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A Marvel of Cooperation: How Order Emerges without a Conscious Planner : Russell Roberts
8 paragraphs found.
 

One of the deepest attempts to illuminate that process is Hayek's 1945 article in the American Economic Review,"The Use of Knowledge in Society." Hayek is not content to simply marvel that there are pencils and bread and coats and televisions. He has something even more marvelous and unseen he wants his readers to see, and that is how the uncoordinated throng of cooperators who work to produce these products respond to a shortage or some other external change.

 

Hayek was invoking the marvelousness of uncoordinated knowledge as a counterpoint to the socialists of his day who argued for the superiority of centralized, state-run, top-down coordination. Bastiat, in the same discussion quoted above, contrasts the success of decentralized exchange in providing Paris with all of its citizens needs with how poorly a government bureau would perform the task.

 

Hayek wanted to illuminate the incredible coordinating of vastly decentralized knowledge that must happen to cope with any adjustment such as a shortage. Hayek's answer, akin to Bastiat's referring to self-interest and exchange, and Read's invoking of the Invisible Hand, is the price system, which he expounds on in some detail.

 

It is tempting to say that Hayek was referring to what we today call supply and demand. Unfortunately, today's students are too frequently taught that supply and demand requires perfect competition or perfect knowledge. This leads students to view supply and demand as a theoretical construct that is unlikely to apply in the real world other than in the occasional arcane case such as wheat.

 

But Hayek took a very different view of the process. He viewed it as imperfect but effective:

Of course, these adjustments are probably never "perfect" in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or "normal" level.

I have deliberately used the word "marvel" to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do.

 

One of the virtues of Hayek's exposition, though it is stylistically drab in comparison to the other examples I have given here, is its emphasis on how the unseen cooperation solves the central problem of modern economic order. How do you decide how many bagels or pencils or cars a society needs? How do the answers to those questions change as circumstances and knowledge changes? I want to use this as a jumping off point for an example of unseen cooperation that is taking place today.

 

One of Hayek's favorite quotes was from Adam Ferguson on "the result of human action but not of human design":

Mankind, in following the present sense of their minds, in striving to remove inconveniences, or to gain apparent and contiguous advantages, arrive at ends which even their imagination could not anticipate, and pass on, like other animals, in the track of their nature, without perceiving its end...

Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design.

[From An Essay on the History of Civil Society (1767): Part Third. Section II, p. 122 of the Duncan Forbes edition, Edinburgh University Press, 1966. An online edition is at McMaster's.]

 

And yet, like Bastiat's Parisian, we rightly lose little or no sleep worrying about these changes. The transition will be managed not by a Congressional committee or Presidential board charged with averting a crisis. The transition will be handled by the price system and we'll hardly notice it. Part of my confidence comes from Hayek's insights into how markets work. But much of my confidence comes from the evidence of the past 20 years when a hundred million Chinese made the same trek we're talking about in the future. This is the greatest migration in human history and my guess is that you missed it. Very little changed in the world around us. The Chinese didn't buy up all the bicycles or cedar for the pencils or coffee grounds for more coffee. Somehow, our economic system took care of this transition so effectively, that most of us didn't even know it happened.