‘Spontaneous order’ hailed as best way for societies to thrive

from Grassroot Institute of Hawaii, April 24, 2024

What if the key to prosperity lies not in central planning, but in individual liberty? 

In a March 28 interview with Joe Kent, executive vice president of the Grassroot Institute of Hawaii, economist, author and Grassroot Scholar Ken Schoolland extolled the virtues of what he called “spontaneous order” — the myriad interactions that occur among individuals who are free to make voluntary decisions without government interference.

Schoolland, also an associate professor at Hawaii Pacific University and author of “The Adventures of Jonathan Gullible: A Free Market Odyssey,” explained that spontaneous order is the idea that complex systems, including economies and societies, function best when individuals are free to make their own choices, rather than being controlled by central authorities. 

“It’s all based on a voluntary interaction of human beings throughout society and throughout history,” he said.

Schoolland traced the intellectual history of spontaneous order from ancient Chinese philosopher Lao Tzu to 18th century French economist Francois Quesnay, to more modern thinkers such as Friedrich Hayek and Ludwig von Mises of the Austrian school of economics.

He applied the concept to a wide range of economic issues, from central banking and inflation to emergency response and price-gouging laws. In each case, Schoolland argued, spontaneous order leads to better outcomes than central control.

Schoolland invited viewers interested in more information to visit his website at jonathangullible.com. 

TRANSCRIPT:

3-30-24 Ken Schoolland with Joe Kent

Kent: Aloha, and welcome to the Grassroot Institute of Hawaii. I’m Joe Kent. And today we’re going to talk spontaneously about the spontaneous order with Professor Ken Schoolland, an economist at HPU and Grassroot scholar, and author of “The Adventures of Jonathan Gullible: A Free Market Odyssey.” So great to have you here with us.

Schoolland: Thank you very much, Joe. This is fabulous.

Kent: So the spontaneous order is basically the idea that sometimes complex things are accomplished better spontaneously or naturally by individuals rather than in a centrally planned way. It seems mystical, it seems magical, but what is it really? What does this concept describe?

Schoolland: Actually, it describes what goes on in the marketplace throughout history and throughout the world. Commercial action is voluntary. I mean you and I produce things and we trade with each other. It’s all voluntary and we are spontaneously deciding what is going to be to our benefit and our arrangements.

It’s all based on a voluntary interaction of human beings throughout society and throughout history.

Kent: So does it involve trust, though? I mean, I don’t trust my neighbor to run his life spontaneously in accord with what I want my life to be. I don’t trust businesses or those evil, greedy corporations or even good corporations, well-meaning corporations and so on.

So doesn’t this idea of spontaneity require some trust?

Schoolland: Oh yes, absolutely. And throughout history and throughout the world people have always devised ways of building reputation. 

Reputation and confirmation from neighbors and other people that you’ve done business with were always the foundation for good business relations.

That’s why you didn’t just do business with someone who just came into town. You had to see their references. You had to see their record. 

And even still today, you want to borrow money for a house, you’ve got to show a track record of tax payments, income in the past, good credit rating with the credit bureaus.

Kent: So someone treats me wrong, someone wrongs me, and now their reputation is hit, right? And so I don’t do business with them again, right?

Schoolland: That’s right, yeah. And even in the huis that were developed early on in Hawaii to do business with a new person or to loan to them, you had to be vouched for by somebody else already in the group that you already trusted. And their reputation was on the line. So therefore, they also were risking their own reputation when they vouched for somebody. So it was a way of verifying credibility and building trust in order to do business.

Kent: So this idea of the spontaneous order, it’s like an economic concept. Where was it originally thought of?

Schoolland: Well, I think of the origins, the first time that it was talked about in economic terms and philosophical terms was Lao Tzu, the founder of Taoism thousands of years ago in China, where he said, the more rules and laws there are the more thieves and robbers there will be. The best ruler is the one who’s merely known and lets people pursue their own lives, and the more he intervenes with that the more things become in disarray.

In more modern times, my favorite economist is Francois Quesnay, the French physiocrat who actually coined the word economist to relate to people who were talking about the body of the society. 

