The Evolutionary Wisdom Of ‘The Austrian School of Economics’ In 10 Minutes.
How can mankind today build mindbogglingly complex microchips, airplanes, satellites, the Internet and so much more, have large multinational corporations which peacefully integrate fellow Homo sapiens from every corner, faith, and ethnicity, yet still not have figured out something as simple as world peace. And with the encouragement of “the experts” and “great leaders”, always be one spark away from another world-wide tribalistic calamity as WWI/II, CovidMania and the Russia-Ukraine war are clearly showing? There is something missing from our understanding of how the world works, something that our “leading intellectuals” and “experts” have yet to discover and spread accordingly. Fortunately for mankind that “something” has already been discovered and explained by a group of little-known and widely misunderstood intellectuals often-times referred to as ‘The Austrian School of Economics’.
The following analogy captures the essence of their most fundamental ideas and will help us understand how the world really works and the root cause of mankind’s problems. Just like the human body/organism and the numerous “systems” that coordinate it like the respiratory, nervous, and digestive “systems” are the result of the actions of some 70+ trillion cells but obviously NOT the result of any conscious planning or designing by them, and thanks to the likes of Darwin we can understand how an evolutionary process was the inadvertent “designer” of such systems and complex order, the modern global socioeconomic order or what the great British 19th century thinker Herbert Spencer(1820–1903) cleverly referred to as “The Social Organism”, is also coordinated by a “system”, by what ‘Austrian Economists’ like Ludwig von Mises, Ludwig Lachmann, Israel Kirzner, and 1974 Nobel Laureate in Economics F.A. Hayek, referred to as “The Market Process”. ‘The Market Process’ and the “parts” it is composed of like money, prices, economic competition, interest rates, and the legal, religious, governmental frameworks that sustain it, although “indeed the result of human action” were “not the execution of any human design”(Adam Ferguson) similar to how cells inadvertently created the systems that coordinate multicellular life without designing them. The ‘market process’ shares this trait with language which is also a complex mechanism that is the result of human action but was not consciously designed or invented by people/cells.
To understand the living world, both the biological and social, we just need to understand the mechanisms that create and spread the information that coordinates them. The biological order is created via the well-known mechanism of ‘biological evolution’ with genes being like the sentences which store the information necessary to create/coordinate life/order. Mutations cause new genes and thus new information to arise which leads to a different life-form which is then ‘naturally selected’ as it inadvertently competes with others with the winner reproducing more and thus passing on more copies of the better-adapted/”fitter” genes/information/design to future generations. The social order is created via the relatively unknown ‘Market Process’ which inadvertently emerges from the tradition of private property.
CIVILIZATION EMERGES FROM PRIVATE PROPERTY
People are motivated to discover the best information with which to increase the rate at which they transform or reorder the matter they exclusively control (their private property) to create wealth. Most of us transform our bodies in a manner that maximizes the value of the wealth we produce in terms of the labor, services, or products we trade with companies (employers) or the public. From our freedom to use or transform our private property emerges the ‘freedom to trade’ it with anyone in the entire planet which inadvertently transforms mankind into a global supercomputer where companies are motivated to innovate and learn from each other(competitors) thus inadvertently cooperate to create and spread superior information and subsequent social order. It is our freedom as consumers to trade our life-and-order-sustaining wealth for the best cars with the latest innovations, and as producers to go into the auto-manufacturing business, which motivates existing auto manufacturers(competitors) to innovate-compete-copy-learn to produce the best cars. Companies that don’t successfully compete/innovate/copy/learn to be as productive as others (competitors) won’t get enough life/order-sustaining wealth/revenue from customers to pay a competitive wage, motivating employees to once again use their ‘freedom to trade’ their labor to quit and join/trade-with the increasingly better informed and thus more productive and thus higher paying companies. Just like in the Olympics we can discover the best athletes in the world due to global competition, so does having the ‘freedom to trade’ with everyone in the world allows the best ideas to compete and spread globally thus ensuring the best possible global order. Via advertising, competitors are motivated to spread the potential usefulness and superiority of their products-ideas as well as the defects-inferiority of their competitors thus accelerating the need to compete-copy-spread superior information and subsequent order. As cost-cutting ideas emerge and inevitably spread via competition leading relative prices to continuously fall, new profitable ideas easily arise and once again spread via competition in an endless cycle of knowledge generation-innovation. For example, computers were once very expensive, but once the price of making them came down enough, people easily realized that every home could have them, which gave birth to our computerized world and the Internet and all the great things that flow from it. The more wealth is produced, the more wealth must be offered in exchange for labor as companies compete against each other for the labor they need which helps explain why the economic pie grows for everyone. Morals are ways of acting; they too are knowledge which also emerges and spreads via economic competition to considerable degrees. It is hard-working, tolerant, courteous people who thanks to competition inevitably motivate everyone else to be likewise. As Hayek tells us:
“Competition is, after all, always a process in which a small number makes it necessary for larger numbers to do what they do not like, be it to work harder, to change habits, or to devote a degree of attention, continuous application, or regularity to their work which without competition would not be needed.”
