Freedom and Economic Order Read online

  The formal way to describe the fact that each individual possesses a unique scale of values, specific to himself, is to say that economic value is always and everywhere subjective value. That is, the value of any economic good or service is always and everywhere attributed to the good in question by the human person (the “subject”) who is perceiving it. Economic value only exists within the mind of the perceiving individual and is thus dependent on human opinion, circumstance, and preference. The second possible form of value, by contrast, is conventionally termed objective value, that is, value that is intrinsic to or inherent in the object and thus independent of human opinion. The Judeo-Christian tradition, for instance, teaches that the values embodied in the Ten Commandments are objective values. Killing innocent people, stealing, lying and so on are regarded as objectively wrong, wrong-in-themselves, independent of the opinions or preferences of human beings; an individual’s subjective or personal beliefs regarding such actions are irrelevant. Economic value is not of this nature. Economic value, like beauty, is rather in the eyes of the beholder; it is subjective value. No economic good is intrinsically valuable, valuable in-itself, as truth-telling may be. Economic value is always imputed value, imputed to the good or service in question by the individual mind evaluating it. The economic value of particular items to particular individuals always depends on subjective perception shaped by individual beliefs, needs, circumstances, tastes, and so on.

  Consider, for example, the economic value of a sixteen-ounce bottle of spring water. For purposes of illustration, assume that its price at a local convenience store is $2. In the language of economics, $2 is the “asking price,” which reflects the value of the water to the seller, how much it is personally (subjectively) worth to him or her. The value of the water to potential buyers may be quite different. An individual who already possesses 100,000 bottles of the identical water may not be willing to pay anything at all for an additional bottle; the value to such an individual is zero. Now imagine the same individual buyer under different circumstances. Suppose he finds himself stranded in a desert without food or water; after several days he is on the verge of dehydration or even death. Under such circumstances, the same individual will no doubt be willing to pay far more than $2, perhaps his entire fortune, for the very same bottle of spring water. The bottle of water has undergone no change; it is identical in both sets of circumstances. What has changed is rather the perception of the individual. Under the first set of circumstances, he perceived no value in the bottle of water; under the second set, he perceived inestimable value in the identical bottle (it might save his life). This is only to say that economic value does not inhere in the object, the water in our example. Economic value is never objective, never intrinsic to any good or service, but always and only imputed to a good or service by an individual mind. Economic value is always subjective value, existing always and only in the mind of the evaluating person, the human subject.

  Kinds of Order in Society: Spontaneous Order and Organization

  An analysis of the operation of the market process proceeds with restatement of the fundamental economic problem confronting every human society: the inescapable fact of scarcity that immediately generates the problem of choice with respect to both production and distribution. Someone must decide what is to be produced, and how, with what inputs and techniques, and someone must further decide who is to receive the fruits of production. In a capitalist economy, no central authority or supervisor, no governmental “planner,” “manager,” “regulator,” “overseer,” or “czar,” makes such decisions. The direction or utilization of scarce resources is instead guided by the impersonal and decentralized market process. The market exemplifies a particular kind of order found in both nature and society, conventionally designated “spontaneous order” and defined as a pattern, system, or structure that emerges indirectly and without conscious or deliberate design. With respect to economic order, such a pattern or structure emerges as an unintended byproduct of the independent decisions and actions of the countless individuals who daily engage in the routine actions of buying and selling.[6] Buyers and sellers are generally unaware that their day-to-day actions contribute to the formation of a supra-personal social order upon which each of them depends for fulfillment of their individual values and goals, namely, the spontaneous order of the market. Such, however, is precisely the case in a society ordered by capitalist exchange. To comprehend capitalism, the market process, then, is to comprehend the process of spontaneous order and how it facilitates solution of the economic problem confronting every society.

  Spontaneous order is the technical term for a specific kind of self-generating and self-maintaining pattern or structure of stable and predictable relations among constituent elements. Such a structure is both abstract and purpose-independent, emerging not by intentional human design but rather as an unintended consequence of the regular (rule-governed) behavior of the individual elements forming it. An example of a spontaneous ordering process in the physical realm may shed light on how such forces operate in the social realm. Consider the formation of a crystal. Crystals are found of course in nature but can also be created in a laboratory. To induce the formation of a lab-created crystal, scientists must establish the conditions under which the individual elements that will ultimately form the crystal will so arrange themselves that the overall crystalline structure will emerge. They cannot deliberately arrange the individual elements to produce the desired formation. Under appropriate conditions, however, each rule-governed element, adapting itself to its initial position and particular circumstances, will arrange itself in a way consistent with the formation of the more complex structure of a crystal. The “order” of a crystalline structure can emerge under appropriate laboratory conditions, but it “grows” spontaneously, without conscious arrangement of the individual constituent elements by human design. The most scientists can do is induce its formation by establishing the requisite conditions for growth.

