This book outlines an economic theory of experts. It uses the economic concepts of “spontaneous order” and “competition.” The concept of spontaneous order is important for a satisfactory understanding of the division of knowledge as I develop that concept in the next two chapters. The concept of “competition” is important for the theory of experts and, especially, the theory of expert failure. Unfortunately, the concepts of spontaneous order and competition are fluid. They get different meanings from different economists. Non-economists sometimes interpret these concepts in ways that most economists do not. It can be challenging, therefore, to use these concepts and, especially, these terms to communicate ideas effectively. Rather than trying to invent new terms that are likely themselves to be misunderstood, I will try to clarify their meanings for the broad tradition of “mainline” economics, which is the intellectual context for my theory. Peter Boettke coined the term “mainline economics” to identify a tradition of economic thought encompassing Adam Smith, F. A. Hayek, Vernon Smith, and others. This tradition of thought emphasizes “limits to economic analysis, and efforts at economic control” (Boettke 2012, pp. 383–5). And in this tradition, the notions of spontaneous order and competition are important.
The idea of “spontaneous order” is more commonly known by the label “invisible hand.” But the term “invisible hand” is sometimes taken to be a religious idea or to connote a mystification of markets. It may therefore cause confusion or misunderstanding. I will use the term coined by F. A. Hayek: “spontaneous order.” It is the idea that there are systematic but unintended consequences of human action. An explanation of a spontaneous order may be called an “invisible-hand explanation” (Ullmann-Margalit 1978). The “mainline” theory of markets views them and their scientific regularities as spontaneous orders. As I will briefly note below, this cannot be said of general equilibrium theory as it was first proposed by Leon Walras (1874–77). But in more customary interpretations of the theory, it imperfectly describes Adam Smith’s invisible hand. In the interpretations of neoclassical economics most common within the discipline, the theory of markets describes a spontaneous order.
To introduce the concept, I will use a silly example concerning the behavior of spectators at a game of American football. Later I will briefly consider the more serious examples of money and the division of labor. But the silly example may be more transparent and thus useful for introducing the concept, which has so often been maligned and misconstrued.
In American football, everyone in the stadium will stand up when the “long bomb” is thrown. The “long bomb” is a play in which the ball is thrown a great distance down the field. It is an exciting event, and the spectators all stand up when it happens. The connection is quite regular and consistent: When the long bomb is thrown, everyone stands up. It is a scientific regularity, though a trivial one. We cannot adequately explain this phenomenon without the idea of systematic but unintended consequences of human action. Without this idea of spontaneous order and assuming away supernatural explanations, we would probably have to explain the regularity in one of two ways. First, we could explain it as “natural.” We would cast about for physical causes of the regularity or, perhaps, some sort of biological explanation. Second, we could explain it as “artificial.” We would construe the regularity as the product of a plan. Neither explanation works.
The phenomenon is not “natural.” There are no springs in the seats to thrust fans upward when the long bomb is thrown. Nor are there invisible threads descending from heaven to pull us up at the appropriate moment. It does not seem possible to explain it as a “natural” phenomenon if “nature” excludes human action. But it is not an “artificial” phenomenon either, if “artificial” means that it was planned ahead of time. The spectators did not receive instructions to stand up when the long bomb is thrown. There was no meeting ahead of time during which the fans agreed on a common plan for standing during the long bomb. No orders to stand were barked from above. And yet they stand.
We can explain the long-bomb phenomenon as a spontaneous order. When the long bomb is thrown, spectators close to ground level must stand up to see the ball’s progress through the air. They want to see the action. When the long bomb is thrown, they cannot see the action without standing up. When spectators in the first row stand up, they obscure the view of spectators in the second row, who must now stand if they are to follow the action. When spectators in the second row stand up, they obscure the view of spectators in the third row, who must now stand if they if they are to follow the action. And so on to the highest row. The phenomenon is perfectly regular. It is regular enough to look like it was planned. But it was not the product of human design. In this sense, it is like natural phenomena. While the phenomenon was not planned, it was the result of human action. In this sense, it is like artificial phenomena. It is a systematic, but unintended consequence of human action. It is a spontaneous order.
Importantly, the long-bomb phenomenon may exist without the persons involved being aware of it. Each person will realize when everyone is standing and when everyone is sitting. But they may not be aware of the regularity whereby the long bomb causes everyone to stand up. Thus, we have a law of stadium behavior that the people follow without knowing it. Many thinkers (and most undergraduate students) seem to believe that any “laws of economics” would have to be first devised and promulgated and then followed. If there is a law, there is a lawgiver. But the “laws” of a spontaneous order generally function even when nobody is aware of them. Thus, an increase in the supply of a commodity causes its price to fall in Homeric Greece no less surely than in nineteenth-century London.
