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Hayek’s spontaneous order theory goes beyond economics

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About five years ago while doing a Students For Liberty local coordinator online course, I got introduced to Hayek’s theory of spontaneous order. In brief, the underlying idea behind Hayek’s famous The Use of Knowledge in Society was to show the difference between cosmos - a self-governing system as in free-market economy - and taxis - a system governed by someone or a planned economy. I’ve recently realised the idea is so sophisticated it can actually be extrapolated to other areas of life, in particular personal development.

But first, let me blast the pretentiousness of taxis in the domain of economics.

Hayek’s concept is essentially the following. In cosmos, there is no centralised knowledge meaning that not a single entity can monopolise it. On the other hand, the assumption in taxis is that it is possible to gather all the knowledge and to own it. That being said, in a planned economy, the government is the sole knowledge centre that knows what consumers want at every given point of time and can therefore shape the supply side accordingly. For example, after travelling abroad, some USSR official woke up one morning and thought “I really loved American ice-cream so soviet people might like it too so let’s make ice-cream”. Using the power to govern the market at their disposal, they then tasked USSR state companies with developing the product. The pity is though that in a planned economy you get only one type of ice-cream or fifteen sanctioned haircuts. Now, that’s taxis at its best.

In cosmos, on the contrary, the knowledge is dispersed and, conversely, solutions are achieved by the interactions of people each of whom possesses only partial knowledge, according to Hayek. Prices are the key means used to coordinate this process on a greater scale and subjective value is applied at the individual level.

Now let’s put economics aside and talk about us as individuals who have to make decisions that are not economic per se such as what career path to take, what passion to pursue, who to marry etc. As in the case of natural resources, the spectrum of our options in most of these cases is extremely wide yet limited, unlike our creativity to utilise them. However, there are more important questions to ask. Who does the planning: is it us for ourselves or is it some external entity? Who decides what we should value: a respectable job or the one that brings fulfilment? And probably, most relevant, is it possible to know what we want long-term at all?

My parents were brought up in the USSR. From time to time, they experience a weird sense of nostalgia. At first, I thought that was completely irrational and so I wanted to know what was going on. Turns out, what they are missing isn’t the beauty of Soviet architecture, not lovely queues, and not even cheap products, but the sense of safety and stability which is exactly what any kind of long-term planning gives us.

All of us, but especially people in their early 20s are often asked about their long-term goals. “Where do you see yourself in 5, 10, or 15 years?” pops up in almost every job interview. But how can we know? Long-term goals are like a planned economy and rest on the assumption of perfect information. Right, but they presuppose predictability. Safety. Certainty. "Regardless of anything, I’m gonna perform according to the plan, stick to my long-term goal," goes on in one's head. Impressive, indeed. It’s even cost-efficient because then we don’t have to spend additional time looking for and considering other possibilities as we already have a goal.

Of course, if detailed economic plans could be laid down for fairly long periods in advance and then closely adhered to, so that no further economic decisions of importance would be required, the task of drawing up a comprehensive plan governing all economic activity would be much less formidable, writes Hayek.

Extreme focus is what’s needed to succeed but the issue is that we don’t know whether we will feel happy and accomplished once we get there. There is simply no way of knowing: it’s all a big bet. If life was a planned economy, it would have decided for us without even asking. That is the key reason why Hayek's theory is so valuable for personal development.

No one has and should have it all figured out. Because no one has all the knowledge. Life is spontaneous, new opportunities arise, our preferences change, we build up our experience, we reconsider our values. Only people who don’t evolve remain the same. Or to put it in economic terms, companies that fail to respond to challenges and opportunity of the day and adapt while preserving their essence disappear from the market.

Of course, planning as such is essential, even strategising but my intention here was to warn us of becoming our own Stalin, our own economic dictator: you don’t have all the knowledge, relax. We don’t need to know what’s our ultimate goal is: we figure it out as we go with the help of coordination or competition with other actors, new experiences. Let’s be our own cosmos.


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