This is one of the most lucid explications of the dependent linkage between freedom, property, knowledge and markets. It could as the basis for an entire semester of instruction in a high school economics class and the children would leave with more understanding of the world than almost any other class they take.
I have highlighted the soundbite (and it is good) that is most often quoted but the entirety of the argument is so lucid and clear that it ought to stand as a whole.
It is especially pertinent in these times when so many vested and established interests are seeking to control thoughts, control speech, control the flow of information.
A simple and relatively innocuous virus such as Covid-19 has shredded the appearance of competency from the “the naive mind that can conceive of order only as the product of deliberate arrangement." WHO, CDC, FDA, famous forecast modelers, elite research institutions, etc. They have all failed and continue to fail in their efforts to accomplish useful understanding of a novel and dispersed event.
We, with Covid-19, in exactly in the position of a free market as described by Hayek - "There can be no deliberately planned substitutes for such a self-ordering process of adaptation to the unknown."
Further, Hayek invokes a version of Chesterton's fence which I believe is too little acknowledged or discussed. "Adaptation to the unknown is the key in all evolution, and the totality of events to which the modern market order constantly adapts itself is indeed unknown to anybody."
The argument below is not an argument for anarchy with all competing against all. It is merely a plea to recognize that individual reason, no matter how gifted or esteemed, can ever compass the breadth of consequential reality. Not even teams of philosopher kings. We need as much freedom as possible so that we can indeed harness the knowledge of all. Every incremental regulation or constriction of information or silencing of voices or deplatforming of opinions or other constriction on individual freedom constrains the effectiveness of self-ordering adaptation. It makes is less dynamic, innovative, adaptive and productive.
We impose such burdens on freedom at great risk.
There are a number of distinct points and questions, mostly elaborations of what has just been stated, that help make clearer how these matters work together.
First, there is the question of how our knowledge really does arise. Most knowledge – and I confess it took me some time to recognise this – is obtained not from immediate experience or observation, but in the continuous process of sifting a learnt tradition, which requires individual recognition and following of moral traditions that are not justifiable in terms of the canons of traditional theories of rationality. The tradition is the product of a process of selection from among irrational, or, rather, ‘unjustified’ beliefs which, without anyone’s knowing or intending it, assisted the proliferation of those who followed them (with no necessary relationship to the reasons – as for example religious reasons – for which they were followed). The process of selection that shaped customs and morality could take account of more factual circumstances than individuals could perceive, and in consequence tradition is in some respects superior to, or ‘wiser’ than, human reason (see chapter one above). This decisive insight is one that only a very critical rationalist could recognise.
Second, and closely related to this, there is the question raised earlier of what, in the evolutionary selection of rules of conduct, is really decisive. The immediately perceived effects of actions that humans tend to concentrate on are fairly unimportant to this selection; rather, selection is made according to the consequences of the decisions guided by the rules of conduct in the long run – the same long run sneered at by Keynes (1971, C.W.: IV, 65). These consequences depend – as argued above and discussed again below – chiefly on rules of property and contract securing the personal domain of the individual. Hume had already noticed this, writing that these rules ‘are not derived from any utility or advantage which either the particular person or the public may reap from his enjoyment of any particular good’ (1739/1886:II, 273). Men did not foresee the benefits of rules before adopting them, though some people gradually have become aware of what they owe to the whole system.
Our earlier claim, that acquired traditions serve as ‘adaptations to the unknown’, must then be taken literally. Adaptation to the unknown is the key in all evolution, and the totality of events to which the modern market order constantly adapts itself “ is indeed unknown to anybody. The information that individuals or organisations can use to adapt to the unknown is necessarily partial, and is conveyed by signals (e.g., prices) through long chains of individuals, each person passing on in modified form a combination of streams of abstract market signals. Nonetheless, the whole structure of activities tends to adapt, through these partial and fragmentary signals, to conditions foreseen by and known to no individual, even if this adaptation is never perfect. That is why this structure survives, and why those who use it also survive and prosper.
There can be no deliberately planned substitutes for such a self-ordering process of adaptation to the unknown. Neither his reason nor his innate ‘natural goodness’ leads man this way, only the bitter necessity of submitting to rules he does not like in order to maintain himself against competing groups that had already begun to expand because they stumbled upon such rules earlier.
If we had deliberately built, or were consciously shaping, the structure of human action, we would merely have to ask individuals why they had interacted with any particular structure. Whereas, in fact, specialised students, even after generations of effort, find it “exceedingly difficult to explain such matters, and cannot agree on what are the causes or what will be the effects of particular events. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralising decisions, and that a division of authority will actually extend the possibility of overall order. Yet that decentralisation actually leads to more information being taken into account. This is the main reason for rejecting the requirements of constructivist rationalism. For the same reason, only the alterable division of the power of disposal over particular resources among many individuals actually able to decide on their use – a division obtained through individual freedom and several property – makes the fullest exploitation of dispersed knowledge possible.
Much of the particular information which any individual possesses can be used only to the extent to which he himself can use it in his own decisions. Nobody can communicate to another all that he knows, because much of the information he can make use of he himself will elicit only in the process of making plans for action. Such information will be evoked as he works upon the particular task he has undertaken in the conditions in which he finds himself, such as the relative scarcity of various materials to which he has access. Only thus can the individual find out what to look for, and what helps him to do this in the market is the responses others make to what they find in their own environments. The overall problem is not merely to make use of given knowledge, but to discover as much information as is worth searching for in prevailing conditions.
It is often objected that the institution of property is selfish in that it benefits only those who own some, and that it was indeed ‘invented’ by some persons who, having acquired some individual possessions, wished for their exclusive benefit to protect these from others. Such notions, which of course underlie Rousseau’s resentment, and his allegation that our ‘shackles’ have been imposed by selfish and exploitative interests, fail to take into account that the size of our overall product is so large only because we can, through market exchange of severally owned property, use widely dispersed knowledge of particular facts to allocate severally owned resources. The market is the only known method of providing information enabling individuals to judge comparative advantages of different uses of resources of which they have immediate knowledge and through whose use, whether they so intend or not, they serve the needs of distant unknown individuals. This dispersed knowledge is essentially dispersed, and cannot possibly be gathered together and conveyed to an authority charged with the task of deliberately creating order.
Thus the institution of several property is not selfish, nor was it, nor could it have been, ‘invented’ to impose the will of property-owners upon the rest. Rather, it is generally beneficial in that it transfers the guidance of production from the hands of a few individuals who, whatever they may pretend, have limited knowledge, to a process, the extended order, that makes maximum use of the knowledge of all, thereby benefiting those who do not own property nearly as much as those who do.
Nor does freedom of all under the law require that all be able to own individual property but that many people do so. I myself should certainly prefer to be without property in a land in which many others own something, than to have to live where all property is ‘collectively owned’ and assigned by authority to particular uses.
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