasing rather than decreasing
returns.
A denser population can also employ techniques and
technology that would have been useless in more thinly occupied
regions; and if such technologies have already been developed elsewhere
they may well be imported and adopted rapidly (provided the required
capital can be obtained). Even the bare fact of living peacefully in
constant contact with larger numbers makes it possible to utilise
available resources more fully.
When, in such a way, labour ceases to be a homogeneous factor of
production, Malthus’s conclusions cease to apply. Rather, an increase of
population may now, because of further differentiation, make
still further
increases of population possible, and
for indefinite periods
population
increase
may be both self-accelerating and a pre-requisite for any
advance in both material and (because of the individuation made
possible) spiritual civilisation.

The widely prevailing fear that the growth of population that attends
and fosters all this is apt to lead to general impoverishment and disaster
is thus largely due to the misunderstanding of a statistical calculation.
This is not to deny that an increase of population may lead to a
reduction of average incomes. But this possibility is also misinterpreted
– the misinterpretation here being due to conflating the average income
of a number of existing people in different income classes with the
average income of a later, larger number of people. The proletariat are
an
additional
population that, without new opportunities of employment,
would never have grown up. The fall in average income occurs simply
because great population growth generally involves a greater increase of
the poorer, rather than the richer, strata of a population. But it is
incorrect to conclude that anybody needs to have
become
poorer in the
process.
No single member of an existing community need to have
become poorer (though some well-to-do people are likely, in the process,
to be displaced by some of the newcomers and to descend to a lower
level).
Indeed, everyone who was
already
there
might have grown
somewhat richer; and yet average incomes may have decreased if large
numbers of poor people have been
added
to those formerly present. It is
trivially true that a reduction of the average is compatible with all
income groups having increased in numbers, but with higher ones
increasing in numbers less than the lower ones. That is, if the base of
the income pyramid grows more than its height, the average income of
the increased total will be smaller.
But it would be more accurate to conclude from this that the process
of growth benefits the larger number of the poor more than the smaller
number of the rich. Capitalism created the possibility of employment. It
created the conditions wherein people who have not been endowed by
their parents with the tools and land needed to maintain themselves and
their offspring could be so equipped by others, to their mutual benefit.
For the process enabled people to live poorly, and to have children, who
otherwise, without the opportunity for productive work, could hardly
even have grown to maturity and multiplied: it brought into being and
kept millions alive who otherwise would not have lived at all and who, if
they had lived for a time, could not have afforded to procreate.

In this way the poor benefited more from the process. Karl Marx was thus
right to claim that
`capitalism’ created the proletariat: it gave and gives them
life.
Thus the whole idea that the rich wrested away from the poor what,
without such acts of violence would, or at least might, belong to them, is
absurd

In any case, there is no danger whatever that, in any foreseeable
future with which we can be concerned, the population of the world as a
whole will outgrow its raw material resources, and every reason to
assume that inherent forces will stop such a process long before that
could happen

For there are, in the temperate zones of all continents except Europe,
wide regions which can not merely bear an increase in population, but
whose inhabitants can hope to approach the standards of general
wealth, comfort, and civilisation that the `Western’ world has already
reached only by increasing the density of their occupation of their land
and the intensity of exploitation of its resources. In these regions the
population must multiply if its members are to achieve the standards for
which they strive. It is in their own interest to increase their numbers,
and it would be presumptuous, and hardly defensible morally, to advise
them, let alone to coerce them, to hold down their numbers.

With the sole exception of instances where the increase of the
numbers of the poor has led governments to redistribute incomes in
their favour, there is no instance in history wherein an increase of
population reduced the standards of life of those in that population who
had already achieved various levels. As Simon has convincingly argued,
`
There are not now, and there never have been, any empirical data
showing that population growth or size or density have a negative effect
on the standard of living’

So far as we know, the extended order is probably the most complex
structure in the universe – a structure in which biological organisms
that are already highly complex have acquired the capacity to learn, to
assimilate, parts of suprapersonal traditions enabling them to adapt
themselves from moment to moment into an ever-changing structure
possessing an order of a still higher level of complexity. Step by step,
momentary impediments to further population increase are penetrated,
increases in population provide a foundation for further ones, and so on,
leading to a progressive and cumulative process that does not end
before all the fertile or richly endowed parts of the earth are similarly
densely occupied

For the numbers kept alive by differing systems of rules decide which
system will dominate. These systems of rules will not necessarily be
those that the masses (of which the shanty-town dwellers are only a
dramatic example) themselves have already fully adopted, but those
followed by a nucleus around whose periphery increasing numbers
gather to participate in gains from the growing total product. Those
who do at least partially adopt, and benefit from, the practices of the
extended order often do so without being aware of the sacrifices such
changes will also eventually involve. Nor is it only primitive country
folk who have had to learn hard lessons: military conquerors who lorded
over a subject population and even destroyed its elite often later had to
learn, sometimes to their regret, that to enjoy local benefits required
adopting local practices

Life exists only so long as it provides for its own continuance. Whatever
men live
for,
today most live only
because
of the market order. We have
become civilised by the increase of our numbers just as civilisation
made that increase possible: we can be few and savage, or many and
civilised.
If reduced to its population of ten thousand years ago,
mankind could not preserve civilisation. Indeed, even if knowledge
already gained were preserved in libraries, men could make little use of
it
without numbers sufficient to fill the jobs demanded for extensive
specialisation and division of labour. All knowledge available in books
would not save ten thousand people spared somewhere after an atomic
holocaust from having to return to a life of hunters and gatherers,
although it would probably shorten the total amou

The fact that certain structures can form and multiply because other
similar structures that already exist can transmit their properties to
others (subject to occasional variations), and that abstract orders can
thus undergo a process of evolution in the course of which they pass
from one material embodiment into others that will arise only because
the pattern already exists, has given our world a new dimension: time’s
arrow (Blum, 1951). In the course of time new features arise which did
not exist before: self-perpetuating and evolving structures which, though
represented at any one moment only by particular material embodi-
ments, become distinct entities that in various manifestations persist
through time.
The possibility of forming structures by a process of replication gives
those elements that have the capacity for doing so better chances of
multiplying.
Those elements will be preferably selected for multipli-
cation that are capable of forming into more complex structures, and
the increase of their members will lead to the formation of still more
such structures. Such a model, once it has appeared, becomes as
definite a constituent of the order of the world as any material object. In
the structures of interaction, the patterns of activities of groups are
determined by practices transmitted by individuals of one generation to
those of the next; and these orders preserve their general character only
by constant change (adaptation).

A game is indeed a clear instance of a process wherein obedience to
common rules by elements pursuing different and even conflicting
purposes results in overall order. Modern game theory has, moreover,
shown that while some games lead to the gains of one side being evenly
balanced by the gains of the other, other games may produce overall net
gain.
The growth of the extended structure of interaction was made
possible by the individual’s entry into the latter sorts of game, ones
leading to overall increase of productivity.

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