What Can and Cannot Be Planned

Emergence is a central idea in economics, but it is also important in other disciplines. The formal definition of emergence appears to have originated with G.H. Lewes in his 1875 book Problems of Life and Mind. Emergence, for Lewes, was to be distinguished from “resultant” effects. If an effect is resultant, it arises from the parts or components of which it is composed. Thus, we can add up or otherwise combine the parts and get the effect. Weight, for example, can be obtained by adding up the weights of the components.

Emergent effects are different. Even if you have the components, you may not be able to produce the emergent effect, and even if the effect does emerge it is not understandable in terms of its constituent parts, and it is not reducible to those parts. Emergence is something new, something not present in the parts.

So, fractal geometries are infinitely reducible, or expandable, while preserving an organic unity; they are resultant. Life is an emergent property of chemistry; if I gave you all the chemicals and components of a paramecium, you still couldn’t make one. If you took a living paramecium and reduced it to its chemical components, life would no longer be present in those components.

This last point is called “reduction”: emergent effects are not reducible; resultant effects are.

Economists have recognized that order in market systems resulting from human action is emergent. One of the first to state this clearly was Bernard Mandeville, who compared society to a bee hive in which no bee cared what the other bees were doing, and the bees were behaving selfishly (“private vices”), yet order (“publick virtues”) emerged in the system as a whole. In 1782 Adam Ferguson claimed that social order is “the result of human action, but not the execution of any human design.”

The economist most associated with emergence is F.A. Hayek, of course.  He advanced a fully articulated set of claims about emergence, focusing in markets on the price mechanism, but also considering social orders in law and culture more broadly.  Hayek (in The Sensory Order) argued that

many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand. They are greater than any individual precisely because they result from the combination of knowledge more extensive than any single mind can master.

The problem, as Hayek saw it, is that no politician can claim credit for doing the socially valuable thing and letting the emergent properties of the price system provide the enormous benefit of directing resources toward higher-valued uses. There are two reasons:

1. In most cases, the best thing for state planners and regulators is not to plan and not to regulate. It’s not exactly doing nothing — as I noted in an earlier column, sometimes preventing violence and prosecuting theft are useful state functions — it’s the “right kind” of nothing.  Still, having run for governor of North Carolina myself in 2008 I can tell you that a platform of “Vote for me and I won’t directly help you!” is not an easy platform to win with.

2. Even if a politician did propose such a platform, it’s not clear that voters would want it. Since the market order is emergent, it is easy to miss its power and value.  Hayek (in “The Use of Knowledge in Society”) understood this problem all too well:

The marvel [of the price system] is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.

I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.

As I said above, Hayek is famous in economics for pointing out that a functioning market system is both a discovery process, in which price is the result of uncoordinated human actions seeking to achieve divergent and sometimes contradictory plans and purposes, and also an aggregating institution that reconciles those divergent plans and purposes into a coherent, emergent result.  In philosophy and political science, many scholars have asked whether these two functions — discovery process and aggregation mechanism — have analogs.

Public Choice

An entire subfield of political science, one that I myself identify with and that is called “public choice,” has examined this proposition. Might voting or other social-choice preference expression play the discovery role of prices? Can parties play the role of firms, competing to offer better platforms? Can the overall political system reconcile harmoniously the contradictory plans and purposes of myriad individuals who don’t know each other and cannot easily communicate?

One of the central figures of public choice, James Buchanan, argued that the answer was mostly no. Later work has largely validated this conclusion. There are problems with discovering individual preferences through voting, in part because voters themselves lack the information to make judgments, even about their own welfare.

Political parties face little competition, and so are not disciplined by anything like the “profit test.” And overall outcomes can be both socially destructive and stable, since (as Douglass North argued) there is no means by which new entrants can capture the social gains to improved political institutions.

But Buchanan nonetheless argued that it is important to conceive, and analyze, politics as a form of exchange. It may be true that political action lacks the optimality properties of markets, but it’s also true that groups of people can act together to make everyone, and more importantly each one, better off.

The difference, for Buchanan, is that there is no reason to expect “good” rules, by which he meant rules that foster cooperation and the capturing of mutual benefit through collective action, to be emergent. In some cases, and perhaps in many important cases, the rules must be “laid on,” or consciously designed by a group of human beings arguing and negotiating. In other words, politics.

To be fair, Buchanan credited the strain of political conservatism that leads through Hume and Burke, the idea that over time good rules will tend to survive and bad rules will be discarded. The problem is that human beings are terrible at telling the difference, and it is not clear that piecewise or additive experimentation tells you much.

Rules systems are dynamic and interactive, like a giant Jenga game. Pull out a stick here, and you create an instability or weakness somewhere else. Still, tradition and institutions such as the common law are valuable, and should receive some deference.

