Monday, May 09, 2005

Cafe Hayek: The Spontaneity of Spontaneous Order

". . .Freedom would be less appealing if when we chose, our choices couldn't be implemented or only implemented at great cost or with great delay. . . ."

"So when I marvel that the extended order of human cooperation. . .allows me to buy a dozen bagels for a brunch without having to call ahead, it's so much more than that. The greater marvel is that thousands or millions of us can make those changes and the system simply readjusts to our new desires."
Russell Roberts at Cafe Hayek has some interesting observations about spontaneous order.
"The weird part of this is that we teach our students that sudden, unanticipated changes in demand drive up prices in the short run as a way of signaling to economic actors where resources are most valued. But have we exaggerated the importance of the price mechanism? What evidence do we have that the actual prices rise very much in the face of large shifts in demand?"
He suggests that our language may constrain the way we think about and understand economic activity, and perhaps we are led to misunderstand economic activity for this reason. I suspect this is true in many ways, e.g. the way we often use the word "society" as though "society" had preferences and could make choices. I wonder if an answer to his questions about the price mechanism might be suggested with a similar observation. It seems that most of what we economists think we know about the price mechanism is related to our static model of a market equilibrium. The real "price mechanism" is not static at all. It is truly dynamic. Even our dynamic models in economics tend to have a static character. Our economic models don't seem to depict an economic world that is truly emergent and evolving. As Russel Roberts makes note, true economic activity is often emergent. Perhaps, we do not understand the price mechanism and economic activity all that well because we use models that do not facilitate our understanding of economic activity as being emergent (rather than just in terms of a market equilibrium).

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