I’ve been reading up on the idea of spontaneous order lately, and came across this gem from James Buchanan. I found it through Don Boudreaux, who refers to it as “word for word, the most insightful thing I’ve ever read.”

It’s only a little over 500 words, so the whole thing is worth reading. But, to whet your appetite, here’s how it starts:

Norman Barry states, at one point in his essay, that the patterns of spontaneous order “appear to be a product of some omniscient designing mind” (p. 8). Almost everyone who has tried to explain the central principle of elementary economics has, at one time or another, made some similar statement. In making such statements, however, even the proponents-advocates of spontaneous order may have, inadvertently, “given the game away,” and, at the same time, made their didactic task more difficult.

I want to argue that the “order” of the market emerges only from the process of voluntary exchange among the participating individuals. The “order” is, itself, defined as the outcome of the process that generates it. The “it,” the allocation-distribution result, does not, and cannot, exist independently of the trading process. Absent this process, there is and can be no “order.”

Again, go read the whole thing.

And, while you’re at it, the essay by Norman Barry to which Buchanan is responding is worth a read itself. A masterful history of the treatment of the concept of spontaneous order from the Spanish School of Salamanca through Hale, Mandeville, Hume, Menger, Hayek, and more.

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  • Tim

    This reminds me of Daniel Dennett’s argument in Darwin’s Dangerous Idea: that processes that are entirely “stupid” and algorithmic (e.g. natural selection) can produce great complexity and order. That may seem obvious, but the whole book is about just how profound an idea it really is. (It’s an incredible book.)

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      Yes, in the interview where I heard Boudreaux refer to this piece, he talked about his two favorite books. One was Hayek’s Law, Legislation, and Liberty, and the other was Richard Dawkin’s The Blind Watchmaker. I suspect his reasoning was similar to yours.

  • Michael Zigismund

    This
    — the fundamental, mechanical explanation for the impossibility of socialism
    — is critical.

    Jesus
    Huerta de Soto goes even deeper on the impossibility of market design than does
    Buchanan in the first half-hour here: http://www.youtube.com/watch?v=3oDH6m4AW6Y

    His
    four points are:

    1.
    The amount of knowledge required to know the specialized knowledge of
    each entrepreneur [choosing individual] at every decision point is impossibly
    huge.

    2.
    Even if we had the capacity to know all of this knowledge, we don’t have access
    to it, because preferences are subjective and thus tacit.

    3.
    Preferences are dynamic — they are always changing — and thus only
    manifest in the future. There is no way to predict them, even if we had
    access to them, and thus there is no way to centrally plan for them.

    4.
    Finally, the very act of coercion distorts the preferences this coercion
    was meant to aid in the first place. (This might remind us of Heisenberg’s
    uncertainty theory.) The act of socialism itself undoes its own purpose.

  • Michael Zigismund

    This — the fundamental, mechanical explanation for the impossibility of socialism — is critical.

    Jesus Huerta de Soto goes even deeper on the impossibility of market design than does Buchanan in the first half-hour here: http://www.youtube.com/watch?v=3oDH6m4AW6Y

    His four points are:

    1. The amount of knowledge required to know the specialized knowledge of each entrepreneur [choosing individual] at every decision point is impossibly huge.

    2. Even if we had the capacity to know all of this knowledge, we don’t have access to it, because preferences are subjective and thus tacit.

    3. Preferences are dynamic — they are always changing — and thus only manifest in the future. There is no way to predict them, even if we had access to them, and thus there is no way to centrally plan for them.

    4. Finally, the very act of coercion distorts the preferences this coercion was meant to aid in the first place. (This might remind us of Heisenberg’s uncertainty theory.) The act of socialism itself undoes its own purpose.

  • Sean II

    Great. Just great. I was only a few weeks away from completing the prototype for my invention, the You-Tilizer. It’s a hand-held device that calculates utility functions in real time, with a groundbreaking interpersonal comparison feature. Perfect for picking out holiday gifts, charitable giving, organizing parties, or even large scale central economic planning staged in three to five year increments.

    I guess there’s no point explaining what it does NOW.

  • http://www.facebook.com/profile.php?id=193112608 Chris Bertram

    I wonder whether this piece by Buchanan would be as warmly welcomed here were it properly understood. As I see the BHL project, at least in its Brennan/Tomasi/Zwolinski version, it places great emphasis on the claim that “free markets” bring about the best outcomes. But, as Buchanan makes clear, on revealed-preference conception of utility, there is no betterness or worseness of outcomes that can be defined independently of market processes. What looks like a substantive claim turns out to be a tautology.

    • Sean II

      Well, it doesn’t feel so tautological when you’re arguing with someone who wants to stop those preferences from being revealed. Especially when he’s armed and not really interested in settling the question with mere argument.

      Besides, economics is the place where substantive tautologies go when they grow up and feel a need to get noticed.

      Comparative advantage, mutually beneficial exchange, marginal utility: all those concepts are tautological, and none are trivial or intuitive, judging by the 40,000 years it’s taken for anyone to understand them or slow down the process of killing each other in the attempt to deny them.

    • http://www.facebook.com/profile.php?id=19002050 Jameson Graber

      I disagree with your jump from the penultimate to the ultimate sentence here. It’s not tautological to say there exists an order and that there are fundamental mechanisms which explain it, which is to say economics is not all tautological. Personally I think Hayek said all of this better in “The Use of Knowledge in Society,” but then again he had a lot more words to use.

      • http://www.facebook.com/profile.php?id=193112608 Chris Bertram

        You need to do as MZ suggests and “read the whole thing”, particularly the last 2 paragraphs to get my point.

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      I wonder if you’re misreading Buchanan. Or us. Or both.

      As I understand him, Buchanan’s point is to deny the existence of utility functions that exist independent of the process of choice and discovery, and hence to deny the possibility of (even) an omniscient planner designing a social order that maximally satisfies those functions. I thought, and still think, that this is a really deep and important point, misunderstood by even a lot of people (like Barry) who sympathize with the Hayekian project.

      But I don’t see the BHL project as committed to anything like that. Most of us believe that human welfare matters, and matters as one of the most significant criteria by which political and economic institutions can be judged. But I don’t see anything in this short piece by Buchanan, or in any of his more lengthy works, that cuts against that. His target, as I understand it, is a much narrower one.

      • http://www.facebook.com/profile.php?id=193112608 Chris Bertram

        Well that rather depends on whether you have a conception of human welfare more expansive than the satisfaction of those utility functions. Fine if you do, but you can’t take the satisfaction of those functions as expressed by choices in free markets as evidence for the ability of markets to improve human well-being more broadly conceived.

  • David Boaz

    This is a wonderful article. It appeared in Literature of Liberty — in the late 70s? — and I’ve gone back to it and quoted it many times. “The “order” of the market emerges only from the process of voluntary exchange among the participating individuals” — there is no point toward which the market process is proceeding, efficiently or inefficiently, there is only the process of choosing and of satisfying wants.

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