As millions of Italians, Britons, Germans and others from all over the world came to America, it was ultimately the competition which grows from ‘private property’ and thus individual liberty which stripped these people of their otherwise nationalistic, ethnocentric, tribalistic “identities” and evolved what came to be seen as the classic American character of wanting to be seen as a reputable and honest businessman or professional who treats everyone with respect and wears a business suit as opposed to older ethnocentric attires. Thus freedom and emerging ‘competitive knowledge discovery’, as opposed to leading to chaos, is what 1) enables and motivates the discovery and spread of superior information and subsequent social order, 2) civilizes us, 3) protects us from being coerced into doing something we don’t want and thus allows us to live our lives as we wish, 4) and is vital for discovering the truth.
WHY GOVERNMENT IS INEFFICIENT AND UNCREATIVE
The role of governments or coercion should be minimized because governmental/‘public sector’ bureaucracies, being COERCIVE MONOPOLIES which get their life-order-sustaining wealth through taxes/compulsion are immune to the competitive-information-spreading incentives/pressures which motivate private sector entities to keep up with the competition in terms of information and hustle. Central/government plans can’t work if people are free to not go along with them so they inevitably require compulsion/tyranny. Government regulations are coercive-competitionless-monopoly information which is not subject to continuous improvement-replacement via competition so they paralyze entire industries slowing down ‘competitive knowledge discovery’, driving up costs (more lawyers-regulators-bureaucrats), and potentially making criminals out of people who harm nobody but just prefer to do things differently. This explains why the increasingly regulated/paralyzed healthcare sector has grown from consuming 5% of the economy in 1960 to over 20% today culminating in the current spectacular CovidMania coercive-central-planning-error-tyranny. By comparison the Software/IT sector has few regulations, there is no American Computer Programmer’s Association monopolizing/paralyzing the knowledge relating to software like the American Medical Association does for medical services so free competition motivates the creation and spread of innovations at breakneck speed. The former Soviet Union had plenty of highly educated scientists/“experts” whose plans required the coercion of millions, but they were thoroughly crushed by relatively freer Americans and their resulting superior “competitive knowledge discovery”. The “classic” image below helps explain the difference between competitive/private/free orders(South Korea) and monopolistic/government/coerced orders (North Korea). Keep your eye on how information arises/spreads via competition and continuously restructures the social order.
