On Hayek’s “Kinds of Order in Society”

(Don Boudreaux)

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My most-recent column for AIER is the first of a two-part series on my favorite of all of F.A. Hayek’s lesser-known papers – namely, his 1964 paper “Kinds of Order in Society.” A slice from my column:

Among the assumptions at the foundation of this article is that we human beings extend our ability to achieve our goals by cooperating with each other. And the greater is the number of individuals with whom we cooperate, the greater is the number of goals that we can successfully pursue.

This fact explains the omnipresence of human cooperation. Such cooperation began eons ago in small hunting and gathering bands in which each individual personally knew those with whom he or she cooperated. Today, this cooperation literally spans the globe and occurs among billions of people, nearly all of whom are strangers to each other.

When the cooperation is only among individuals who know each other personally – that is, only among a very small number of persons – it’s easy for each person to comprehend the nature of the cooperative arrangement. For example, John, Steve, and Sven agree to go out together at dawn to hunt, while it’’s understood by all that Sarah, Sally, and Sue will remain by the tents and prepare a fire for cooking.

No prehistoric social scientist was necessary to discover and reveal the nature of such simple cooperation – to theorize about how it arose and what purposes it serves.

But cooperation on such a small scale doesn’t allow individuals to achieve as much as each can achieve by including in the cooperative effort more individuals. The inclusion of more individuals brings to the cooperative effort not only additional muscle power but, far more importantly, additional and more diverse brain power – that is, more human creativity. The inclusion of more individuals also encourages greater specialization, which in turn results in each task being done more expertly, more uniformly, and faster.

The human mind, however, isn’t evolved to be able to know more than a few hundred individuals. If we cooperated only with individuals we know, the span of our cooperation would remain extremely narrow and, hence, the results of our cooperative efforts would be correspondingly meager.

Fortunately, our inability to personally know more than a handful of fellow human beings is offset by our instinct to adopt and follow rules. By following rules we can, and do, increase the number of individuals with whom we cooperate beyond the number that we personally know.

An example is trade, which has at its base this rule: Each person is entitled only to what other people voluntarily give to him or her. No one gets to take other people’s stuff without their permission. Under this rule, if Jones wants some item, say an axe, owned by Smith, Jones understands that he can get this axe only by persuading Smith to give it to him. And especially if Smith is a stranger to Jones, the most obvious way for Jones to persuade Smith to give him the axe is for Jones to agree to give some other item – say, a barrel of beer – to Smith in exchange.

By following this simple rule – “Each person is entitled only to what other people voluntarily give to him or her” – each of us can cooperate with strangers. Jones doesn’t have to know Smith, or to personally work with Smith to produce the axe, in order to gain (to “profit”) from Smith’s ability to produce axes. Likewise, by following this rule, Smith doesn’t have to know Jones, or to help him brew beer, in order to gain from Jones’s ability and willingness to brew beer.

Trade allows each of us to tap into the unique talents, interests, and endowments of our trading partners, be they neighbors across the street or strangers across the ocean. And trade is possible because its most basic rule is easily understood by every human being regardless of cultural background.