My explanation of the long-bomb phenomenon is also subject to empirical test. If it were a topic worthy of study, researchers could go to stadiums and see whether the correlation I have observed is robust. (Perhaps I have generalized too freely from a small number of observations.) They could observe whether fans in the lower rows stand up before fans in the upper rows. They could become participant observers and ask their fellow spectators, “Why did you stand just now?” And so on. Any claim that invisible-hand explanations must be untestable “just-so stories” is mistaken. Since Kuhn (1970), philosophers and methodologists have become more sensitive to the difficulties of “falsification” and, more generally, empirical control of theory. Invisible-hand explanations are no exception. But they are not less subject to test and criticism in general than other scientific theories in the natural and social sciences.
The evolution of money and the division of labor are more serious examples of spontaneous order.
As Carl Menger (1871) has noted, John Law (1705) seems to have been the first scholar to explain the existence of money by evolution rather than agreement. Menger’s own exposition is a standard example of an invisible-hand explanation. The story begins with barter. The evolutionary process starts when one trader innovates by engaging in indirect exchange. Once that has happened, many individuals have an incentive to expand their behavioral repertoire to include indirect exchange. Even if all traders in the economy practice indirect exchange, there may be no generally accepted medium of exchange. There may be no money. In this situation, many traders will have an incentive to change their exchange medium or media. They will have an incentive to move away from less widely demanded goods to more universally demanded goods. In other words, they have an incentive to move to the goods that are more moneylike. This process is not complete until some goods emerge as generally accepted exchange media. They are moneys. The process may produce more than one money or only one generally accepted medium of exchange.
Menger’s theory shows how money could emerge without an overall plan or agreement to create money. The underlying logic is that indirect exchange is often better than quid pro quo, and the acceptability of exchange media is self-reinforcing. Several instances in which cigarettes become money seem to fit the pattern. Radford’s (1945) description of the economics of a World War II prisoner of war camp includes the use of cigarettes as money. Senn (1951) describes how currency restrictions in postwar Germany led to the use of cigarettes as money. For about eighteen months cigarette money was a minor currency used mostly to support trade between “Allied nationals and a relatively small number of Germans” (p. 332). In Communist Romania, Kent cigarettes were used as money, especially for bribes (Leary 1988) or the purchase of items with “recurrent shortages” such as “meat, produce and energy” (Lee 1987). Lee records one person explaining, “If I needed to seek the counsel of a lawyer, I would pay him off in Kents.” In these and other instances restrictions prevented the use of ordinary currency, and there seems to have been a Mengerian evolutionary process converging on cigarettes, or one particular brand of cigarette, without any prior plan or willful coordination among the people involved.
Ludwig von Mises says the “main deficiency” of the “doctrine” that money was invented is “the assumption that people of an age unfamiliar with indirect exchange and money could design a plan of a new economic order, entirely different from the real conditions of their own age, and could comprehend the importance of such a plan” (1966, pp. 402–3). To anticipate the systemic benefits of money in a world without money would be a superhuman epistemic feat.
Importantly for this volume, the division of labor is a spontaneous order. The division of labor is the system of specialization and exchange. Each actor specializes in a relatively narrow set of tasks, producing a surplus. Each actor then trades their surplus for some of the surpluses of others. We specialize and exchange. Specialization makes us more productive. Trade lets us get the advantage of that increased productivity.
It is almost as if some mastermind had divided the social production process into subtasks and allocated those tasks across people and groups of people such as firms. But the division emerged without a Great Divider. Instead, each actor (whether a person or an organized group with a common purpose) tends to gravitate toward tasks they do relatively best. Economists use the term “comparative advantage” for the idea of being relatively best at something. There is no guarantee that every actor will find their comparative advantage. But if enough actors move to tasks that they are relatively good at, the productive activities of all the different actors in society and, indeed, the global economy will tend to have a rough and ready compatibility. If too many of us think ourselves skilled singers, the wages of singers will be low and some of us will turn to other employments. Those with the greatest incentive to exit will tend to be relatively poor singers or, perhaps, good singers who nevertheless have other skills in relatively abundant demand. In other words, those whose comparative advantage lies elsewhere have the greatest incentive to exit the industry. If too few of us sing for a living, the high wages of singers will attract entrants. Those with the greatest incentive to enter will tend to be relatively good singers or, perhaps, mediocre singers whose other meager skills are not greatly demanded. In other words, those with a comparative advantage in singing have the greatest incentive to enter the industry.