  The market process that coordinates human action within modern liberal society is precisely such a process of spontaneous ordering or “growth.” Its character is perhaps most clearly seen in contrast to a second type of ordering technique also utilized in modern society—organization or “made order.” Unlike the purpose-independent order that emerges spontaneously and unintentionally from the activities of market participants, an organization is a purpose-or end-dependent order, that is, a structure deliberately designed to achieve a particular purpose. Such an order is created, moreover, by the deliberate arrangement of its constituent elements according to the conscious intention of a designing human mind. A watch or computer microchip exemplify such “constructed” or “made” order within the physical realm. A watch is made for a specific purpose (end-dependent) and each component is deliberately positioned in accordance with the maker’s knowledge and purpose and in accordance with his preconceived design.

  A social “organization” or “made order,” such as a business firm or a university, is similarly constructed. It too is made to fulfill a particular purpose (e.g., profit, education) and each particular element of the structure is deliberately positioned in accordance with the maker’s knowledge and purpose and in accordance with his preconceived design (e.g., staff composition, organizational flow charts, position descriptions, and so on). In other words, every social organization is consciously made or constructed by one or more human beings who position its constituent elements in their places and direct their movements toward fulfillment of a particular known purpose. Organization is an indispensable ordering technique for the achievement of known and specific goals. If one’s purpose is to educate university students, the deliberate construction of an organization known as a university will greatly assist realization of that goal. If one’s purpose is to produce automobiles that customers will desire to purchase, it would be most useful to construct a manufacturing organization dedicated to that end. If one’s purpose is to rescue homeless animals, one may better achieve t
hat goal by constructing an organization specifically dedicated to achieving that purpose, that is, an animal-shelter administered by persons with clearly defined roles and responsibilities.

  The overarching spontaneous order of liberal society, however, is not an organization so conceived. Certain members of liberal society do employ the ordering technique of deliberate organization toward fulfillment of known purposes. American society, as we have seen, is constituted in part by numerous organizations—governmental institutions, business corporations, religious institutions, and other voluntary associations, all of which are deliberately created to pursue particular known ends. The coordination of activities among such organized institutions, and among individuals within society as a whole, however, is achieved not by conscious human design or arrangement but rather by an impersonal and spontaneous process that no one designed and that does not serve to achieve known and particular purposes. Such of course is the market process or capitalism. Coordination of human activity by means of market forces is achieved not by conscious, deliberate, centralized human direction but rather the widespread observance and enforcement of certain types of general moral and legal rules. Organization and spontaneous order are not only distinct kinds of order but, as we shall see, structured by distinct kinds of rules.

  The distinction between organization and spontaneous order is more formally characterized as the distinction between teleocratic and nomocratic order. An organization is a teleocratic order—one that aims to realize a telos or known purpose. Modern liberal society, as said, is constituted in part by many such organizations or teleocratic orders. Society as a whole, however, is not a teleocratic order, not an organization deliberately designed by a human agent to realize a particular known purpose, but rather a nomocratic order (from the Greek telos [purpose], and nomos [law or convention], respectively).[7] A nomocratic order such as traditional American society does not possess an overarching telos or purpose that every individual and group is expected or required to pursue. Within such an order, individuals and groups are rather expected and entitled to pursue their own freely chosen purposes and values. No human authority assigns their particular positions or directs their actions by specific orders or commands; their activity is self-directed. Individual self-direction is obviously the antithesis of rule by human command or order.

