The Fatal Conceit, by F.A. Hayek, is an economics book but does not dig into detailed economic theory or examine economic principles as such. Published when Hayek was 89, it summarizes what Hayek learned in a lifetime of study of the science of economics and the creation of human wealth. It is a justification and theoretical defense of classical liberalism, thereby providing an explanation of the assumptions and analysis underlying the free-market economic thinking of Ludwig von Mises, Milton Friedman, Thomas Sowell, Walter E. Williams, and Hayek himself. Hayek was an excellent writer and this 150-page book covers a lot of ground while being easy to follow. Yet, I found it to be a slow read; it provides much to ponder.
Economics might be described as the study of how humans behave when changes happen to things they value and trade: changes in quality, availability, demand, or price. It might more accurately be described as the study of the effects of all the humans behaving, as and after they behave, and the effort to model and predict these effects. Actual human behavior can be inferred but is less important than the aggregate effects. Economics is less concerned with how people react when the price of steel goes up than in what changes in the quantity of steel purchased, the quantity of steel produced and the effects on price and demand for aluminium and other substitutes for steel.
Hayek’s The Fatal Conceit takes a step back farther still, examining aggregate human nature and what happens to those things we value and exchange (buy and sell) when humans have liberty to make their own decisions and security in their persons and their property. The result of this liberty and security is what Hayek calls “the extended order” (or more precisely, the extended order of voluntary human interaction, aka the free market), a self-organizing ecosystem that automatically provides more of something when need or demand goes up and, overall, has advanced our standard of living (wealth) beyond that of the hunter-gatherer societies of the first 90% of our species existence.
No charts, no graphs, no equations, no tables of numbers. Easily read prose that explains Hayek’s conclusions about how human wealth is created and how the extended order operates. In the process Hayek explores our instinctive responses, the communal “micro morality” that enabled small troops of hunter-gatherers to survive, and how these instincts gave way to a “macro morality” based not on instincts but on traditions – the learned results of trial-and-error – as humans began to trade and increase our wealth over the last 10,000 years or so. Though guided by instincts and reason, this macro-morality exists between instinct and reason as the evolving form of what humans have discovered works.
The “Fatal Conceit” is the ancient belief that reason, particularly the reasoning of powerful or educated elites, can manage and operate the human economy (and the creation of wealth and wellbeing) more efficiently and more effectively than the extended order will operate on its own. Much like the discredited idea that modern biological and agricultural expertise can be utilized to manage the Serengeti better than it operates, and has operated for perhaps millions of years, on its own, progressivism and modern socialism update this millennia-old conceit by asserting that modern science and the rationality of the Enlightenment enable humans to intentionally control the details of creation, production, and distribution of human goods and services better than the self-organizing and self-regulating extended order of the free market. In the 1960s, the Ecology Movement explained that natural ecosystems were far too complex for human science and reason to control and that any artificial actions should be undertaken with humility, the expectation of unforeseeable consequences, and the very likely possibilities that those actions would have to be reversed. Hayek asserts that the ecology of human economics, the extended order, is vastly more complex, more dynamic, and more changeable than any natural ecosystem, hence even less amenable to rational control than nature. Limits and boundary conditions, yes, but control no.
Whether you agree or disagree with Hayek’s conclusions, this is an excellent summary of the overall thinking of the leading free-market economists.
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