Smith (1776) argued that the division of labor causes comparative advantages for individuals, not the other way around. Smith may have been about right, notwithstanding some innate individual differences. Most of the economically important differences between thee and me probably come from our different experiences and opportunities in life. We start the same. We enter the labor market with differences, however, and these differences imply different comparative advantages. And we grow still more different once we have entered different paths, cultivating different opportunities, experiencing different work histories. At any moment in our work histories, therefore, we have different comparative advantages. My illustrative story of entry and exit from the market for singers would seem to hold, therefore, regardless of how comparative advantages come about. What matters for that story is not how comparative advantages come to exist, but that they do indeed exist.
Imagining a Great Divider probably helps us to understand the division of labor as a spontaneous order. But the division of labor is too intricate to be the designed product of a human mind. Mandeville (1729, vol. I, pp. 182–3) commented on the vast numbers of persons involved in producing the humblest item of clothing in the England of his time:
A Man would be laugh’d at, that should discover Luxury in the plain Dress of a poor Creature that walks along in a thick Parish Gown and a course Shirt underneath it; and yet what a number of People, how many different Trades, and what a variety of Skill and Tools must be employed to have the most ordinary Yorkshire Cloth? What depth of Thought and Ingenuity, what Toil and Labour, and what length of Time must it have cost, before Man could learn from a Seed to raise and prepare so useful a Product as Linen.
Later, Smith (1776, I.1.11) would make a similar observation about the “woollen coat” of “the most common artificer or day-labourer in a civilized and thriving country.” Buchanan (1982) makes the further point that social orders are defined in the process of their emergence. It follows that largescale spontaneous social orders could not have been designed even by super-intelligent beings.
General equilibrium theory is the standard mathematical representation of this process. The theory does not, however, represent the process itself, but only the theoretical end point of the process. And, of course, there are different versions of the theory. The original was Walras (1874–77). More recently, Debreu (1959) used very different mathematics in his general equilibrium theory. The theoretical outcome of the process, the equilibrium distribution of prices and output, is optimal in the sense that no rearrangement could help at least one person without simultaneously harming at least one other person. Economists understand perfectly well, however, that this interesting theoretical equilibrium is not achieved in any real economy.
Economists who tend to favor more or less free or unhampered market exchange tend to think government “intervention” does not usually get us closer to the theoretical ideal. But many economists think governmental interventions (“regulation”) have a rich potential to improve outcomes. While economists in Boettke’s “mainline” tradition tend toward relatively strong support of more or less unfettered market competition, such views are probably in the minority among economists (Klein and Stern 2006). Economists tend to be more favorable toward free trade and free markets than non-economists. But the strongly free-market view is mainline, not mainstream, within the economics profession.
Frederic Bastiat’s reflections on how Paris is fed reflect the idea that the division of labor is a spontaneous order:
On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied.
Leonard Read’s famous 1958 essay “I, Pencil” makes the vital point that nobody knows how to make a pencil. It is thinkable, if improbable, that someone might know all that must happen within the pencil factory to produce a pencil. But no one knows how to make all the inputs to pencil making and inputs to the inputs to pencil making, and so on. It is the overall division of labor that “knows” how to make a pencil. Pencil-making knowledge is distributed across all participants in the social division of labor; it exists in the system. If no one knows how it all works – if, in this sense, no one understands the division of labor – then it would seem hard to deny that the division of labor is a spontaneous order. It evolves over time in ways no one plans and that no one understands in detail. It is a systematic but unintended consequence of human action.
The Scottish Enlightenment philosophers clearly expressed the idea of spontaneous order. Adam Ferguson said: “Nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design” (Ferguson 1767 as quoted in Hayek 1967a, p. 96). Adam Smith, of course, used the phrase “invisible hand.”
Table 5.1 provides a simple taxonomy of orderly structures. An order may be the result of human action or not. It may be the execution of a human design or not. Natural orders are not the result of human action and not the execution of any human design. Artificial orders are the result of human action and the execution of a human design. Presumably, no order can be the execution of a human design and yet not the result of human action. Anything done to put the plan into motion would be a human action resulting in a designed order. Thus, it could not be described as the execution of a human design and yet not the result of any human action. Finally, spontaneous orders are the result of human action, but not the execution of any human design.
Types of orders
| The execution of a human design | Not the execution of any human design | |
|---|---|---|
| The result of human action | Artificial orders | Spontaneous orders |
| Not the result of human action | Impossible | Natural orders |
The taxonomy of Table 5.1 is an aid to thinking. It is not meant to exclude intermediate cases. Consider the modern automobile. The orderliness of any one automobile is the result of human actions executing a human design. That design, however, is but a slight modification of previous designs, which modified still earlier designs, and so on. The earliest automobiles were horseless carriages. They combined slight modifications of the earlier designs of internal combustion engines and of horse-drawn carriages. Those earlier engines and carriages were but slight modifications of still earlier forms, and so on. Thus, even a seemingly clear case of an artificial order, a modern automobile rolling off the assembly line, is the product of an evolutionary process that no one planned and that no one could have imagined. If no one knows how to make a pencil, then pencils are more emergent than designed.
