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The Marvelous Cloud-Mind That Is the Market

It is possible to go through an entire education to Ph.D. level in the very best schools and universities in the British system without any of your teachers or professors breathing the words “Friedrich Hayek.” This is a pity.

Human collaboration is necessary for society to work.

Human Collaboration

Hayek died 25 years ago today, yet his ideas are very relevant to the 21st century. He was the person who saw most clearly that knowledge is held in the cloud, not the head, that human intelligence is a collective phenomenon.

If Hayek is mentioned at all in academia, it is usually as an alias for Voldemort. To admire Hayek is to advocate selfishness and individualism. This could not be more wrong. What Hayek argued is that human collaboration is necessary for society to work; that the great feature of the market is that it enables us to work for each other, not just for ourselves; and that authoritarian, top-down rule is not the source of order or progress, but a hindrance.

I would go further, and add that the individual human being is not–and had not been for 120,000 years–able to support his lifestyle; and that there is nothing so antisocial (or impoverishing) as the pursuit of self-sufficiency.

These are not conservative or reactionary ideas: that society works best through egalitarian sharing and mutual service, rather than through state control, hierarchy, and planning, is surely as liberal and egalitarian as it could possibly be.

Self-sufficiency is another word for poverty.

Hayek’s point in his famous essay of 1945, “The Uses of Knowledge in Society”, is that central planning cannot work because it is trying to substitute an individual all-knowing intelligence for a distributed and fragmented system of localized but connected knowledge, much of which is tacit. It is the essence of anti-elitism, of–dare I say it–populism, the prescient harbinger of what is sometimes called “dot-communism”–the flattening of human society as a result of the internet.

In Hayek’s words, “how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances…the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer.” His answer, of course, was the price mechanism.

Trading for Advancement

A couple of artists have reinforced this point recently by trying to make consumer goods from scratch. One tried to make a suit from material sourced within 100 miles and failed. The other tried to make a toaster of the kind he could buy for $5 in the store. After many months and a large amount of money, he had a big, unreliable, messy machine that just about scorched bread. Self-sufficiency is another word for poverty.

The more you exchange, the more it pays to specialize, and the more you specialize, the more it pays to exchange.

By contrast, trade creates a collective problem-solving brain as big as the trade network itself. It draws upon dispersed and fragmented knowledge to create things that nobody can even comprehend, wholes that are more complex than the sum of their individual mental parts.

No other animal does this. There is exchange and specialization within families, even huge families such as ant colonies, which gives an ant colony considerable collective intelligence. But that’s among kin. Exchange between strangers is a unique feature of us modern hominids. As Adam Smith said, “no man ever saw a dog make fair and deliberate exchange of a bone with another dog”.

Exchange, as practiced by people for about the last 100,000 years (but possibly not by Neanderthals) is a fast breeder, a chain reaction. The more you exchange, the more it pays to specialize, and the more you specialize, the more it pays to exchange. There’s a positive feedback loop.

As Hayek put it, “That the division of labor has reached the extent which makes modern civilization possible we owe to the fact that it did not have to be consciously created but that man tumbled on a method by which the division of labor could be extended far beyond the limits within which it could have been planned.”

The Collective Brain

The invention of exchange had the same impact on human culture as sex had on biological evolution–it made it cumulative. So human technological advancement depended not on individual intelligence but on collective idea sharing.

The internet allows us to contribute as producers rather than just consumers. The internet is to radio as a conversation is to a lecture.

The “cloud”, the crowd-sourced, wikinomic cloud, is not a new idea at all. It has been the source of human invention all along. That is why every technology you can think of is a combination of other technologies, and why simultaneous invention is so common as ideas come together to meet and mate when mature.

Which is, of course, why the internet is such an exciting development. For the first time, humanity has not just some big collective brains (called trade networks), but one truly vast one in which almost everybody can share and in which distance is no obstacle.

Instead of regretting this loss of economic leadership, British consumers or patients should be thrilled that they no longer have to rely only on their own citizens to discover new consumer goods or cures for cancer: Asians, Africans, Americans are now also eager to supply them.

Moreover, by contrast with the industrial system, the internet allows us to contribute as producers rather than just consumers. The internet is to radio as a conversation is to a lecture.

Peace and Prosperity

Truly something very weird has happened to the world when, for advocating this bottom-up, egalitarian, collectivist idea, for advocating freedom for people to exchange ideas and serve their fellow human beings thus encouraging social change, Hayek is condemned by left-leaning commentators as a right-wing zealot.

It takes a government to do an Auschwitz.

His accusers demand more power for Leviathan to control our lives, charge that free trade is bad for the people who freely choose it, and muse about the suspension of democracy to advance the greater, greener good and prevent “populism”.

Hayek taught us to distrust the idea of putting people in charge of other people. Given that government has been the means by which people have committed unspeakable horrors again and again and again, from Nero and Attila to Hitler and Mao, why are people so forgiving of the state and so mistrustful of the market?

Visiting Auschwitz recently I was struck not by the “industrialization” of death–it is a surprisingly low-tech place – but the “nationalization” of death: the bureaucratic central planning and meticulous hierarchical organization of mass murder: it takes a government to do an Auschwitz.

By contrast, free markets have generally produced flowerings of prosperity, invention, cultural experimentation and–yes–peace wherever they have been tried, from Song China to Silicon Valley.

We live in a world richly furnished with technological and cultural marvels because we have networked our minds as a collective brain. It was exchange and specialization that enabled us to do so. That’s Hayek’s great discovery.

Reprinted from CapX.

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