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Thursday, April 26, 2012

Allegory and Political Economy: Communication and Cooperation

“We must look at the price system,” wrote Friedrich Hayek, “as . . . a mechanism for communicating information if we want to understand its real function.” Hayek’s talk of communication was a great advance in economic thinking. Talk of communication is common among market-oriented economists. In their textbook Tyler Cowen and Alexander Tabarrok write: “[P]rice signals and the accompanying profits and losses tell entrepreneurs what areas of the economy consumers want expanded and what areas they want contracted.” Such talk is both illuminating and beautiful.

But the price of eggs communicates, in a literal sense, nothing more than: Yours for $1.89. If we are to be literal, we must mind the element of communion, or community, in communication. Literally, communication is a meeting of minds. The knowledge communicated passes through us as commonly experienced ideas, images, or notions.

For the entrepreneur computing her profit or loss, there really is no communication in the literal sense, no meeting of minds—whose mind would she meet? In no literal sense do prices and other market phenomena tell entrepreneurs what to do. We want to talk of prices as “signals,” but we must recognize that they are not literally signals.

In discussing market forces in The Wealth of Nations, Adam Smith illuminated their marvels by using simile and metaphor. He sketched an aspect of social coordination: “It is the interest of the people that their daily, weekly, and monthly consumption should be proportioned as exactly as possible to the supply of the season.” The grain dealer adjusts his prices and quantities in ways that conduce to such coordination:

Without intending the interest of the people, he is necessarily led, by a regard to his own interest, to treat them, even in years of scarcity, pretty much in the same manner as the prudent master of a vessel is sometimes obliged to treat his crew. When he foresees that provisions are likely to run short, he puts them upon short allowance. Though from excess of caution he should sometimes do this without any real necessity, yet all the inconveniences which his crew can thereby suffer are inconsiderable in comparison of the danger, misery, and ruin to which they might sometimes be exposed by a less provident conduct. [Emphasis added.]


The simile of the prudent shipmaster is a miniature of the metaphor of the being whose hand is invisible: “[The individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. . . . [A]nd by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (Emphasis added.)

When a simile or metaphor is made elaborate, it may become allegory. The dictionary defines allegory as “an expressive style that uses fictional characters and events to describe some subject by suggestive resemblances; an extended metaphor.”

The Allegory of Joy

After Smith’s time thinkers abandoned allegory for logic, accuracy, and precision. Edwin Cannan—an ardent Smithian and editor of The Wealth of Nations—broke with this trend. He wrote in 1902: “The reasons why it pays to do the right thing—to do nearly what an omniscient and omnipotent benevolent Inca would order to be done—are to be looked for in the laws of value.” The free-enterprise system, Cannan suggests, leads to patterns of activities somewhat like those that would please a benevolent being in an allegory.

The allegory in Cannan’s remark is that the allegorical being—let’s call her Joy—has super knowledge, encompassing what intellectual historian Knud Haakonssen distinguishes as system knowledge and contextual knowledge. Joy has such knowledge for every individual. The allegory, to continue, is that Joy issues instructions, or requests, to each market participant spelling out “the right thing” to be done.

Joy tells Bridget the baker that perhaps she should buy new ovens, look out for better deals in flour, and advertise her confections. Within the allegory Joy communicates these instructions. Within the allegory there is a meeting of Joy’s and Bridget’s minds regarding these actions. Bridget is sensible to Joy’s benevolence and ethical wisdom and feels entrusted to advance what Joy finds beautiful. Instead of market signals she follows Joy’s communications, which are embraced voluntarily by Bridget from what Smith would call her sense of duty. She “enters, if I may say so, into the sentiments of that divine Being,” Smith writes in The Theory of Moral Sentiments. Those communications tell her to take actions rather like the actions that the market signals lead her to take in the actual world. Cannan suggests that the market conduces to socially beneficial actions much as a benevolent system of superior knowledge, communication, and cooperation would.

The allegorical talk of communication brings us to fruitful questions about rules and institutions. What arrangements generate the “signals” that best “communicate” what to do? Such talk gets us to focus on what the relevant signals are. It gets us to focus on how well they conduce to the general interest. It helps us appreciate how “communications” adjust when practices go wrong. If the signals start “telling” people to go in the wrong direction, will the system correct itself? Will it tend to correct errors? Will it tend to keep up with changes? Also, will it dig up new opportunity, new matters for “communication”? The allegory of Joy communicating instructions is useful because it enables one to reason with reference to the perspective of one who has superior knowledge and purposes that we go along with—even while we emphasize that we mere mortals do not have such knowledge. We discuss what Joy feels about what she sees but do not pretend to see what she sees.