Or consider “the wave.” Spectators in the sports stadium may stand up and sit down one after another to produce an undulation, a wave. When someone tries to start a wave in the stadium, it may or may not take. There must be several other people who respond with enough rhythm to get the thing going. There is no agreement to make it happen. No one is making enforceable commands to get the wave going. Nor is there any plan for how long the wave should last. Thus, the wave is in some degree a spontaneous order. But it cannot happen if the great majority of participants do not understand consciously what they are doing and what the wave is. They cannot be unaware of the fact that they are making the wave. Thus, it has an importantly “artificial” element as well. It is an intermediate form between spontaneous order and artificial order.
Any even moderately complex economic order is a spontaneous order, whatever the role of government might be. Official Soviet planning was never the dominant ordering force in the Soviet Union. Rather, informal markets and official actions interacted in complex ways to produce a spontaneous order, albeit a decidedly unlovely one (Boettke 2001). Joung (2016) discusses the spontaneous ordering forces in North Korea. Wagner (2010) and Smith et al. (2011) argue that nominally “public” and nominally “private” enterprises are “entangled.” Just as two distant particles may be “entangled” in physics such that the properties of one depends instantaneously on the properties of the other, the behavior of “private” and “public” enterprises are “entangled” such that the nature of the one type of enterprise is a function of the nature of the other type of enterprise. In the current American system of crony capitalism, for example, “systemic” enterprises are gambling with other people’s money and therefore rationally take on more risk than otherwise similar enterprises under a regime that does not invite moral hazard by privatizing profits while socializing losses. In this example, the policy regime shapes the risk tolerance of “private” actors. Governments may plan, but the best laid schemes of mice and men go often askew. (See also Koppl et al. 2015.)
F. A. Hayek used the term “spontaneous order” to describe “[t]he grown order … [the] self-generating or endogenous order” (1973, p. 37). Spontaneous orders in society are “The Result of Human Action, but not of Human Design” (1967a). The study of spontaneous orders, Hayek argued, was originally the province of economics. But biology “from its beginnings has been concerned with that special kind of spontaneous order we call an organism” (1973, p.37). It was not until the arrival of “cybernetics [as] a special discipline” that the physical sciences came to discuss these ‘self-organizing or self-generating systems’” (ibid).
Of course, many consequences of our actions are perfectly intended. Action is purposeful and often obtains its ends. But intended consequences raise no fundamental scientific problem. Unintended consequences are puzzling. The economy runs along without a central planner. This seems a prescription for disaster. But the system holds together and permits each of us a greater fulfillment of his ends than would otherwise be possible. It is the scientific problem at the heart of economics.
Spontaneous orders have three “distinguishing properties.” (They are typical properties, not always present.) First, they are complex; for spontaneous orders, the “degree of complexity is not limited to what a human mind can master.” Think of the division of labor. As Bastiat suggests, no one understands precisely how all the pieces fit together. We have general ideas, but not a detailed, concrete understanding. Second, they are abstract; a spontaneous order’s “existence need not manifest itself to our senses but may be based on purely abstract relations which we can only mentally reconstruct.” Again, think of the economy. The economy is not a bunch of machines or a thing that happens at 2:00 on Thursday. It is an order of events, a set of interconnections. Third, they have no purpose; “not having been made” by any designing minds, a spontaneous order “cannot legitimately be said to have a particular purpose, although our awareness of its existence may be extremely important for our successful pursuit of a great variety of different purposes” (Hayek 1973, p. 38; all emphases in original). Once again we use the economy as our example. What is the “purpose” of the economy? Each of us has his own ends, but we don’t have any great collective goal. An atheist might buy a Bible from a Christian in order to find supposed contradictions with which to embarrass Christians. The atheist opposes Christianity; the Christian supports it. And yet they come together in the same exchange of money for Bible. Far from having a common purpose, their purposes are antithetical.
