Spontaneous Order and the Market Process Steven Horwitz IHS: Morality, Capitalism & Freedom Summer 2010

Overview Not all order is the product of design Not all order is the product of design A. Smith & the Scottish Enlightenment A. Smith & the Scottish Enlightenment Carl Menger and institutional evolution Carl Menger and institutional evolution F. A. Hayek and the role of knowledge F. A. Hayek and the role of knowledge The market as a spontaneous order The market as a spontaneous order Where does design begin and end? Where does design begin and end? Conflicting spontaneous orders Conflicting spontaneous orders

The products of human action but not human design The invisible hand The invisible hand Scots – Smith, Hume, Ferguson Scots – Smith, Hume, Ferguson Beneficial unintended consequences Beneficial unintended consequences Cooperation in anonymity Cooperation in anonymity This is the beginning of social science This is the beginning of social science

Carl Menger and the evolution of institutions Subjectivism, marginalism, and methodological individualism Subjectivism, marginalism, and methodological individualism The Mengerian question The Mengerian question Organic vs. pragmatic Organic vs. pragmatic Compositive method Compositive method The evolution of money The evolution of money From the division of labor to the division of knowledge From the division of labor to the division of knowledge

Knowledge and spontaneous order Spontaneous orders as epistemological ecologies Spontaneous orders as epistemological ecologies Made vs. Spontaneous Made vs. Spontaneous –Economy vs. catallaxy Unified vs. diverse purposes Unified vs. diverse purposes Command vs. abstract rules Command vs. abstract rules Self-interest and altruism Self-interest and altruism

Order in the market The unplanned outcome of planned behavior The unplanned outcome of planned behavior Prices as the central coordinator Prices as the central coordinator Prices as knowledge surrogates Prices as knowledge surrogates –tacit vs. articulate knowledge Spontaneous order, knowledge, complexity Spontaneous order, knowledge, complexity –why socialism fails Competition as a discovery procedure Competition as a discovery procedure

Some critical issues The line between designed and unplanned The line between designed and unplanned –Firms –Government What happens when spontaneous orders with different values conflict? What happens when spontaneous orders with different values conflict? –Ecological systems, democracy, and science