Long before Hayek started talking about the market as a system of communication, many authors—including Thomas Hodgskin, Richard Whately, Frédéric Bastiat, Henry George, and Philip Wicksteed—suggested that the economy was a system of cooperation. And we also find such talk in Milton and Rose Friedman’s landmark book, Free to Choose. To bring the tradition down to today, let’s again turn to Cowen and Tabarrok: “To bring just one product to your table requires the cooperative effort of millions. Moreover, this immense cooperation is voluntary and undirected.”

But Karl Marx emphasized that the system, in the whole, was not cooperation—and condemned it for that: “[A]ll labour in which many individuals cooperate necessarily requires a commanding will to coordinate and unify the process . . . much as that of an orchestra conductor.”

Hayek would seem to concur: “Cooperation, like solidarity, presupposes a large measure of agreement on ends as well as on methods employed in their pursuit. It makes sense in a small group whose members share particular habits, knowledge and beliefs about possibilities.”

It is true that the economy entails myriad instances of cooperation, but it also entails myriad instances of noncooperation. It entails myriad instances of competition and rivalry. It entails myriad instances of rather impersonal exchange that, as cooperative moments, usually are only tiny and often ambivalent. It also entails myriad instances of deception and misrepresentation. It entails a lot of things, not just instances of cooperation. We should face the fact that it is wrong to say that you have cooperated, in a literal sense, with the myriad people who contributed to the production of your pencil or woolen coat.

We can affirm the cooperation talk, but to do so we invoke allegory: In an allegory individuals communicate with Joy and voluntarily follow her guidance to produce a concatenation of activities that scores well. In the allegory Joy is like a quarterback with whom everyone communicates. And in the allegory the members of society know that each member communes with Joy. There is a mutual sense of advancing the coordination of a vast concatenation of their actions, just as the members of a football squad have a mutual sense of advancing the coordination of a concatenation of their actions. In the allegory there is an “immense cooperation.”

It is good to declare the allegory. By unfolding it we come to many interesting questions and insights. But if we deny allegory, we either cut off that inquiry or we edge into it only tentatively and confusedly, not really recognizing and admitting what we do.

Another benefit of declaring allegory is that we make it clear to skeptical listeners that the basis for our communication and cooperation talk is not literal. We must be prepared to declare allegory if we want to handle their challenges to our talk of communication and cooperation.

The allegorical being Joy, in her universal benevolence, represents an idea of the social. If we deny allegory we play into the hands of those who paint us as unattuned to the social. So another benefit of declaring allegory is that it helps ensure that we are so attuned, and it makes our tunefulness plain to others.

Declaring the place of allegory and an ethic of universal benevolence does not put us on a slippery slope to statism. Cannan makes the being an Inca to ensure that his readers do not start looking around for a benevolent, omniscient, omnipotent being. Making the allegory explicit makes it clear it is a fiction. There is no being telling Bridget to replace her ovens. And to the extent that moral norms exist within living society, they do not make a social organism. If Joy were a god, she would not have any powers over the individual except perhaps that of conveying her approbation or disapprobation, sensed within one’s own breast. The more the allegory is spelled out—in particular, as Joy having super knowledge and capabilities of direct personal communication—the less it seems to correspond to any external being or institution, and perhaps least of all government. The coercive nature and overwhelming power of government, in fact, make it especially incapable of candid, confident communication. The more we make the allegory explicit, the more we make it innocuous.

If we deny allegory we relinquish it to others, notably those who are inclined to take it in illiberal directions. Liberals should counter illiberal allegory, not with denials of allegory, but with liberal allegory.

Finally, perhaps allegory can help to answer, in an enlightened way, the yearning for meaning and connection—perhaps by affording spiritual comfort in the part one plays in the “immense cooperation,” in the contributions one makes to universal benevolence, and also perhaps by teaching one where not to look for such meaning and connection.

In The Theory of Moral Sentiments Adam Smith developed a remarkable allegory of a universal impartial spectator who, like my figure Joy, is super-knowing and universally benevolent. We never get to the impartial spectator, but we do our best in, as Haakonssen puts it, “the search for a common standpoint”—recognizing that it may be only the search “that is common, not necessarily the standpoint.”

In the generations following Smith’s death in 1790, influential figures criticized The Theory of Moral Sentiments for its use of allegory. The work was cast aside and fell into an oblivion lasting some 150 years. There was little regard for allegory in classical economics, neoclassical economics, and the economics of Ludwig von Mises and Murray Rothbard. Liberalism turned away from allegory. And then the world turned away from liberalism.

Is it possible that things went wrong in spurning allegory?

Yogi Berra once said: “If you don’t know where you are going, you could end up somewhere else.”

  • Daniel Klein is professor of economics and JIN Chair at the Mercatus Center at George Mason University, and associate fellow at the Ratio Institute (Stockholm). At GMU he leads a program in Adam Smith. He is the author of Knowledge and Coordination: A Liberal Interpretation and editor of Econ Journal Watch.