Hayek's Extended Order

Fredrich Hayek wrote about the unplanned, unguided, self-organizing system of economic exchange that spontaneously springs up among people when they discover that they can improve their lives by trading with strangers. The extensive trade among the hunter-gatherer societies of western North America, using tusk shells (dentalia) as a unit of exchange (money), is an example of such a system. (See the post “What Can People Accomplish without Gov’t Help” in this blog). Other examples include the extensive trade systems that sprang up in Allied POW camps during WWII, typically using cigarettes as both trade goods and money.

Hayek calls this self-organizing system “an extended order of human interaction” or simply the “extended order”. (Not very catchy; more commonly it is called a free market economy.) Hayek considered the world-wide extended order of the late 20th century (he died in 1992) to be the most complex system in the known universe.

The result of unplanned evolution by trial and error and guided by evolving traditions, an extended order appears whenever people have sufficient liberty (i.e., personal freedom, rights to control and dispose of property, protection from coercion, the right to enter into enforceable contracts). The operation of the extended order cannot be planned nor designed by human ingenuity; it is simply too complex even to be fully understood, let alone improved by conscious intervention. (Kind of like a wild meadow: human ingenuity can modify it, muck with it, even destroy it, but cannot improve how it functions. All human ingenuity might do for a meadow is add water, and even that can ruin it.)

States are not necessary for the extended order to appear, and their only positive role is providing the minimum protection from external or internal coercion, protection of private property, enforcement of contracts, and (possibly) a stable monetary system. Other than that, state actions – however well-intended – only hinder the efficient operation of a free market economy. While the state cannot create the extended order, it can damage or restrict it.

People are stubborn and sneaky about liberty, however. Whatever sliver of liberty they can eke out is used to set up black markets, underground economies, barter systems, and other things despised by social engineers.

The extended order consists of free markets and free enterprises: people living their lives and interacting with others as they choose.

Many people think this is a bad thing. I don’t. I celebrate the extended order as the supreme, and ever evolving, accomplishment of ordinary people.