A Tale of Two Insights: One Good, the Other Ambiguous

In a blogpost titled “Hayek on the Two Orders,” Gene Callahan approvingly quotes the following passage from Hayek and admonishes market advocates not to forget or overlook the important insight within:

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

All well and good, and familiar to readers of Hayek. But then Callahan follows up with some commentary and things get increasingly murky:

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!

Well, hold on now. I don’t see anything in that Hayek quote to the effect that markets can easily crush the “more intimate groupings” if left unchecked. Rather, he warns us not to impose the rules of one type of order on the other.

Moreover, what does Callahan mean by “markets, especially at the local level, must be subject to social control, lest that crushing proceeds unchecked”? Were he not openly a former libertarian cum pro-state (dare I say statist?) communitarian, I might think he meant family rules, voluntary community norms, and the like. Libertarians already support — as an extension of individual rights rather than some collectivist group “rights” — the right of families and voluntary associations to set private rules, and many are very family- and community-oriented. So, remind me again which market advocates want market rules imposed throughout society?

Now I’m not so sure that by “social control” Callahan doesn’t mean “government control.” If he does mean government control, then of course libertarians disagree that such is necessary to prevent markets from crushing the “more intimate groupings.” Callahan’s fear is, I think, overblown; but, to the extent that it is justified, the fragility of some “more intimate groupings” in the face of market forces does not justify aggression (i.e., the threat or use of initiatory physical force1) to preserve them.

But wait, is Hayek really saying that markets must be subject to local social control? that one type of order must impose controls on the other to keep it in check? Or, rather, does he not explicitly warn against this and say that “we must learn to live in two sorts of worlds at once.”

Once again, I do not think Hayek’s insight is what Callahan thinks it is.

  1. Which, yes, includes people squatting on private property or having an uninvited picnic on someone’s property and refusing to leave. 

3 comments… add one

  • Can the non-market order not take care of itself? I agree with your point: it’s not that markets would *crush* voluntary, non-market institutions and practices, but that trying to arrange such institutions according to market rules would be a mistake. It’s not as if for-profit exchange, if left unchecked by “social control,” would crush the “socialist” order of the family. I’m not going to thank Michael Bloomberg the next time my parents decide to offer me dinner gratis, instead of charging me for the ingredients + labor + interest.

    On the other hand, if ‘corporate’, for-profit insurance plans outcompete local mutual aid programs, who is to say this is bad? Presumably, people switch to the former because they find it more economical than the latter, and so we must presume that such a good is better produced in the market. If there’s one thing to learn from Hayek, I think it would be that orders can largely take care of themselves. (not that he’d phrase it that way)

    (it’s also rather funny that Callahan chooses to call it “social control” when, in the same book from which he quotes, Hayek spends quite a bit of ink explaining why he hates the amorphous nature of the word and pledges to avoid using it in his analysis)

  • The great killer of community projects and traditional and tacit social arrangements is not the market, but the state. I know. I’m involved in a number of volunteer organizations, including a government park run by a volunteer committee with salutary neglect of the local government, and a cemetery association. In both cases some of the basic upkeep would be best handled by handshake deals. But the state will not allow such deals. With the park, every volunteer hour must be recorded and “turned in” for workman’s compensation, which the park must pay, to insure volunteers. And the best option for the cemetery would be to put an underemployed/retired/disabled person in a shack on the property, in exchange for mowing an upkeep. A simple barter, leading to a genuine public good. But the state (particularly the federal government) prohibits that. You can’t engage in such barter without listing it as “income” to be taxed.

    The state thus puts crimps upon familiar community institutions at every corner. The state LOVES big business, on the other hand, because big business can so easily handle all the taxes and regulations.

    Small business and non-profits and such are all at a grave disadvantage. And it is these institutions, NOT “the market,” which are in such peril in our society.

    And it is these institutions that the welfare state “out-competed” – what with its forced revenues and anti-competitive regs and all.

    I live and work in a small community, and in all of the little groups I belong to, businesses and buying and selling in the marketplace rarely present a “problem” for low-key human interaction and institution-building. It is always the state that besets us. On all sides.

    And it is the state that beguiles us, too, with “grants” and special “programs.” But the more you get involved with government, the less community organizations remain communal, and become “governmental.” We now live in a world of quasi-government organizations. And this is largely to compensate for the fact that the Great Depression first broke the back of community in America (thus a collapse of markets, not their success, is the great enemy of community), and the New Deal and “Great Society” and similar government wars on community finished the job.

    It is sad to see Gene Callahan immerse himself in abstractions, and forget how the real world works. The John Grayization of Mr. Callahan appears to be approaching completeness.

  • I began to suspect Gene was moving in this direction when he began attacking methodological individualism a few years ago on ThinkMarkets. He and I battled regularly until he pretty much stopped posting there. That comment makes it clear he’s left the libertarian ship. Hayek is about as clear as one can be in that passage. There are network structures appropriate to organizations such as families and there are network structures appropriate to spontaneous orders such as markets. If we try to impose organizational hierarchies on spontaneous orders, we destroy them; but if I tried to run my family as a spontaneous order, it would be a complete disaster. Thus, we have to learn to live in each simultaneously. When I step out of my house and engage in interactions with strangers, it is inevitably in a spontaneous order. It works for markets, artistic and literary production, in nonprofits, in religion, in science, etc. It allows them to work well, without friction. But if we are talking about intimate relationships, including families and firms, where people have to work together, we have to have organizational hierarchies. Those networks allow human beings to work with each other more intimately. These arise when the people involved know each other. The smaller the group who know each other, the more rigid the hierarchy; the larger the group, the more and more it will become a democratic hierarchy — but still an organizational hierarchy.
    It is a shame that Gene is losing these distinctions. They are vital to understanding organizations and spontaneous orders, families and markets.


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