Economics is the study of the systematic, but unintended
consequences of human action.
An explanation of such unintended consequences is an
“invisible-hand explanation.” The term
alludes to Adam Smith’s remark that in a market economy people sometime act as
though guided by an “invisible hand.”
An unintended regularity in society is a “spontaneous
order.”
Elevator etiquette is a good example.
Capitalism
and civilization are examples of unintended consequences.
Civilization
improved the lot of humanity; people were poor in the state of nature.
Civilization
was an unintended consequence of human action.
It was not invented.
By
“capitalism” I mean voluntary exchange plus rational calculation.
Capitalism
produced a great expansion of wealth in the world.
Capitalism, too was an unintended consequence of
human action. It was not invented.
The economist F.A. Hayek
coined the phrase "spontaneous order" to describe "[t]he grown
order . . . [the] self-generating or endogenous order" (1973, p. 37). Spontaneous orders in society are "The
Result of Human Action, but not of Human Design" (1967b). The study of spontaneous orders, Hayek
argued, was originally the province of economics. But biology "from its beginnings has been concerned with
that special kind of spontaneous order we call an organism" (1973,
p.37). It was not until the arrival of
"cybernetics [as] a special discipline" that the physical sciences
came to discuss these "self-organizing or self-generating systems"
(ibid).
Of course many consequences
of our actions are perfectly intended.
Action is purposeful and often obtains its ends. But intended consequences raise no
fundamental scientific problem.
Unintended consequences are puzzling.
The economy runs along without a central planner. This seems a prescription for disaster. But the system holds together and permits
each of us a greater fulfillment of his ends than would otherwise be possible. It is the scientific problem at the heart of
economics.
Spontaneous orders have
three "distinguishing properties."
(They are typical properties, not always present.) First, they are complex; for spontaneous
orders, the "degree of complexity is not limited to what a human mind can
master." Think of the division of
labor. No one really understands
precisely how all the pieces fit together.
We have some good general ideas, but not a detailed, concrete
understanding. Second, they are
abstract; a spontaneous order's "existence need not manifest itself to our
senses but may be based on purely abstract
relations which we can only mentally reconstruct." Again, think of the economy. The economy is not a bunch of machines or a
thing that happens at 2:00 on Thursday.
It is an order of things, a set of interconnections. We go to economics classes precisely because
this order is abstract and cannot be understood, therefore, without special
training. Third, they have no purpose;
"not having been made" by any designing minds, a spontaneous order
"cannot legitimately be said to have a particular purpose, although our
awareness of its existence may be extremely important for our successful
pursuit of a great variety of different purposes" (1973, p. 38. All emphases in original). Once again we use the economy as our
example. What is the “purpose” of the
economy? Each of us has his own ends, but
we don’t have any great collective goal.
An atheist might buy a Bible from a Christian in order to find supposed
contradictions with which to embarrass Christians. The atheist opposed Christianity, the Christian supports it. And yet they come together in the same
exchange of money and Bible. Far from
having a common purpose, their purposes are antithetical.
A little later we will
study “complexity theory.” I think it
is reasonable to say that Hayek's notion of spontaneous order is, at a minimum,
similar to the complexity theorists' notion of a "complex adaptive
systems." Hayek claims that such
orders "result from their elements obeying certain rules of conduct"
(1973, p. 43). Each "agent"
follows a set of rules and responds to local information. The interaction of many such agents produces
an overall order which was not planned by any of the agents who produced it. If the number of agents is large enough,
this order may be very complex even when the rules governing each individual
are quite simple. Hayek is an
evolutionary theorist whose evolutionary ideas are based, in part, on a
cognitive psychology similar to the sorts of things discussed in complexity
theory. As with the complex adaptive
systems of the Sanat Fe group, Hayek recognizes that there is "no global
controller" (Arthur, Durlauf, and Lane 1997, p. 4) of the economy or any
other complex adaptive system.[1]
[1] For those of you who want to be really precise, a note on terminology may be in order. The terms "unintended consequences," "spontaneous order," and "complex adaptive system" have essentially the same meanings. They are not quite identical however. Many unintended consequences are neither systematic nor orderly. But for that very reason, they don't often form the objects of scientific study. (History may study them.) A spontaneous order could be relatively simple, though few, if any, simple cases are interesting to study. In principle, a complex adaptive system could be constructed with all its aspects and behaviors perfectly planned. But it is hard to come up with examples. Such a system would have no unintended consequences. Thus the terms do not cover the same ground. But the overlap is great. This overlap contains most or all interesting phenomena in this area. For purposes of the class, I will ignore the differences among these three concepts.