But the most basic rules, the rules about rules, which we call “constitutions”? Buchanan believed that groups must generally constitute themselves, and intentionally, because that is the only way that consent can be obtained. And consent is necessary, for Buchanan, to justify coercion.

If two of us sign a contract, you do the promised work, but I refuse to pay, then it is legitimate to sanction me, even if it is against my will. Likewise, if a group of us agree on some large joint project, but after it is completed I refuse to pay my agreed share, then it is legitimate to sanction me. Actual consent, not tacit consent, plays a key role for Buchanan, but that means an actual choice of rules is required, what Buchanan calls a “constitutional moment.”

Buchanan was an admirer of Hayek, but thought that Hayek sometimes came close to mysticism in describing how ignorance becomes knowledge outside of the context of markets. Remember, markets have prices; how does ignorance become knowledge in nonmarket settings?

An Example

I use an example in lectures to illustrate the tension between the Buchanan and Hayek viewpoints.  Consider one of the world’s greatest nonexistent institutions of higher learning: Hayek University!  As the basic layout is being considered, a question arises: where should we put the sidewalks?

Ha! It’s a trick question. No one could possibly know enough to be able to lay out the sidewalks optimally, because “path” is an emergent property of the diverse plans and purposes of many individuals, each following his or her own schedule.  You’ve likely seen a lovely set of sidewalks on some college campus, and you’ve also seen where there is a muddy track going where people actually want to go.

No one created that muddy track; it is the result of individuals going where they want to go. But if enough people walk there, it wears out the grass and makes the ground hard and packed down. The “path” emerges, although no one planned it.

Further, the path’s location is informative. Not just a few, but many people find it useful, for their own reasons — we don’t know the reasons, and we don’t need to know — to walk that path.

The point is that at Hayek University, we don’t put down sidewalks for at least two years. We wait until muddy tracks emerge, and that’s where we put the sidewalks.  Problem solved, with less specific information and with much better results than if we had tried to use a centralized plan based on a map and administrators’ best guesses about where people would want to walk.

That’s an insight, and I don’t want to minimize it. There was no market process at work here, or at least no formal price mechanism. The discovery process was simply the visible consequence of the unplanned, uncoordinated optimizing behavior of many individuals. The result is a path, and paths contain information about where to put the sidewalks.

But, not so fast. At Hayek University, where do we put the buildings? Once the buildings are there, it’s true that we can use emergent results to “plan” the sidewalks. The buildings, however, are more likely “laid on,” something like a constitution or central plan arrived at by a group of people sitting around a table and making explicit choices.

Buchanan’s point in arguing for what he called “constitutional political economy” was much closer to the notion of “Where do we put the buildings?” instead of “Where do we put the sidewalks?” Some architectural layouts are better than others, and the choice requires a central plan, much as the framers of the U.S. Constitution worked things out in Philadelphia in the summer of 1787.

That doesn’t mean such central plans are perfect, of course. The point is that we can’t rely on emergence. Imagine that we tried to use emergence, and allowed the first year of classes at Hayek University to go forward without buildings.

One might imagine a naturalist, with a Monty Python accent, observing into his microphone in a kind of nature documentary:  “Look! Over there! It appears to be… it is! Several sociologists have gathered into a group, in that copse of trees. They seem to be performing one of the primitive rituals called a ‘seminar.’ This is great, folks. This behavior has never been publicly documented before. Clearly, they are claiming this space for the Sociology Department, and forevermore that copse of trees will be where Sociology will be located.”

Once the various departments had marked their spaces (I don’t want to think about how, given the propensity of academic pissing matches these days), then construction can begin.

Said no one, ever. You decide where to put the buildings. Sure, you don’t know enough to decide that, but when it comes to rules that’s called “the veil of ignorance.” John Rawls famously argued that just rules should be devised behind such a veil, to ensure that the rules are fair.

The Sidewalks Rule

So, where does that leave us, in practical terms? I’d say that we should use the “sidewalks rule” where we can, letting knowledge be created by emergent properties of human cooperation. But sometimes we have to have central planning, when it comes to basic rules and the principles that we will use to provide a context for social interactions.  

Like Buchanan, I’m a fan of emergence, but we shouldn’t just dismiss the importance of choosing good rules. Using good rules that have emerged — deference to unfettered price movements, rule of law, property rights — while trying to design better rules for nonmarket interactions is the challenge that faces public choice scholars. But that challenge, that balancing, is also the reason it’s so darned much fun.

 

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Michael Munger

Michael Munger is Professor of Economics at Duke University and Senior Fellow of the American Institute for Economic Research. His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.