Knowing that ‘private property’ and emerging liberty is the simple concept/institution that leads to a chain-reaction of incentives which creates civilization, we can look at the past and easily see that those cultures whose customs(software) inadvertently became more peaceful and thus less violent, extended peace, friendship, trade to those outside the tribe, etc., in other words, respected ‘private property’ and thus individual liberty more and more (‘Thou shalt not steal’), as well as tamed-brainwash our animalistic instincts (‘Anyone who has sexual relations with an animal is to be put to death’ Exodus 22:19)…. would inadvertently gain the benefits of superior ‘competitive knowledge discovery’, thus become more advanced-powerful, and as they grew, they would inadvertently spread the very customs and evolving economic system (capitalism) that allowed them to reach such relative heights. This ‘cultural evolution’ happened mostly without the design, intention, or the “reason” of the slightly smarter apes. A great example of this process was the ‘Protestant Reformation’. For centuries the Catholic Church’s traditions-myths held immense coercive-monopoly-competitionless power which prevented or retarded individual freedom and resulting ‘competitive knowledge discovery’. In the early 1500s, among other religious reinterpretations, Martin Luther preached that indulgences (payments to the Catholic Church to help one go to heaven) were unnecessary, that a person could go to heaven by believing in Christ without the Catholic Church’s approval, and that the Bible itself, not the Church’s edicts-interpretations was what mattered. This helped reduce the coercive-monopoly power of the Catholic Church, and Europe went from being “ordered” by a relatively static and coercive bureaucracy, to a growing dynamic-competitive-innovative business-entrepreneurial citizenry leading to skyrocketing levels of ‘competitive knowledge discovery’ which inadvertently took Europeans (‘the white man’) to relative prominence. Now, very important! Did Martin Luther “reason” that his religious reinterpretations would accelerate ‘competitive knowledge discovery’ leading to global Capitalism and Homo sapiens’ recent sky-rocketing prosperity? Of course not! Again, just like solitary cells millions of years ago inadvertently created the respiratory-circulatory-nervous-etc. “systems” that led to multicellular organisms without ‘designing them’, so did the free-market/Capitalism arise as “as the unintended product of historical development” (Carl Menger)
It took millions of years for natural selection to evolve things like ‘anchorage dependence’, ‘density-dependent inhibition’, and apoptosis (cell suicide) so cells that had evolved in a unicellular environment could cooperate in a multicellular one by only replicating when already anchored to others, to stop replicating when feeling the pressure/density of surrounding cells, and self-destroy in an orderly and sort of recyclable way when malfunctioning too much or necessary. Sometimes these types of coordinating mechanisms fail and the cells revert to their solitary ways and replicate wildly, in other words, they become cancerous(tribal) or uncooperative and prematurely destroy the larger multicellular organism/order they were a part of. Similarly, it took about 50,000+ years for natural selection to evolve ‘the market process’ which reordered tribal homo sapiens into cooperative members of the ‘Social Organism’. Unfortunately, generally speaking man is as ignorant of the workings of the social order and its evolution as cells are regarding their role in multicellular organisms, and our ‘law of the jungle’ tribal instincts constantly has us destroying the very increasing freedom and tolerance that is needed to sustain the complex economy we are now members of and is foreign to our small-tribe communal instincts. Hayek summarizes:
“…man’s instincts…were not made for the kinds of surroundings, and for the numbers, in which he now lives. They were adapted to life in the small roving bands or troops in which the human race and its immediate ancestors evolved during the few million years while the biological constitution of homo sapiens was being formed.”
“We have never designed our economic system. We were not intelligent enough for that. We have stumbled into it and it has carried us to unforeseen heights and given rise to ambitions which may yet lead us to destroy it.”
By the late 1800s, especially after Darwin, the slightly smarter apes had realized that their moral values and laws had been grounded on religious myths, so they began replacing the evolved and ‘tested’ wisdom-information-laws espoused by religious mythology (private property and family) which had tamed/brainwashed the savages into civilization, by the “reason” of “expert/scientist” apes. Even though the rate at which the apes were reordering just a tiny fraction of the earth’s massive volume of 260 billion cubic miles of matter to create increasingly vast quantities of wealth per person was skyrocketing, the bewildering complexity of modern cities, visible differences in wealth, coupled with the apes not having the slightest clue how the ‘competitive knowledge discovery’ that creates civilization and civilizes our morals “emerges” from “private property” and thus personal liberty since this amazing mechanism had been designed, not by clever men, but by an evolutionary process we didn’t even really understand at the time, led the apes to understandably fall for all the usual pro-Socialist-Nationalist ‘central planning’/tribal fallacies. People saw economic freedom as a recipe for chaos, competing companies as redundant and a way for business owners to ‘exploit’ workers to get rich at others expense. Many whites/Europeans mistakenly believed that their ‘race’ and/or religion made them superior which justified colonialism/slavery which understandably caused many to mistakenly equate Capitalism and free-markets with some tool of conquest, oppression, exploitation and ‘social injustice’. The environment was ripe for the emergence of a new religion-mythology-Priesthood, Socialism-Communism-Statism-Scientism. Eventually a slightly smarter ape would describe these fallacies-myths in a manner that was bound to go viral and that is what happened with Karl Marx and his bite-sized ‘Communist Manifesto’:
“the theory of the Communists may be summed up in the single sentence: Abolition of private property”… “Abolition of the family!”