Hayek’s notion of spontaneous order is, at a minimum, similar to the complexity theorists’ notion of “complex adaptive systems.” Hayek claims that such orders “result from their elements obeying certain rules of conduct” (1973, p. 43). Each “agent” follows a set of rules and responds to local information. The interaction of many such agents produces an overall order that was not planned by any of the agents who produced it. If the number of agents is large enough, this order may be very complex even when the rules governing each individual are quite simple. Hayek is an evolutionary theorist whose evolutionary ideas are based, in part, on a cognitive psychology similar to the sorts of things discussed in complexity theory. As with the complex adaptive systems of the Santa Fe group, Hayek recognizes that there is “no global controller” (Arthur, Durlauf, and Lane 1997, p. 4) of the economy or any other complex adaptive system.
The terms “unintended consequences,” “spontaneous order,” and “complex adaptive system” do not have identical meanings. Many unintended consequences are neither systematic nor orderly. But for that very reason, they don’t often form the objects of scientific study. A spontaneous order could be relatively simple, though few, if any, simple cases are interesting to study. In principle, a complex adaptive system could be constructed with all its aspects and behaviors perfectly planned. But it is hard to come up with examples. Such a system would have no unintended consequences. Thus, the terms do not cover the same ground. But the overlap is great. This overlap contains most or all of the interesting phenomena in this area.
The word “competition” may invoke quite a variety of ideas, many of them very different from the sort of thing I have in mind. Economists and non-economists alike often toss around the vague term “free-market competition” without definition. Related terms such as “capitalism” and “laissez faire” are also frequently used without adequate definition. The general idea such terms are usually meant to invoke is that different parties my trade freely with whomsoever they choose. But in any actual system of supposed “free competition” there have always been restrictions on who may trade with whom and on what terms. Some such restrictions are widely opposed by economists. Economists generally oppose restrictions against trading with foreigners. We tend to support free trade. And economists generally oppose minimum wage laws, which we think do more harm than good. (There are notable exceptions in both cases, of course. Some economists like these restrictions.) Other restrictions, however, receive broad support from economists and non-economists alike. Children, for example, should not have a complete freedom of contract. A 12 or 16-year-old may buy a toy truck, but not a used car. Nor should adults be allowed to sell themselves into slavery.
We generally take for granted the very large number and variety of restrictions on what is allowable in trade. If I sell you a large can labeled “olives” that you later discover contains lots of brine and only two olives, you will accuse me of fraud. I violated an implicit standard of reasonableness in our contract. Is that standard of reasonableness a deviation from “free-market competition”? When terms such as “free-market competition” are used, whether favorably or unfavorably, we are usually left to guess which restrictions on trade “count” and which do not. In other words, we are usually left to guess what precisely the term is supposed to mean to the author who is splashing it about.
This ambiguity about restrictions is sometimes a reflection of the view that it would be better to have a decentralized evolutionary process to establish such restrictions, rather than attempting to design and impose them from the center. The British common law is often celebrated in this context. All contracts are incomplete. They do not specify all relevant details of what should happen in every possible contingency. Contracting parties rely, therefore, on a shared set of expectations. These expectations are often unconscious and tacit. We become aware of them only when they are violated. If the contracting parties fall into dispute they may find themselves in civil court. The court should try to determine which of the contending parties had the more reasonable expectations. That determination depends on a host of particulars, including the ordinary practices of the relevant industry. Thus, the “rules” of “free-market competition” should exist mostly in tacit forms of habit, practice, and custom. When contracting parties fall into dispute, the concept of “fairness,” in this sort of view, is central to the determination of which litigant had the more reasonable expectations. We generally have the right to expect that our trading partners are not willfully tricking us into unfair deals. Custom includes standards for what is fair and what is unfair in our dealings with others.
Defenders of the common law think that at least some actually existing systems of common law have come close enough to the ideal to outperform more planned and centralized systems of restrictions. And they generally believe that it is possible and desirable to set up such decentralized processes of dispute resolution, thus largely (though not wholly) sidestepping the need for “regulation” by governmental authorities. They think common law outperforms “regulation” for the most part. Notice, however, that even in this putatively antiregulatory view, commerce is absolutely regulated by a set of binding rules that are enforced in practice. All commerce is regulated, even under laissez faire. The question is what sort of regulation is best. The generalized objection to “regulation” is either incoherent or a call for regulation through a decentralized evolutionary process such as Anglo-American common law.
I have argued that even the most ardent supporters of laissez faire are not usually suggesting that commerce be somehow unconstrained by rules limiting what one is permitted to do. Rather, they favor (where possible) decentralized evolutionary processes for the determination of those rules. Unfortunately, loose talk of “freedom,” “liberty,” laissez faire, and the like often obscures the point that all commerce, however “free,” is “regulated” in the sense that there are rules restricting what you can do, whether those rules be top down or bottom up. Loose talk of “freedom” and the like easily creates the impression that “free-market competition” is some sort of free-for-all in which the more cunning and ruthless players have a natural advantage over more prosocial actors. It may then appear that economists take primitive notions of “individualism” and “selfishness” so seriously that they cannot appreciate what a horror show “free-market competition” really is. And yet the sort of view thus criticized is not really upheld at all by professional economists, especially those in research universities.
