Economic Spontaneity

Douglass North, in Understanding the Process of Economic Change, has much to say on F.A. Hayek: some of it good, some of it not so good. North’s book explores themes similar to those of Hayek’s later work, revolving around the question of how human society changes. While North praises Hayek for foreseeing much of the work in cognitive science — citing The Sensory Order in the text —, and incorporating how humans interpret, store, and access information and knowledge into the study of social change, this book is not strictly Hayekian. In fact, North doesn’t seem too keen on Hayek’s work on spontaneous order, although he rarely and only briefly ever directly comments on it — he does cite Viktor Vanberg’s Cultural Evolution, Collective Learning, and Constitutional Design in the footnotes, noting that Vanberg “has an excellent summary of Hayek’s theory as well as trenchant criticisms of some of his normative conclusions” (2005, 51).

This footnote follows a paragraph where North briefly mentions Hayek’s work on spontaneous order. He writes,

Hayek maintained that culture is “the transmission in time of our accumulated stock of knowledge” (Hayek 1960, 27). He included in knowledge all the human adaptations to the environment which were derived from past experiences — habits, skills, emotional attitudes, as well as institutions. Hayek’s theory of cultural evolution largely involved a spontaneous process since he believed the ability of human beings to comprehend the ever more complex structure of human interaction was limited. But human intentionality is not spontaneous. Humans deliberately try to shape their future and indeed have no alternative but to try to structure human interaction — the alternative is anarchy or chaos.

Admittedly, the excerpted paragraph doesn’t lend much in regards to North’s exact thoughts on the concept of spontaneous order, but when the above is interpreted along with the fact that “spontaneous order” is not a theme in the book, or even repeated (or in the index), and that North seems to believe that if we understand the process of economic change we can better direct it, I think it’s safe to conclude that North isn’t too fond of the idea.

More importantly, though, the excerpt suggests a misunderstanding of “spontaneous order,” as if Hayek didn’t believe that human action is planned (in a broad sense) and deliberate. That humans have intentions, and that intentions lie behind action, doesn’t imply that our institutions are the product of specific intentions. What spontaneous order seeks to explain is the development of institutions that nobody specifically intended for, but that developed anyways out of the division of labor (and knowledge). That is, unintended consequences of deliberate action.

When North talks about unintended consequences he almost always invokes uncertainty, in the context of imperfect knowledge and erroneous planning. This is a major part of the story, but not the only one. Imperfect knowledge is still relevant, but within the context of institutional developments which are the product of interaction. I can think of two imperfect analogies that may clarify what I have in mind. One is that the whole is bigger than its parts: interaction between the parts creates an institutional framework that none of these parts really intended for. The second is that spontaneous order can be described as a dialectic between the parts, and the framework that evolves out of this dialectic is the synthesis.

The idea behind spontaneous order is that there are things which even deliberate action can’t explain, including institutional frameworks. This doesn’t mean that all institutions are the product of spontaneous order — just much of it. Further, given that much of our institutional framework is an outcome of spontaneous syntheses of competing and interacting deliberate actions, Hayek holds that these kinds of institutions cannot be deliberately planned by any one person, because of the complexity and lack of centralized knowledge. When North brushes aside these concerns, I get the feeling that his treatment of Hayek is largely inadequate. As a result, this may be a major lacuna in his work on institutional change, as great as it otherwise is.

  • Regis Servant

    Dear Jonathan,

    In fact, it is a widespread error of interpretation, and I think you are right to note that Hayek’s claim is not that deliberate constructions are impossible but that “the whole is bigger than its parts”. In other words, Hayek’s criticism is not against construction per se; Hayek’s criticism is that constructivists want to deliberately create ALL socio-cultural institutions.

    Here are some quotations from Law, Legislation and Liberty :

    “The chief instrument of deliberate change in modern society is legislation. But however carefully we may think out beforehand every single act of law-making, we are never free to redesign completely the legal system as a whole, or to remake it out of the whole cloth according to a coherent design.”

    “… a product of the false constructivistic interpretation of the formation of human institution which attempts to trace them all to an original designer or some other deliberate act of will.”

    “The judge is bound not merely by the designation by the legislator of some particular rules as valid, but by the internal requirements of a system which no one has deliberately designed as a whole.”

    “…as little as we have designed our whole moral system, is it in our power to change it as a whole.”

    etc., etc.

    Regards,
    Regis Servant.

    • Jonathan Finegold

      Thank you; as embarrassing as it is, Law, Legislation, and Liberty is still a book (or series) I have to read.

  • Pingback: Quote of the Week | Economic Thought