Hayek's 'Fatal Concept'

Hayek argues that spontaneous order promotes cooperation without central direction by

enabling individuals to coordinate their actions through the impersonal mechanisms of market

prices and cultural rules. Because spontaneous order is the by-product of individuals’ decisions,

it is end independent; that is, it aims toward no collective goal or outcome. Instead, it generates

abstract signals that provide information individuals can use in pursuing their aims. Such signals

reduce the quantity of concrete information that individuals must collect to coordinate their plans

with those of other persons. Whether in prices, which convey information concerning the

demand for and supply of goods and services, or in evolved rules, which give rise to rational

expectations regarding conduct, spontaneous order enables individuals to act on information they

do not explicitly possess. Because no one can know all the facts that determine prices or evolved

rules, no one is in a position to plan economic activity or cultural change using as much

information as is transmitted through market competition and cultural evolution. Hayek argues

that the "moral" institutions of free market capitalism, such as private property and contract,

represent the result of an evolutionary process between competing traditions. Humanity, through

the conscious design of no one, gradually moved towards capitalism since it is best at providing

materially for population growth and the strength and comfort of those following the tradition.

The "fatal conceit" is the belief among intellectuals that we can use reason to create a better

system of tradition than what that process created.

Hayek characterizes socialists as motivated by two powerful impulses: (1) the longing for

a brotherhood of man in which everyone's wants and needs are attended to and (2) the conviction

that a perfect social order can be achieved by means of comprehensive central planning. To

Hayek, however, socialism is not an immoral system. It is a serious mistake to be sure, but one
that stems merely from factual errors in the thinking of socialists. They simply fail to recognize

that greater prosperity can be achieved via learned rules than through conscious planning. Hayek

specifically credits them with both intelligence and good intentions

References

Boyce, W. (2012). Managerial Economics: Markets and Firm. (2. ed., Ed.) South-Western:

Cleanage Learning.