And he was a physician in a day when most physicians, the orthodox doctors, were bleeding people and cutting them and administering them with poisons to kill the demons in their blood.

And he said this kills more people than it helps. No, instead, leave them alone — in the French, laissez faire. Give them good rest, good exercise, good diet. Each person heals better on their own than with these interventions from the physicians.

And he was so successful, so popular, that King Louis XV invited him to be the court physician. And while there, he developed this whole cadre of people around him who were talking about not only the body of the person, but the body of the nation.

And when the prince, the dauphin, came to him and said, “Well, when I become king, what should I do?” — you know, because in those days, the mercantilist policies always had government interventions to manipulate and control the society with trade barriers and taxes and regulations — he said the best thing to do is to do nothing. Laissez faire. Leave the economy alone.

The people of the nation are like the body of the nation. They will pursue their own ends, not your ends, and they will thrive and prosper because you’ve got thousands, millions of people all pursuing their own ends, seeing things that you can’t see from your elevated heights in the king’s castle.

Kent: Wow, that’s amazing that a physician would come to that economic conclusion. I mean, I would imagine people would say, “Well, he always says that: Leave things alone.” But in this case, it actually worked for both instances, though.

Schoolland: Yes, and he was visited by Adam Smith, who came — he was tutoring a wealthy aristocratic student, and they went to Paris and they spent a number of months in the company of Francois Quesnay and the physiocrats who were, they were called physiocrats because they were following the laws of nature rather than the king’s laws to determine what should be done.

And the laws of nature meaning, how do we naturally pursue our own ends voluntarily? 

And he went back and wrote out “An Inquiry into the Nature and Causes of the Wealth of Nations,” following much the ideas of Francois Quesnay.

Kent: Wow. So good old Adam Smith got it from a doctor, actually. 

Schoolland: Yes, I think so. 

Kent: That’s interesting.

Schoolland: Since then, it’s been picked up enormously by the Austrian school of economics, especially Ludwig von Mises and Friedrich Hayek, who talk about the importance of building the whole of civilization through this evolution of voluntary interaction where people learn and develop their trust.

And in a sense, I’m glad you mentioned this about trust because the thing that shatters trust more than anything is the whim of government policy and especially the undermining of the value of money. 

When you consider that money is the basis of trust for how much something is worth and how much a contract is worth and how much is your savings worth and how you can calculate your potential future …

Kent: Well, let’s talk about that money then, because money is centrally managed, you might say. There’s so many government controls in every country around the world, controlling all the different types of money, and by controlling I mean they control the supply, they can make more of it or less of it, usually more of it, and they can control where it goes and even who uses it sometimes and so on.

But, what other … we’ve never really had any other case of that. I mean has there ever been a free form of money out of the government’s control?

Schoolland: Oh yes, throughout all of history people have gravitated towards different kinds of money, whether it was feathers of the 1uetzal bird in Guatemala or salt or stone or iron and so on, people throughout history have utilized various forms of money as a medium of exchange, and they always gravitated to the thing that kept its value greater because then it solidified the common trust that people had when making trades in commerce.

That’s why gold emerged as a very trusted form of metal and medium exchange throughout the history and throughout the world and most places in the world.

Kent: So I’m a fisherman. I want food. Let’s say I want some food from your cattle or something. And you don’t want my fish, but I want your cattle.

So I try to go around and trade with someone who deals in sand or something, and then get you what you want and so on. It’s a cumbersome process. But then I find some system of shells or rocks or let’s say diamonds or something like that and that somehow becomes money spontaneously again, with no government needed here.

Schoolland: That’s right.

Kent: Isn’t government needed somehow though? I mean, we’ve got the Federal Reserve. They’re trying to hit a 2% inflation rate and they’re trying to bring it down, and I imagine them with all kinds of gears and knobs and levers and trying to manage the smoking economy. So don’t we need someone at the controls?

Schoolland: Governments are always tempted to inflate currencies. You could start with the examples of the Roman Empire. Nero had a gold system, a silver system for their currency and so on, and what the temptation was to make more of it.

