The Fatal Conceit

The Fatal Conceit describes how an evolution of societal norms has led to the emergence of a highly efficient system for allocating resources and generating prosperity. Hayek calls this system the “Extended Order.” Because these norms and rules often go against our base instincts, Hayek concludes that they must be the result of an evolutionary process that rewards those societies who alter their natural behavior in ways beneficial to their survival:

“Constraints on the practices of the small group, it must be emphasised and repeated, are hated...[the individual] knows so many objects that seem desirable but for which [they are] not permitted to grasp, and [they] cannot see how other beneficial features of [their] environment depend on the discipline to which [they are] forced to submit –a discipline forbidding [them] to reach out for these same appealing objects. Disliking these constraints so much, we hardly can be said to have selected them; rather, these constraints selected us: they enabled us to survive.” (page 13)

Societal norms exist not because of some inherent morality. They exist because the societies that followed certain sets of otherwise arbitrary rules were more successful than others.

“The various structures, traditions, institutions and other components of this order arose gradually as variations of habitual modes of conduct were selected. Such new rules would spread not because men understood that they were more effective, or could calculate that they would lead to expansion, but simply because they enabled those groups practising them to procreate more successfully and to include outsiders.” (Page 16)

Together the collection of these rules result in an extended order that governs our society and allows it to exist. It is a complex system of distributed decision making enabled by markets, competition and evolution. Though Hayek’s Use of Knowledge essay describes this phenomenon better than The Fatal Conceit, this book contains excellent descriptions of the extended order from: 

Adam Smith:

“‘What is the species of domestic industry his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, in his local situation, judges much better than any statesman or lawgiver can do for him’ (1776/ 1976: 11, 487).”

And Bailey:

“‘minute knowledge of a thousand particulars which will be learnt by nobody but him who has an interest in knowing them’ (Bailey, 1840: 3).”

And In Hayek's own words:

“The market is the only known method of providing information enabling individuals to judge comparative advantages of different uses of resources of which they have immediate knowledge and through whose use, whether they so intend or not, they serve the needs of distant unknown individuals. This dispersed knowledge is essentially dispersed, and cannot possibly be gathered together and conveyed to an authority charged with the task of deliberately creating order.” (Page 77)

The thread that ties the Fatal Conceit to Use of Knowledge is humanity’s inability to design a complex system. The extended order evolves and adjusts in ways we can’t controllable:

“This is another reason why evolutionary theory can never put us in the position of rationally predicting and controlling future evolution. All it can do is to show how complex structures carry within themselves a means of correction that leads to further evolutionary developments which are, however, in accordance with their very nature, themselves unavoidably unpredictable.” (Page 25)

Our consistent belief as a species that we can design complexity is the Fatal Conceit:

“So, priding itself on having built its world as if it had designed it, and blaming itself for not having designed it better, humankind is now to set out to do just that.” (Page 67)

Because we can’t hope to design our society, the best way to generate the positive outcomes we desire are efficient markets, not central planning:

“The market is the only known method of providing information enabling individuals to judge comparative advantages of different uses of resources of which they have immediate knowledge and through whose use, whether they so intend or not, they serve the needs of distant unknown individuals. This dispersed knowledge is essentially dispersed, and cannot possibly be gathered together and conveyed to an authority charged with the task of deliberately creating order” (Page 77)

“Such an order, although far from perfect and often inefficient, can extend farther than any order men could create by deliberately putting countless elements into selected ‘appropriate’ places. Most defects and inefficiencies of such spontaneous orders result from attempting to interfere with or to prevent their mechanisms from operating, or to improve the details of their results. Such attempts to intervene in spontaneous order rarely result in anything closely corresponding to men’s wishes, since these orders are determined by more particular facts than any such intervening agency can know. Yet, while deliberate intervention to, say, flatten out inequalities in the interest of a random member of the order risks damaging the working of the whole, the self-ordering process will secure for any random member of such a group a better chance over a wider range of opportunities available to all than any rival system could offer.” (Page 84)

Though the dynamics they enable are self-ordering or emergent, markets themselves are not. Efficient markets must be induced, and even then, are not always guaranteed:

“For mere abstract knowledge of the general structure of such entities is insufficient to enable us literally to ‘build’ them (that is, to put them together from known pieces), or to predict the particular form they will assume. At best, it can indicate under what general conditions many such orders or systems will form themselves, conditions that we may sometimes be able to create.” (Page 82)

“For in fact we are able to bring about an ordering of the unknown only by causing it to order itself. In dealing with our physical surroundings we sometimes can indeed achieve our ends by relying on the self-ordering forces of nature, but not by deliberately trying to arrange elements in the order that we wish them to assume.” (Page 83)

“In order to induce the self-formation of certain abstract structures of inter-personal relations, we need to secure the assistance of some very general conditions, and then allow each individual element to find its own place within the larger order. The most we can do to assist the process is to admit only such elements as obey the required rules. This limitation of our powers necessarily grows with the complexity of the structure that we wish to bring into being.” (Page 83)

“Order is desirable not for keeping everything in place but for generating new powers that would otherwise not exist.” (Page 79)

Thus, the role of institutions or any governing rules we pose on ourselves must be additive to the extended. Of course, as Hayek articulates this book, if we create the wrong institutions or impose inefficient rules, evolution will root them out over time.