The apes via Lenin’s Bolshevik revolution in Russia (1918) and other ‘Great Leaders’ throughout the world (Mao-China, Castro-Cuba, Pol Pot-Cambodia, Roosevelt-USA), created massive central-planning-coercive bureaucracies that paralyzed or destroyed ‘competitive knowledge discovery’ and thus their own socioeconomic order that was sustained by it.
Given the above it becomes easy to see how we live in this mind-bogglingly complex and technologically advanced order yet remain tribalistic economically ignorant apes ready to eagerly tyrannize each other via government monopoly coercion and wars. Human “reason” easily lets us know that whether a man grows up to “identify as” a Jew, Muslim, Christian, Russian, etc. and whether he does great or horrible things, it mostly comes down to luck and the ideas/software that entered his mind. As Mises tells us:
“It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. It is they alone, and not arms, that, in the last analysis, turn the scales.”
Yet this simple and very ‘reasonable’ observation plays no role in politics as the apes segregate in their respective economically ignorant tribes and vilify each other. If human “reason” really played the important role we assume, there is no way that an obviously senile old man, Joe Biden, would preside over the world’s biggest bureaucracy and military via the US Government.
It is important that we see our problems in terms of an understandable economic ignorance for which no one is really to blame. Again, ‘the market process’, ‘competitive knowledge discovery’ and resulting civilization has inadvertently evolved without man’s deliberate design, and our tribalistic instincts and economic ignorance has us constantly falling for coercive central planning that will eventually destroy the social order. It should be easy to realize that Socialism/Communism/Nazism/’viral economic fallacies/myths’ did not spread and destroy much of the 20th century because of a few bad apples or tyrants; they first spread through the minds of well-meaning citizens and intellectuals which then gave the future leaders the moral and intellectual justification for their actions. Hayek writes:
“It is necessary to realize that the sources of many of the most harmful agents in this world are often not evil men but high-minded idealists, and that in particular the foundations of totalitarian barbarism have been laid by honourable and well-meaning scholars who never recognized the offspring they produced.” (Hayek F. A., 1973, p. 70)
“Most people are still unwilling to face the most alarming lesson of modern history: that the greatest crimes of our time have been committed by governments that had the enthusiastic support of millions of people who were guided by moral impulses. It is simply not true that Hitler or Mussolini, Lenin or Stalin, appealed only to the worst instincts of their people: they also appealed to some of the feelings which also dominate contemporary democracies.” (Hayek F. A., 1976, p. 134)
Thus the obvious solution to mankind’s problems. Mises:
If we want to avoid the destruction of Western civilization and the relapse into primitive wretchedness, we must change the mentality of our fellow citizens. We must make them realize what they owe to the much vilified “economic freedom,” the system of free enterprise and capitalism. The intellectuals and those who call themselves educated must use their superior cognitive faculties and power of reasoning for the refutation of erroneous ideas about social, political and economic problems and for the dissemination of a correct grasp of the operation of the market economy. They must start by familiarizing themselves with all the issues involved in order to teach those who are blinded by ignorance and emotions. They must learn in order to acquire the ability to enlighten the misguided many. It is a fateful error on the part of our most valuable contemporaries to believe that economics can be left to specialists in the same way in which various fields of technology can be safely left to those who have chosen to make any one of them their vocation. The issues of society’s economic organization are every citizen’s business. To master them to the best of one’s ability is the duty of everyone.