You know, you say, OK, I’m the one that has the legal monopoly over the creation of money, so as Nero would say, “I think I’m going to make more coins by diminishing the value of the amount of silver in the coins and add more and more tin.” 

What started off as 100% silver then came to be 2% silver because he was tremendously expanding the money supply.

And in 150 years, all the Roman emperors doing the same kind of thing, they completely shattered the confidence and trust in the society. They created enormous inflation, tremendous disruption of investment and savings, and the whole of society felt  here is the most powerful empire, then fell vulnerable to outside forces because it was shattered from within.

We’re seeing the same kind of thing today where governments just in the last 100 years created this phenomenon of separating from a solid gold standard and coin to being able to print up enormous amounts of money. And basically this works as a huge transfer of wealth from the people who are holding money or have a fixed income and they’re losing value by percentages every year. 

And that doesn’t go out of existence. It goes to those who are holding other things of more value and those who get to spend it first. 

And the government’s always like printing up a lot of money because they get to spend it first before the prices go up. So it’s a tremendous transfer of wealth to them.

Kent: So I have $100 in my savings account, and over 10 or 15 years that $100 buys half what it used to buy and now they’ve — and I still have the $100, but in a sense they’ve robbed me of the purchasing power of the dollar, you’re saying.

Schoolland: The wealth is still there, it’s just been transferred to those who are holding the things that go up in value during tidal inflation.

Kent: But let’s say though that the people who with, at the controls, you know, the levers and the switches in government bureaucracies, they actually understand this, that OK, we’re debasing the money supply somehow, but it’s a necessary evil because we need to respond to emergencies.

And this goes back to the central planning. We need a central planner in case an emergency happens. 

I mean, look at the COVID-19 era. You had this mysterious disease. And let’s say, let’s say that it was a mysterious disease and not COVID, but something else. And we didn’t know what it was. And all of a sudden, government leaders around the nation would have to, around the world would have to say, “OK, what do we do?” And what they did, they shut down the economy and they printed a lot of money. And even today, I think many would say that was justified.

Schoolland: I love the work of Bjorn Lomborg, the Danish economist who recently revealed an analysis of the countries that had the greatest amount of control and shutting down the economies. 

Not only did they have a greater percentage of deaths, of extraordinary extra deaths, but they also had slower growing economies, which also contributes to hardship and death in society, and that the ones that had the greatest controls had the worst outcome. So I would think that it shouldn’t necessarily follow that what the government did was for our benefit. 

A lot of times, for example, when there was a hurricane in Puerto Rico, you know, people thought, “Well, the government has to come to action.” Well, without the Jones Act, which they are subject to in Puerto Rico, they would have had shipping and assistance from all of the islands around the Caribbean and all around Europe would have come to their assistance. 

But because it was a Jones Act subject country, they weren’t allowed to accept all of this tremendous amount of aid that could have come to them immediately.

So I think that it retarded the recovery from Hurricane Maria enormously, and I think the same thing would happen here in Hawaii if we got hit. As a matter of fact, when we have hard times, the first thing that people do is say, “Let’s get an exemption from the Jones Act.”

But that’s expecting instantly the replacement of all the things that are off limits to us because of the Jones Act.

Kent: But an emergency though, it’s just so counterintuitive. You know, we have, let’s say there’s a big emergency. Let’s say a hurricane, sure.

And the first gut reaction is to look to the governor, look to the mayor, look to the president, to see what he’s gonna say and do. And what do they do? You know, they almost don’t need to be there because they all do the same thing — executive order, right? Executive action, meaning that we’re gonna take all our laws and sort of push them aside and kind of rule by king, in a sense.

And so central planning coalesces when emergencies happen. And isn’t this a good thing? Because we need someone looking at from a top-down view to see what’s going on with all the pieces on the board.

Schoolland: Well, my thought about these emergencies is that often the government behaves like a disease masquerading as its own cure. 

The problem that you have in the first place with an emergency is that maybe the government did things in advance before that that made it more and more difficult to adjust to the emergency.

