Sunday, December 03, 2006

Malign Unintended Consequences of Spontaneous Order

A correspondent, who knows of my interest in Adam Smith, has sent a copy of the contribution to The New Palgrave Dictionary of Economics and the Law on the ‘Invisible Hand’ by Karen I. Vaughan. She argues how, in her view, Smith’s metaphor is closely related to ‘spontaneous order’ theories associated with Hayek, a view with which I have some sympathy.

My main problem with Vaughan’s interpretation of the metaphor is what follows from her description of it as ‘the principle by which a beneficent social order emerged as the unintended consequences of individual human actions.’

That human actions can have unintended consequences of a ‘beneficent nature’, is unchallengeable; as is the assertion that human actions can have (and, sadly history shows how often they do have) unintended consequences of a non-beneficent nature too. Among the numerous outcomes from human actions there is a whole range possible, i.e, human behaviours may be malign or benign, and mixtures of both.

Smith’s philosophical corpus is about the unordered, unplanned, undirected and unintentional actions of individuals leading to consequences, some set(s) of which have beneficial utility and some set(s) that do not have such benefits. From repeated behaviours comes ‘rule’ formation (‘repeat those actions with others that benefit me’) and, eventually, the creation and operation of ‘rule’ ordered systems of transactions. This conduct drives social-evolution. (See James R. Otteson, Adam Smiths Market Place of Life, 2002, Cambridge University Press.)

Smith used this approach in his writings on Language (1761), lectures in Rhetoric (1749-63), Lectures in Jurisprudence (1751-63), Moral Sentiments (1759) and Wealth of Nations (1776). Abstracting from his Work, the above ‘rule’ drawn out by Vaughan is perfectly understandable; however, it also misses the overwhelming context of all of his work, bar none, namely that he spent a great deal of energy and space in his Work outlining in his historical approach just how often human actions in all spheres of life consist of unintended consequences of less than beneficent value to people in society, no matter what individual beneficent value an individual’s actions had, or were believed to have, for that ‘self’.

These non-beneficent consequences for others can be of minor and of major consequence in their wrong ideas and practices, such as pagan and general superstition, false ideas about natural philosophy, tyrannical rule and despotism, slavery and crushing poverty, ignorance and exploitative political economies, and so on. ‘Priests’, warlords, kings, princes and legislators, landlords, merchants, monopolists and the feted idle rich, abundantly populate his books to such a degree that abstracting his ‘principles’ (including a lonely metaphor) and forgetting his context is in severe danger of giving his ‘principles’ a meaning he did not intend (another reminder that not all unintended consequences are benign).

It is precisely because there can be malign consequences from human action that Smith (and many others) applied their ‘principles’ carefully. Which sets of actions have benign consequences for society and which do not? The merchant who acts from preferring the domestic to distant trade enhances domestic product to its greatest value, which repeated all over the kingdom (the whole is the sum of its parts) ‘renders the annual revenue of society as great as he can’. The monopolist who acts to prefer a non-competitive market to a competitive one by instituting restrictive practices (town guilds, apprenticeship laws), by persuading gullible legislators to tax and prohibit ‘foreign’ imports (Mercantile political economy), who determines to keep down wages for the benefit of profits (Combination Laws and ‘secret’ collusion with other employers), serves his own benign interests and reduces society’s (no society can be happy if its majority are miserable).

In short the ‘social order’ that emerges as ‘the unintended consequence of human individual actions’ may not be benign. Smith agreed it could thus emerge; not that it would. Of course, at the abstract level, any such ‘benign social order’ that did ‘emerge’ is more likely to do so if it is not attempted by well-intentioned planners and directors trying to ‘engineer’ it. Socialism is not benign, but neither are those aspects of capitalism that it shares with socialism, in the forms of monopolies, polluters and protectionism. But whether the engineering of such feats is possible (the evidence is mixed) cannot detract from the problematical point that asserting that ‘unintended benign consequences’ will emerge from any and all individual actions.

Vaughan’s implication that benign consequences follow necessarily from the former, is debateable, and should be treated as her, and Hayek’s, opinion. What is not debateable (in the sense of there being doubt) is that Smith did not assert such a conclusion and nor did he use the metaphor of ‘an invisible hand’ to imply otherwise. It was just a metaphor for the ‘whole is the sum of the parts’ – individual outputs sum to the national output total. It is no more ‘theoretical’ than Mirabeau’s quip about people thinking they work for themselves when in fact they work for everybody else.

Similarly, with the selfish rich landowners, living well of the increased output of private land ownership compared to the Ages of hunting or shepherding, who distributed produce sufficient to maintain their retainers and their serfs at least as well as earlier modes of production (evidenced by steady and growing populations, absent plagues and warfare, etc, which would be impossible if shares of gross food output fell significantly for the landless. The rich must feed those who work or amuse and protect them. The resultant per capita consumption is ‘nearly the same’ as it would be if the land was divided equally, abstracting from other considerations, such as security, technology, and yields, etc. The land owners don’t think of the lot of the landless, but nevertheless they end up maintaining them with sufficient food to ‘multiply the species’.

Take the metaphor out of all three uses that Smith makes of it (‘Astronomy’, ‘Moral Sentiments’ and ‘Wealth of Nations’) and it would not make the slightest difference to his meaning; neither does it add anything to it (except when it is distorted by grafting something ‘mystical’ or ‘miraculous’ to it when it introduces a confusion). That left alone it adds nothing is the measure of a metaphor, no more, no less. Turning it into something it isn’t is unfortunate. If Karen Vaughan wants to extend Smith’s analysis as an antecedent of Hayeks’ ‘spontaneous order’ that is her right, but the link to Hayek should be strictly limited to Smith’s sense of unintended consequences that may, not necessarily always will, lead to beneficent outcomes.

Karen I. Vaughan She is the author of ‘Austrian Economics in America: The Migration of a Tradition’, 1994. New York: Cambridge University Press. From the excellent reviews it has received, I gather that Vaughan, while thoroughly scholarly, is more of a moderate exponent of Austrian Economics than an extreme advocate of them. Those of you who read the Blog will know what I mean.

There is much more in Vaughan’s article and I shall probably come back to it tomorrow (Monday).


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