Cole (2012) and Cole and Thompson (2013) illustrate the confusions that may exist. Their broadly favorable characterizations of my ideas for “competitive” forensic-science reforms rather badly misconstrue the underlying economic vision of those reforms. They are good illustrations precisely because the authors are mostly friendly toward my work in the area. They are not hostile critics eager to misconstrue my arguments. Importantly, their interpretation of the economic idea of “free-market competition” is not idiosyncratic. It represents, instead, quite a lot of scholarly thinking by non-economists about what economists are trying to say.
Their interpretation of “competition,” which I will explain presently, is not correct for the “mainline economics” of Adam Smith, F. A. Hayek, and Vernon Smith. But more “neoclassical” economists do sometimes fall into the sort of thinking they seem to describe, at least on markets being somehow “natural.” Thus, while I will express my disagreements with Cole (2012) and Cole and Thompson (2013), I will also show that that one of the most important architects of neoclassical economics had ideas on the “natural” at least similar to the views they impute to me and to economists in general. We will also see, however, that the economists who come closest to their depiction are not “free-market economists,” but “interventionists.”
Cole (2012) says that “Free-market competition requires a level playing field”; therefore, “Professor Koppl’s vision of a level playing field in which defense and prosecution experts compete in a free-market” may be at least somewhat “naive” (p. 103). I think Cole expresses a common view that is often taken for granted. Somehow we must a have a “level playing field” before we permit “free-market competition.” In my view, the truth is almost the opposite. What is sometimes called “free-market competition” does not “require” a “level playing field” to exist before competition begins. Rather, “free-market competition” tends to produce greater equality of outcomes. It does not eliminate inequalities of wealth and income, of course, but it does tend to reduce them.
As an aside, I do not believe that I have ever described my proposals for “competition” among crime labs as a call for “free-market competition.” Koppl (2005a) does include privatization in the suite of proposed reforms. But as I note there, citing Williamson (1976), “Poorly designed ‘privatization’ may replace a government bureaucracy with a profit-seeking monopoly” (p. 273). Privatization can easily go wrong and is very far indeed from a panacea. In any event, criminal justice is a state function and thus monopolized. Even if crime labs were privatized, the result would still not be “free-market competition.”
The notion that “free-market competition” (whatever that may be) requires a “level playing field” is either a positive or a normative statement. I am unaware of any positive statement to the effect that some sort of equity condition is required for competition to exist. Indeed, Adam Smith held the view that slavery could persist indefinitely in an otherwise competitive system. Slaves do not exist on a “level playing field” with their owners. Smith opposed slavery. And he thought slave labor was more expensive for the slave owner than free labor. (Fogel and Engerman 1974 show that Smith was probably wrong on this point, though it remains, of course, a contested question.) Slavery persists in spite of its (supposed) economic inefficiency because of our “love of domination and tyrannizing,” which “will make it impossible for the slaves in a free country ever to recover their liberty” (Smith 1982, p. 186). (The passage is from the 1762–3 lectures, LJ[A] iii, 114.) Smith’s theory of slavery’s persistence should suggest that that “free-market economics” (whatever that may be) does not assume or “require” a “level playing field.”
It may be that some critics of “free-market competition” think we should have a “level playing field.” It is hard to see how this normative view applies to the narrower question of “competing” crime labs. In any event, I think mainstream economists usually argue for transfer programs. Let’s tax the rich to support the poor. Even two prominent economists who are often accused of opposing such measures, F. A. Hayek and Milton Friedman, have, instead, forcefully supported them (Hayek 1944; Friedman 1962). It is not that we “require” a “level playing field.” Rather, we desire public support for relatively poor people.
I have suggested that “free-market competition” might reduce inequalities. This claim is broadly true, I think. Details matter, and history matters. But the general tendency of more or less unfettered markets is to reduce differences in average wealth across ethnic and national groups and, to a lesser extent, individuals. This general tendency is illustrated by the convergence in average height across countries: “The increasing trend in height has decelerated in developed Western countries in the 1990s, while it is still occurring in recently industrialized or developing countries” (Pak 2004, p. 512). As poor countries get rich through greater integration with the global marketplace, average heights in the poor countries rise toward average heights in rich countries. No such convergence occurred in North Korea, where “free-market competition” has not been allowed. (But as chronicled in Joung 2016, there have been black markets, and since the 1990s there has been some official liberalization.) Great differences in height have emerged between North Korea and South Korea. Pak (2004, p. 514) found that young adults in South Korea were more than two inches taller than their peers in North Korea. (See also Schwekendiek 2009 and Steckel 1995.)