  Such holds true, moreover, not only for a single individual but also the coordination of the individually self-directed activities of the hundreds of millions of persons who constitute American society as a whole. In a free society, the ordering or coordination of their activities is achieved not by command or directive of authority. No one orders the managers of Microsoft to sell its products to Starbucks or any private individual. No one orders Starbucks or any private individual to purchase Microsoft products. Coordination of the self-directed activities of Microsoft, Starbucks, and millions of American producers and consumers is rather achieved by mutual observance of a different kind of rule, namely, law proper (nomos). We have previously discussed the distinct and opposing nature of law and command. As we recall, an ideal command, command proper, is an authoritative order, a precise and detailed directive that mandates certain specified action. Law proper, by contrast, is a general, abstract, purpose-independent rule that structures the means individuals (and firms) may employ in pursuing their individual (or corporate) purposes but, unlike a command, does not define or specify those means or purposes. Starbucks is permitted to strive to obtain Microsoft products if such is its self-chosen goal, but the means it may employ in that effort are restricted by law (Starbucks may not, for instance, steal Microsoft products but must obtain them in a legal manner). The general rule that prohibits theft restricts the means the firm may employ to realize its self-directed purpose but says nothing about the purpose itself. No one, as said, directs or commands Starbucks to buy Microsoft products.

  The two kinds of ordering techniques, organization and spontaneous order, are further distinguished, then, by the kinds of rules that necessarily structure their operation—purpose-dependent commands or directives and general purpose-independent rules (law proper), respectively. As we recall from previous discussion, only end-independent general rules, true law, permit individuals (and individuals voluntarily associated as organizations) to use their own knowledge for their own purposes. The knowledge embodied in end-dependent commands or directives is necessarily limited to the knowledge possessed by the commander or director; the knowledge of the person(s) commanded is not and cannot be utilized if the order is strictly followed. Organizations necessarily rely on such purpose-dependent directives to order their internal operations. They are designed to fulfill particular purposes, and all members of an organization are expected to contribute to the achievement of its particular known goal. Any employee hired by a business organization, for instance, is expected to fulfill a role or task specified in advance by the employer. Employees are expected to use their knowledge not to fulfill their own purposes but rather those associated with their particular position within the organization. Their positions are defined by specific directives devised by the organization’s managers and thus embody the latter’s knowledge and purpose; employees are hired to assist in fulfilling that specified purpose. All organizations rely on such internal ordering techniques. All organizations aim to achieve particular known purposes, and each member must be assigned his part in achieving them.

  The technique of organization, however, while indispensable to the achievement of known and specific purposes, involves an inherent drawback. The individual elements of the organization (the “employees”) are deliberately arranged by a designing mind toward achievement of the particular purpose established by its creators. Employees, as we have seen, are expected to pursue the goal of the organization, which means they are expected to use their knowledge, not to fulfill their own purposes but rather those established by the organization’s directors. This can only be accomplished if they are required to follow specific directives or commands and not general purpose-independent rules (“thou shalt not steal”). As we recall, however, every command or specific directive necessarily restricts the knowledge employed to the imperfect knowledge possessed by those who issue the directives, in a business organization, typically owners, managers, or supervisors. The knowledge possessed by the individual employees who must obey such directives may be lost or wasted, depending on the generality or specificity of the directives they are under. Such, however, is the price paid for utilizing the otherwise valuable ordering technique of organization.

  The fact that organizations must employ teleocratic rules in their internal operation has significant implications for liberal society as a whole and, in particular, its ability to solve the economic or knowledge problem as described. The crucial difference between the respective ordering techniques of organization and spontaneous order, that is, the ordering of human action by command (directive) or general rules, is the extent of knowledge utilized by either technique. We have seen that purpose-dependent directives or commands necessarily restrict the knowledge employed to that of the person or persons issuing the directive or command. A legal framework constituted by general, purpose-independent rules, by contrast, permits maximum utilization of the knowledge possessed in a society.

  The inherent epistemological difficulties involved in order achieved by personal command rather than impersonal general rules may be illustrated by the following hypothetical example. Imagine a university professor who wishes to distribute a particular scholarly article to students in her class. She only has one copy of the article at hand. She thus issues a directive to her work-study student, as follows: “Take this article. Go to the Xerox machine down the hall. Make fifty copies, collated and stapled, and return them to me within an hour.” Such a directive exemplifies a perfect or ideal command: it not only orders action toward fulfillment of the specific purpose established by the commander (the professor) but also specifies the precise means by which it is to be fulfilled. Such a comm
and, like any command, embodies only the knowledge possessed by the commander-professor. Whatever knowledge the student may possess is irrelevant; his sole task is to follow orders. The student under command, like the driver under command in Volume I, is essentially a tool, like a hammer or nail, whose utilization is utterly controlled by the commander. Indeed the particular student could probably be replaced by any other able-bodied student to no effect. Hammers are largely interchangeable; a tool is a tool.