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Friday, May 27, 2011

Hayek on the Two Orders

"If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilization), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of worlds at once." -- The Fatal Conceit

I think this achieves just the right understanding of the balance we ought to seek between market and non-market orders. The market is a wonderful institution, which can achieve marvelous economic efficiency. Economic rationality, on the large scale, is impossible without markets, as Mises and Hayek so wonderfully demonstrated. And yet, markets can easily crush the "more intimate groupings." Markets, especially at the local level, must be subject to social control, lest that crushing proceeds unchecked. Market advocates should remember both halves of Hayek's insight!

8 comments:

  1. Have you seen Ariely's work on how imposing market norms where they don't "belong" frequently messes a lot of things up that otherwise work perfectly fine?

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  2. No, I haven't, Ryan. Any good links I should look at? (I will do a Google search myself, but you perhaps might be able to direct me more swiftly to something particularly relevant.)

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  3. It's the topic of chapter 4 in Predictably Irrational. I don't know where it appears online.

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  4. But Gene, you seem to have forgotten what Hayek wrote in the 18 seconds after you posted the quote. He said we shouldn't apply the market principle to "(i.e., of the small band or troop, or of, say, our families)" and you seem to think you've just discovered the means by which the mayor can impose price controls during a hurricane.

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  5. Bob I'm not sure what you think I've forgotten.

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  6. Bob I'm not sure what you think I've forgotten.

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  7. What I mean, Gene, is that to me it seems Hayek is saying, e.g., it would dumb for parents to refuse to give food to their infant until "he'd earned it." Or that if a group of soldiers is running towards a nest of machine guns, for one of them to say, "Actually I'm going to call in sick today."

    You seem to think Hayek is here justifying all sorts of regulations *on the market economy* imposed at the local level, when (to me) that's not what he's doing at all.

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  8. But Bob, if, say, my wife restricts me from earning the extravagant fees I could earn selling myself on the street, that *is* a regulation on the market economy, albeit a regulation that exists only between the two of us. And a "small band or troop" is man's original political organization (it's clear from the larger context Hayek means something like a hunter-gatherer "band"). So yes, Hayek views political entities as possibly something needing to control free markets in order to resist being "crushed." (Today's equivalent might be a village refusing to allow a big-box chain store to build in town.)

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