Friedrich A. Hayek, the 1974 Nobel Prize winner in economics, died
March 23 in Freiburg, Germany. An unseemingly quiet man of 92, he was,
in fact, an intellectual revolutionary who brought to economics an evolutionary
theory of institutions which has shattered the static economic world
forever. Moreover, his enduring ideas cross the border of economics
and venture into political theory. After all, this was a man who authored
more than 30 books and 150 articles on topics ranging from the methodology
used in the social sciences to the foundations of constitutional democracy.
As an economist, Hayek initially focused his attention on the development
of capital theory, business cycle theory and the origin of money in the
But his real legacy, which has touched each of us more than we will likely
ever know, centers around a rather simple notion of spontaneous order of
societal development. Its implications for politics and economics
Hayek borrowed the notion of spontaneous order from Adam Smith (remember
"the invisible hand" of the market from Smith's Wealth of Nations) and the
Scottish natural law philosophers, who argued that society developed
from a spontaneous order which was the result of human action but not of human
design. Hayek, expanding on arguments advanced by the Scots, wrote that
society developed through tradition and reason, concurrently. Both logical
and practical, everyday experience influenced man's advancement. The use of
reason, however, was not limitless, being bounded by bias held by an
individual or group. This meant that society was too complex to be created
piece by piece in a strictly rational, logical manner.
Hayek argued that those who misunderstood or disregarded the notion of spontaneous
order did so because they incorrectly divided the world into two
categories: "planned" (which implicitly means order and purpose)
and "unplanned" (which connotes disorder, randomness and chaos).
Hayek argued that society, and its most advanced institutionthe
market economyfit into neither category and, therefore, belonged
in a third group. Each member of this third group would be bounded
by rules, have its own order and increase in complexity in a way
that would not be fully understood. Hayek's best example of this
third group would be our language. No single individual or group
thought it up. It has its own rules of grammar, and language continues
to evolve as mankind advances. Language could not be described in
complete detail even if every computer was dispatched to this use.
The political implications of spontaneous order theory are strikingly
evident with the recent fall of the Soviet Union. In fact, Hayek's 1944 book, The Road to Serfdom, foreshadowed what we see and read about daily. No
political system could assume, as fascism did on the right and communism did
on the left, that men were cogs to be "fit" into the state machine. Tyranny
results from government's attempts to plan the workings of daily life.
The implications for the economy are even more striking. First, the very
role of government economic planning comes into question, whether the issue is
federal funding for highways or the use of taxes to influence investment
decisions. It is only the unabashedly "free" market that can generate the
signals for producers and consumers to trade. Any attempt by government to
regulate prices, impose interstate or intrastate tariffs, or impose quality
standards sends conflicting, inaccurate messages that have a discoordination
effect in the market. This equally applies to a society like the former
Soviet Union that desired complete planning or the local community housing
authority that plans what type of homes will be built.
Second, reliance on institutions that were created through government fiat
need to be questioned and reevaluated. Hayek, for example, grew increasingly
disenchanted with a central bank as the sole authority for a nation's money
supply and called for competitive currencies that would eliminate monopoly
control. A competitive currency would allow for all types of previously
untried services for producers and consumers alike in a more uncertain
environment. Monetary institutions would then evolve naturally rather than
being artificially created by government.
Finally, Hayek would argue that centrally directed institutions neither
have the wherewithal to keep abreast of all the relevant economic conditions
of "the particular time and place" and be able to fully understand the
information received. This means the policymakers may not be able to know all
the relevant information to make decisions or may base decisions on old data
no longer applicable. Only a spontaneously created market, resulting from
hundreds of millions of valuations by individuals, would ensure economic
Hayek's legacy of the spontaneous order will, like its own theory, continue
to evolve. It will ensure that his life continues to affect us all.
David K. Rehr is vice president of government affairs for the
National Beer Wholesalers Association in Washington, D.C.,
and is a doctoral candidate in economics from George
Mason University where he studies Hayek's work.