For example, the federal flood insurance guarantees low-cost insurance for people who want to build all across the country in storm hazard zones. And so, you know, they’re encouraged throughout the years to build in risky places. 

This is moral hazard in economics, is encouraging reckless behavior, because the government says, “Well, we have to sympathize with people who want to build along the shoreline,” as did the government when they said, “We have to sympathize with the people who want to build in volcano risk zones on the Big Island.”

So thousands of homes were built at the encouragement of government to insure them and to make sure that there was less risk to those people who did it. And so the banks then finance those places. And then the disaster comes and then we say, “Oh the government’s gonna come and rescue it.”

Well, the problem was created in the first place by encouraging so many people to build in those risky areas.

Kent: You’re talking about moral hazard, which is actually a whole other economic concept, but basicaly, so what is moral hazard?

Schoolland: Moral hazard is that the government removes the risk from the person taking the action and puts it onto other people, such as taxpayers, so that if you don’t have the risk, you are more likely to take risky and reckless behavior.

Kent: So I want to buy a house, and the insurance industry says, “We’re not going to insure your house because it’s sitting under an active volcano and so I don’t buy the house.” But the moral hazard comes in when?

Schoolland: When the government says, “Well there’s the insurance companies — in order to do business in the state of Hawaii they have to give the same rate of insurance to those people building in risky zones on the Big Island as safe zones on Oahu.”

And so the insurance company says, “OK, we’ll spread the cost to all the other insurers around the island.” But that’s encouraging people to build in places that are very, very risky, things that they would not have risked and banks would not have financed those houses in the first place.

Kent: OK, but what about predators though? So let’s say financial predators. Here’s a — going back to the hurricane example. There’s a big hurricane. Everybody needs supplies. We need generators. We need ice, you know we need toilet paper and so on. And everyone runs to Costco and tries to get all that stuff, you know.

And then, let’s say Costco or some other store raises their prices double, triple what it normally costs, and they get all of this money, and meanwhile, you still don’t have as many supplies for people. There’s still, you know, there is still a big problem in the economy, but now you have added on sort of predatory preying on the victims. 

So what about that? We need price controls during an emergency.

Schoolland: Yes, I remember when Hurricane Katrina hit in Texas, there were price gouging laws. In other words, we’re not allowed to raise the price in an emergency. 

Well, the price mechanism is a signal to people to produce and provide something that is in short supply. And When generators and water was all out of existence because of the hurricane, these laws went into place. 

So therefore, when a guy in St. Louis decided to buy up a whole bunch of generators, at his expense in St. Louis, put him in a U-Haul trailer and carry them down to Texas. He was offering them at twice the price that they had been prior to the storm in Texas. Everyone was glad to have it except that he got arrested and all of his generators were confiscated, and he got arrested and put in jail for price gouging. 

What he was doing was providing this desperately needed item down there. Price mechanisms in the marketplace are signals to people to do more. People need more.

Kent: So price gougers are a good thing?

Schoolland: Yes, definitely. And the people who are doing the immoral thing are the ones who are arresting them and not allowing them to supply the tremendous need.

Kent: And the victim, let’s say, the person who’s trying to survive whatever emergency, they’re happy to pay double or triple the price, otherwise they wouldn’t have done it.

Schoolland: That’s right. That’s right.

And, the price going up encourages people to be more cautious in how they use it. In other words, somebody could have gone in, if the price is low priced, then somebody goes in and buys much more than they actually need because they’re trying to be …

Kent: Right, they hoard all the generators.

Schoolland: They hoard more, yeah. But if the price goes up, he says, “Well, I don’t need quite so much, I’m being more cautious in how much I buy,” which means there’s more of an abundance for those. 

And also, knowing that this sort of thing happens during emergencies, people then are inclined to stock up on their own beforehand because they know that during an emergency the price will go up.

Kent: So the price going up actually can hinder hoarding.

Schoolland: Yeah, right. And it encourages people to buy in advance. I mean, I have some stuff in my garage in anticipation of a hurricane, because I know that during a hurricane there’s going to be a short supply.

