From Social Entropy to Convergence: The Spontaneous Order
The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can.
“I, Pencil”, 2008 Edition
Primary discourse surrounding the dynamics of a Market form a crucial step toward the Philosophy of Economics. The Market in a classic sense, is a simple amalgamation of individual interests that also conveys and answers questions as a collective. However, the formation, succession, and override of actions that birth this institution needs more scrutiny. It is either an independent and sociologically divine instrument that holds the key to the economy as a Labyrinth or it exists as a proxy for an artificial and superfluous state marked by a lethal dose of homogenization.
The abject intellectual poverty of the human mind to harness the entirety of Knowledge to make decisions pertinent to its welfare and significant others is central to explain the existence of a higher Reason, almost always inaccessible and impossible to mediate by language. A true mark of a logocentric deconstruction of human experience is the myopic and limited jurisdiction of language and however ironic it may seem, artificially constructed signs and symbols, to explain what is external to the eye. Liberal schools of thought take pride in using the necessity of intellectual disability to explain the prevalence of a free market and economy essential to ensure the convergence of key problems surrounding economic thought. Coined by Michael Polanyi and championed by proponents of the Austrian School of Economics, Spontaneous Order strives to explain a seemingly automatic convergence of chaos in the hard sciences. Individualism paves way to institutions that best represent the needs of society not through planned actions, but through unintentional actions. The maxim of “survival of the fittest” running amok in evolutionary biology and the Internet are a few acclaimed examples of this Order. A neoclassical theory of competition explains how markets achieve simultaneous Pareto efficient equilibrium under no authority and planned obstruction. Free-market outcomes represent all information and individual interests of the players and hence, become the drivers of pertinent allocation of resources and redistributive justice.
The Spontaneous Order aims to explain apparatuses and processes that cannot be structured and formalized, at least not through language. It presents itself as an omnipotent and ever-present cycle of adjustment as a scale-free network. A modern game-theoretic heuristic explaining the aforementioned as Asymmetric Information is a primary argument against a centrally planned economy, wherein a paramount authority of the state cannot possibly maximize social welfare, as it lacks perfect information as a consumer on a similar scale as the populace. The Knowledge Problem of a market of price control is thus rendered inefficient.
A major criticism surrounding limited regulation and hierarchy is the time taken to achieve stability. Consider a team of civil engineers that are tasked with the construction of a road as part of a highway transport system. The Spontaneous Order is analogous to asking the team to inspect and observe the flow of vehicles in that region. Over time, vehicle traffic shall suffer accidents and road jams until an unintentional sense of driving comes up. A certain K-level iterated learning mechanism is in play where the team shall plan to construct a road in line with the sense established. Equilibrium, for some critics, just takes too long and is too painful to endure. If a free market achieves full employment, a sacked worker will find another job. This condition makes the worker to not exert labor at his current job. The firm which shall face a productivity decline must offer higher wages to prevent shirking, enumerated by the Shapiro-Stiglitz model of efficient wages. Average wages are thus, higher than market clearing conditions and reflect a re-optimization of micro behavior, best explained by Robert Lucas.
Consider the essay “I, Pencil” authored by Leonard Read. It is written in the first person from the point of view of a pencil who explains the complexity of its manufacturing. Ingredients such as cedar, graphite, lacquer, pumice, etc. are sourced and processed by a myriad of workers all over the world, from the security guard of the factories involved to a humble consumer of the pencil. It best explains the “grand scheme of things”, which should best be kept unperturbed. Moving away from a utopia of self-correction and into an open economy of fixed wage and quantity contracts, imperfect information becomes the rule, not an exception. Here, rampant coordination problems arise that fail to reconcile with real and nominal wages. For a pencil producer with a vast array of intermediate suppliers all over the world, the costs of an increase in price (menu cost) of any raw material may as well be too high to adjust immediately with nominal demand. Furthermore, different aggregate demand relations that face foreign suppliers make it difficult for them to adjust to market shocks. A single supplier who dares to follow the market could turn bankrupt. Long term, and hence, rigid wage contracts of labor employed cannot make one-for-one inflation adjustments. If exchange rates unintentionally and freely converge to satisfy Purchasing Power Parity, it still does not explain the inclusion of non-tradeable goods in the basket of indices. Productivity differences between developed and developing countries do not accurately estimate “the fair exchange rate”, and hence, lead to an exponentiation of imperfect information (The Balassa-Samuelson Effect). Such institutions of trade established over long periods maintain the Knowledge Problem at their core and arguments about their function and form create an aura of general acceptability, also known as the Credibility Thesis.
The debate surrounding an unintentional Invisible Hand between Liberals and New Keynesians shall constitute the reasoning behind the usage of constructive policy to polish the Spontaneous Order and how far is it justified to do so when it finds itself at odds with artificial regulation and adjustment mechanisms. Recent developments that have propounded the neoclassical synthesis and DSGE (Dynamic Stochastic General Equilibrium) models are an effort to reconcile the two sides of the problem. Interdisciplinary discourse is an absolute need to establish a solution that bodes well with the current regime of phenomenology and hermeneutics. A solution which shall stir another round of negotiation and dialogue until another invention is birthed from dire necessity.
References and Additional Readings
Baumgarth W. Hayek and Political Order: The Rule of Law, Journal of Libertarian Studies Vol. 2, No.1, pp. 11-28, Pergamon Press, 1978
Derrida, Of Grammatology, Johns Hopkins University Press, Baltimore, 2016