Some economists of the Progressive Era seem to have understood that “free-market competition” tends to eliminate the differences between groups. Some of them favored restrictive measures out of a fear of the competition of putatively inferior groups. Leonard (2005, pp. 212–13) explains how this sort of thinking led to support for the minimum wage.
Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it performed the eugenic service ridding the labor force of the “unemployable.” Sidney and Beatrice Webb (1897 [1920], p. 785) put it plainly: “With regard to certain sections of the population [the “unemployable”], this unemployment is not a mark of social disease, but actually of social health.” “[O]f all ways of dealing with these unfortunate parasites,” Sidney Webb (1912, p. 992) opined in the Journal of Political Economy, “the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.” A minimum wage was seen to operate eugenically through two channels: by deterring prospective immigrants (Henderson, 1900) and also by removing from employment the “unemployable,” who, thus identified, could be, for example, segregated in rural communities or sterilized.
They favored restrictions on immigration for similar reasons. Such eugenic views were used to support restrictive measures.
Cole and Thompson (2013, p. 126) say that I “advocate a system of competition in which [crime] laboratories would naturally compete to provide the best scientific analysis of evidence.” I do not know what it means to compete “naturally” or “unnaturally.” Nor do I recall using such language to characterize my proposals, which, after all, would require policy makers to decide and act. They seem to believe that economists think of markets as “natural” in some strong sense that puts them, I gather, beyond the proper reach of human intervention.
Such interpretations of standard economics are probably mistaken, as our discussion of spontaneous order should have suggested. Certainly, they do not fit the “mainline economics” with which I tend to identify. I will come presently to some “neoclassical” ideas that come closer to this interpretation. One may guess how it could seem that even mainline economists think such things. If you are insensitive to the idea of spontaneous order, then the economist’s emphasis on unplanned order might seem to suggest the view that market forms are “natural” in a sense that excludes human action. If you push this view, economists could seem to be saying that we do not create, design, or implement markets. We simply remove impediments to their “natural” existence. Such interpretations are mistaken. Markets are spontaneous orders and thus very much the result of human action. And in many instances market structure is either the product of design or, at least, influenced for good or ill by human plans operating at relatively high levels such as that of a regulatory body or national government.
Many scholars, economists included, seem to struggle with the interpretation of standard microeconomic theory. (See, for example, Yeager 1960; Langlois and Koppl 1991.) In one common view that Cole and Thompson (2013) seem to share, economists are unable to recognize the role of human action in shaping market forms. Zuiderent-Jerak says that the perspective of science studies “changes markets from impersonal and ‘natural’ entities” as conceived in economics “into interesting objects for studying the creation and regulation of a particular form of objectivity” (2009, p. 769). It is not necessary to interpret economists in this way if we think they are describing spontaneous orders.
Michel Callon thinks it is a meaningful criticism of “economics” to say “The economists play a very important role because they perform the idea of pure markets, governed by natural laws in the political sphere” (quoted in Barry and Slater 2002, p. 299). Callon’s remark comes in context of a criticism of economists as monopoly experts with which I largely agree. But it is probably misleading to say that economic principles are “natural laws,” which invokes religious notions of right and wrong and seems to imply that social forms do not or, perhaps, should not evolve.
If we apply Callon’s statement about “performing” markets as broadly as his unqualified remark seems to imply, then it dissolves into absurdity. In the modern world, of course, economic experts may be involved in the design and redesign of markets. And in many cases they deserve criticism for the results they help to bring about. (See Koppl et al. 2015 and Smith 2009.) But economists have applied their models to times and places in which economic theory was unknown. This activity is called “economic history,” and the basic “laws” of economics do not change when applied in this way. For example, among economists it is uncontroversial to blame the collapse of monetary exchange in late third and fourth-century Rome on currency debasement engineered by the Emperors (Jones 1953; Mises 1966, pp. 761–3; Wassink 1991, p. 468). This rather humdrum example of scientific economics is hard to square with Callon’s absurd “performance” view or his claim that “There exist only temporary, changing laws associated with specific markets” (Callon 1998, p. 47).
