“Grasp the exhaustless life that all men live! Each shares therein, though few may comprehend: Where’er you touch, there’s interest without end.”
GOETHE (Faust, Prelude on the Stage)
1. Ordered Anarchy
On the threshold of every scientific speculation about the universe (as the Greek philosophers taught us long ago) is inscribed the word “wonder.” Before explaining anything, we must first feel that it needs explanation; before answering questions, we must first learn how to ask them. Science cannot progress where men take the world, their own existence, for granted. If our knowledge of these phenomena is to increase, we must see them naively, with the eyes of children. Unfortunately, if understandably, the more the familiar and commonplace is a given fact, the less does it excite the sensation of “wonder.” Is there anything, for instance, more familiar or more humdrum than economic life? What is so usual, even banal, as the housewife’s daily marketing, the farmer’s sale of a calf, the working-man’s weekly pay check, the sale of a share on the stock exchange? Still, it needs but a moment’s reflection to discover behind these banal occurrences something unexplained, even mysterious. Once we have made this discovery, we have already taken the first steps onto the terrain of economics.
Despite the power of the human imagination, it can only feebly picture the economic life of our age in all its variety and complexity. If only we might at this moment have the gift of omnipresence, what an unimaginable number of activities, mutually interacting with and determining each other, we would behold. We would see millions of factories in which thousands of different products are being manufactured; people sowing somewhere, somewhere reaping; a thousand boats and trains hauling to the four corners of the earth cargoes of fantastic variety; shepherds tending flocks in Australia and New Zealand; miners digging copper ore in the Congo or in the American far West and starting it on its way throughout the whole world; the Japanese spinning silk, the Javanese gathering tea—all swelling an unbroken stream of goods flooding across the land into warehouses and factories and from thence into millions of shops. We would see a still finer network of little streams going from the shops into countless households, rivulets of food and clothing and all the other things required by an army of billions: laborers, office workers, clerks, businessmen, farmers—the very ones whose work has created the mighty river of goods. Simultaneously, we would see another current of goods (machines, tools, cement, and similar products not intended for direct consumption) supplying the factories in city and country—the auxiliary goods needed to keep the first stream of consumption goods flowing. And still the panorama would not be complete, for in every direction we would see a host of services being performed: a surgeon beginning an operation, a lawyer making a plea, an economist endeavoring to explain the economic system to a circle of unknown readers. And more than this: we would behold the bewildering moment-to-moment fluctuations of the money market and the securities market—phenomena which we sense are contributing in a mysterious fashion to the movement and progress of our economic system. Finally, our attention would be drawn to small and large ducts labeled “taxes” and “exercises” debouching at all stages of the economic process and serving to divert part of the flow of goods to the state for the maintenance of the army, the administrative agencies of the government, the schools and the courts.
Today, we are witnessing a rapid decline in the number of individuals who satisfy their wants independently of the outside world. The modern farmer manages to retain in a greater degree than any other class the independence of the self-sufficient man, although even he satisfies a growing share of his needs by selling his surplus produce in exchange for the things he does not raise. The rest of mankind, however, is almost completely dependent upon this indirect method of want-satisfaction. Indirect production, in turn, is based upon the principle, familiar to everyone, of the division of labor, but it presupposes, nonetheless, a harmonious coordination of the divided elements of the economic process.1 Who in the countries of the free world is charged with this coordination? What would happen if no one were in charge?
Consider, for a moment, the problem of the daily provisioning of a great city. Its millions of inhabitants must be provided with the basic necessities, to say nothing of the “luxuries” which cheer and brighten existence: so many tons of flour, butter, meat, so many miles of cloth, so many millions of cigars and cigarettes, so many reams of paper, so many books, cups, plates, nails, and a thousand other things must be daily produced in such wise that a surplus or deficiency of any particular good is avoided. The goods must be available hourly, monthly, or annually (according to the kind of good in question) in exactly the quantities and qualities demanded by a population of several millions. But the people’s demand for goods is necessarily dependent upon their purchasing power (money). The existence of purchasing power presupposes, in turn, that the millions who appear in the market as consumers have previously as “producers” (whether employees or independent proprietors) so adjusted their output, both in quantity and quality, to the general demand for goods that they were able to dispose of their stock without loss. Now the highly differentiated modern economic system encompasses not alone a single city, however great, not alone a country however vast, but, in a way to which we shall give our particular attention later, the whole terrestial globe. The craftsman in an optical instrument factory makes lenses for export to the most distant countries, which in turn supply him with cocoa, coffee, tobacco and wool. While he is polishing lenses he is also producing, indirectly, all these things more abundantly and more cheaply than if he produced them directly. This immensely extended and intricate mechanism can function only if all its parts are in such constant and perfect synchronization that noticeable disorder is avoided. Were this not the case, the provisioning of millions would be immediately imperiled.
Who is charged with seeing to it that the economic gears of society mesh properly? Nobody. No dictator rules the economy, deciding who shall perform the needed work and prescribing what goods and how much of each shall be produced and brought to market. Admittedly, people today must perforce accept a great deal more dictation from authorities of all kinds than a few decades ago. Yet by and large the world outside of the Communist bloc—the “capitalist” world, to use a popular if vague expression—still adheres to the principle that decisions about production, consumption, saving, buying and selling, are best left to the people themselves. Thus, the modern economic system, an extraordinarily complex mechanism, functions without conscious central control by any agency whatever. It is a mechanism which owes its continued functioning really to a kind of anarchy. And yet capitalism’s severest critics must admit that all of its parts synchronize with amazing precision. Political anarchy leads invariably to chaos. But anarchy in economics, strangely, produces an opposite result: an orderly cosmos. Our economic system may be anarchic, but it is not chaotic. He who does not find this a wondrous phenomenon and thereby deserving of the most patient study cannot be expected to take much of an interest in economics.
The order which is immanent in our economic system compels recognition even by those who are far from finding it perfect. Indeed, even those who radically disapprove of this kind and degree of order and who wish to replace it with a system of conscious and centralized control (socialism) cannot deny that it exists. Order there is in our economic system; we have a centuries-long proof of it; it is a fact which is beyond debate but which is at the same time compatible with every political faith. Honesty compels the admission that the existence of ordered anarchy is cause for astonishment, that it is something which urgently requires explanation. Further reflection, moreover, must occasion serious doubt as to whether an enormously complicated and differentiated process such as is represented in the economic systems of the advanced industrial nations could be “commanded” in all its details from on high, after the fashion of an army or a factory, without the direst consequences. The existence of order in spite of anarchy—”spontaneous order” if we wish—is not alone an astounding phenomenon in itself. The processes peculiar to economic life in a free society make evident the fundamental superiority of the spontaneous order over the commanded order. Spontaneous order is not just another variety of order, albeit one with the surprising ability to function, if need be, even without command from on high. For if the organization of the economic system of a free society can be shown to differ fundamentally from the organization of an army, there is reason for believing that a spontaneous economic order is the only possible one. Notwithstanding, our enthusiasm for spontaneous order will be tempered by the realization that as measured against any given ideal, it may leave much to be desired.