« BACK  |  PRINT

RS

MEMBER DIARY

Hayek’s Spontaneous Ordering Forces

The Morality of Free Markets

Friedrich A. Hayek’s training and pursuits in economics led him to reach conclusions about society, government, and markets.

Quoting from Friedrich A. Hayek’s lecture “The Pretense of Knowledge” upon accepting the Nobel Prize in economics, Dec. 11, 1974:

To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the over-confident because their experiments may after all produce some new insights. But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority.

Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based—a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.

If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.

There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, “dizzy with success,” to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society—a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.

What Hayek refers to as “spontaneous ordering forces” is in my experience more directly identifiable as the morality of the free market. Any free market must be moral to exist. Morality here is defined by the promises of the seller to the buyer, and from the buyer to the seller.

When you buy something as simple as a package of candy you presume there is something inside that is safe to eat and you have a expectation of the form, taste, and texture of that food based on prior experience. You exchange your money for the package of candy because you trust what you are receiving in exchange. Likewise, the distributor of the package of candy presumes your form of payment is valid just as the manufacturer of the candy trusted the distributor’s form of payment in delivering cases of candy to the store where you purchased it.

This same trust is characteristic of all free markets where buyer and seller voluntarily exchange and provides an essential “ordering force.” If the candy is tainted the buyer quickly seeks a remedy from the distributor and/or manufacturer for breaking the essential promise of safety and expectation, and the buyer is free to seek another distributor and/or manufacturer the next time they want a package of candy. (If you have ever returned something to the supermarket you were enforcing this market bargain, providing an “ordering force.”)

Now follow this thinking to bigger markets such as the market for labor and the market for health care. How is it possible for society to end up in a better place if the government interjects laws between the free exchange of buyer and seller?

If government imposes minimum wage laws many people may lose their jobs because higher wages incent automation and contribute to higher prices. At what point does the cost of a machine making Big Macs become more cost effective than paying a person to perform that task? Keep in mind that the price of the Big Mac necessarily includes the cost of making it and that the customers of the Big Mac (all of whom have an interest in the price) include the people employed at McDonalds. There is no way anyone (let alone those in government) can know the net societal consequences of minimum wage laws with any certainty yet politicians continue to expand such laws and set higher and higher minimum wages.

Our recent progressive efforts to control health care (Afforable Care Act) and banking (Dodd-Frank) are subject to the same realities. Application of progressive ideology in government planning and control proves less effective than the free market in creating a just outcome exactly because such planning and control remove the moral requirements of voluntary exchange and direct accountability from the process. These essential “ordering forces” are replaced with all involved being compelled to trade (not voluntary) in an authorized manner and all involved then blame each other when something goes wrong (no accountability). In the health care area, what preceded Obamacare is just as bad as Obamacare in not allowing the benefits of the free market to contribute to an improved outcome. In the banking area, the simplicity of compartmentalization of risk under the 52 page Glass-Steagall Act of 1932 protected citizens from excessive bank risk taking until its effective repeal in 1999 but now the progressives demand the 849 page Dodd-Frank Act that does more to grant government leverage over the banking industry (see J.P. Morgan settlement) than it does to protect citizens from excessive bank risk taking, undermining a free market in banking services.

The unparalleled success of America is not the result of, and our success in the future will not benefit from, a bigger and more intrusive government interfering in our right of free exchange. We need to elect those who understand and promote the benefits of free markets to represent us in Washington, D.C.

Regards, Pete Weldon
americanstance.org

Get Alerts