Presumably, the problem is (again) that Callon and others have not absorbed the economic notion of spontaneous order. Thus, Callon (1998) seems to think he is developing an idea alien to economics when he makes the banal evolutionary point that a “market is more like an unfinished building, an eternal work site which keeps changing and of which the plans and construction mobilize a multitude of actors participating in the development, by trial and error, of analytical tools, of rules of the game, of forms of organization and pricing principles” (p. 30). Without a clear recognition of spontaneous order, it might seem that economists somehow deny or ignore the role of human action in economic evolution, or even economic evolution itself. To someone operating under such a misunderstanding, it may seem necessary to impute to economists some notion that markets are “natural” in much the way a tree or mountain is “natural.” Such an imputation has little to do with standard economics and less to do with the “mainline” (Boettke 2012, pp. 383–5) economics undergirding my views on epistemic “competition.”
I have repudiated common criticisms of economics for upholding a spurious view of markets as somehow “natural.” But there is an important thread of economic theory that is at least moderately close to the views Cole, Callon, and others have imputed to economists in general. But economists of this stripe do not give “free-market competition” any very unqualified support. They tend, instead, to favor intervention and regulation.
The originator of general equilibrium theory, Leon Walras, said that his “pure economics” was “natural science” because it concerned the “relations of things to things” (Koppl 1995). Thus, economics is a branch of physics. Pure economics, for Walras, was a natural science studying a phenomenon from which human action is absent. This view will likely seem strange and perplexing to most readers. To add to the perplexity, Walras thought that the natural science of economics was a normative discipline describing an ideal world that it is the job of politics to realize. It takes some work to see why such views could seem reasonable to a scholar of his stature. Walras was building on a philosophical foundation very different from the sort of thing we generally take for granted today. (His most important philosophical inspiration was the French eclectic philosopher Étienne Vacherot.) The notion of normative physics must seem incoherent to most thinkers today. See Koppl (1995) for an attempt to show how these seemingly bizarre ideas are perfectly coherent, if very far from the thinking of most social scientists today.
For Walras the theory was both “natural” and the object of policy. Most or all economists would reject this idea. But many neoclassical economists have retained the view of the Walrasian general equilibrium model as a normative ideal. They have retained the view that it is the goal of policy to achieve general economic equilibrium. When the ideal is not realized we have “market failure.”
The archetypal statement of the market-failure approach to normative economics is Bator (1958). Recall that in general equilibrium no one can be made better off without harming at least one other person. This condition is a kind of optimality, which Walras noted and emphasized. And yet it is called “Pareto optimality” after Walras’s follower in technical economics, Vilfredo Pareto. Neoclassical economists made Pareto optimality a central normative criterion for judging policy. The mathematical conditions required to prove that economic equilibrium achieves such normative optimality are quite narrow and artificial. Thus, it is possible to claim in a wide variety of cases that we have “market failure” and a corresponding need for government “intervention.” (Later, public choice economists would develop a theory of “government failure” as a kind of dual of “market failure.”) Theorists of market failure treat general equilibrium in just the way Walras intended. It is the normative ideal that policy should aim at. None of them would say, with Walras, that general equilibrium is a part of physics and, in this sense, “natural.” But they do not question their ideal. When fact does not conform to theory, they wish to change fact and not consider that it may be their theory that is deficient. Overall, then, we do have an important strain of economic theorists and policy advisors who come close to the sort of thing Callon described, or at least closer than mainline economists. Note, however, that these market failure theorists are not advocates of “free-market competition.” Walras was a cooperativist who called himself (independently of Marx) a “scientific socialist.”
I do not wish to suggest that the old-fashioned neoclassical economics I have described here still holds the dominant position it held at the time of Bator (1958) or as recently as, say, 1975 or 1980. It does not. That sort of neoclassical economics has lost ground. Evolutionary theory, complexity theory, and institutional analysis are gaining. It is not my purpose here, however, to say where I think economics might be headed or whether it is getting more or less “free market” over time. My purpose in this chapter has only been to clarify some of the economic foundations of my larger argument on experts and expert failure. The word “competition” creates confusion. But I have no really satisfactory substitute. Therefore, I will use it and hope that the clarification I have attempted in this chapter will minimize misunderstandings.
This chapter included an overview of the important economic idea of spontaneous order. This notion is needed for an adequate interpretation of the division of knowledge in society. The division of labor and the division of knowledge coevolve and both are spontaneous orders. This fact is vital to our understanding of Hayekian dispersed knowledge, in part because it dispels the often implicit theory that knowledge exists in some sort of planned hierarchical structure that can be surveyed and directed from above. In the next two chapters I review the history of thought on the division of knowledge. While my review is surely incomplete, I hope that it will achieve two ends. First, I hope it will give us a reasonably rich and sophisticated understanding of the phenomenon, one that reaches beyond the banality that different persons know different things. Second, I hope to show that the notion of dispersed knowledge has not been well understood in Western thought right down to the present. Sometimes otherwise sophisticated thinkers fail to grasp even rather simplistic versions of the idea or basic implications of it.