Kent: So the people who view the threats first, you know, have the foresight to view the threats, they buy the cheap, you know, toilet paper, let’s say, they stock it in their garage, and then when a hurricane hits or some other disaster now they’ve got all the toilet paper for everyone. OK, they make a little more money but they get the goods out faster.

Schoolland: And the guy who wants the price control law is the lazy one — the one who doesn’t have foresight, the one who wants to be able to have everything without any action on their own part to be foreseeing for circumstances that could be awry.

Well, they say, “Well, the cost should be borne by somebody else, not by me.”

Kent: So this goes back to the spontaneous order here, and this is one example of just let people, during an emergency, just let people figure it out themselves. That would be, I think, a difficult sell to any leader.

Schoolland: But also consider the fact that countries that are prosperous are far less damaged by emergencies than countries that are desperately poor. 

When the hurricane hit Honduras, it was devastating because everything in that country was very, very poor.

When you have a prosperous society that is growing and developing wealth and expertise and all the kinds of securities in society, you’re much, much less likely to be damaged by the emergencies. 

When there was a big earthquake in San Francisco in recent years, you know, there were a few deaths, there was damage, but nothing like in Honduras, what was devastating the whole economy because prosperity helps us all prepare for emergencies much, much better.

Kent: Right, so a laissez-faire approach generally — we’d be better prepared for emergencies and other things and so on. 

But I mean, as a principle though, let’s say I’ll give you that. Emergencies, the spontaneous order is the best system to respond to emergencies. But what about, maybe that’s just a lucky example, right? But maybe for farmers, you know, we, they need the government to come in or, or maybe for technology or, or, you know, pick a different industry or a different example and maybe the opposite’s true.

Like how do we — is there some sort of underlying reason why it would be that the spontaneous way is the best or most efficient or effective way to accomplish things in society?

Schoolland: Well, government officials will always like to presume to know better about society than the millions of players in the market. 

And it’s interesting to note that people have a very, very low opinion of the honesty and ethical standards of politicians, specifically and in general. 

You know, if you ask them, the surveys constantly say, “Well, politicians,” and they have very, very low public appreciation. They rank them almost at the bottom of the list of occupations, along with prostitutes and used car salesmen as being people who are untrustworthy.

And yet you put a bunch of politicians together into a chamber and then suddenly they become almost godlike. “Oh, we know better than you.” 

No one believes that their moral values and ethical judgments are worse than politicians in general. But then they accept government actions, the collection of all these people altogether more so.

And these guys are always subject to the whims of special interest groups that are expecting campaign contributions for special favors to these special groups.

Kent: So there are no better angels out there. You know, it’s just you and me and a bunch of other human beings trying to solve things. And even if you have a smart person, if he’s a politician, it’s not guaranteed that he’s gonna be a good person too.

Schoolland: We are always, there’s good and bad people all over the place. In politics and so on.

Kent: In politics and so on.

Schoolland: But in the voluntary society, you can choose whether or not to deal with them or not to deal with them. You can seek out verification about their veracity and their judgment. And you can learn by the mistake of doing business with a bad person. That always happens.

But in the political arena, you don’t have any choices. Maybe you’ve got a choice every two years about whether to vote for this person or the other person that’s just as bad. You don’t really get a choice of whether or not you want to deal with somebody when they’re taxing you and when they’re imposing their will through regulations.

Kent: So let’s say an emergent — going back to the emergencies — an emergent situation requires many decisions that are localized to the individual and different from person to person such that one person at the top isn’t able to know all of the needs and wants and right decisions for every single person in society, right? There’s no way to know that and therefore the best way to do it is to just live and let live then. 

Schoolland: Mmm, hmm.

Kent: Interesting.

Schoolland: Yeah.

Kent: So we could go on all day I’m sure of different examples — short-term rentals, you know, hospitals and so on — but at the baseline, if somebody wanted to learn more about this —spontaneous order, it seems like an easy concept, I guess we all know about it now — where could they learn more about it?

Schoolland: Well, I would direct people to Friedrich Hayek. The readings are a little bit academic. 

Kent: The economist.

Schoolland: The economist, yeah. And it’s called an Austrian school because Friedrich Hayek and Ludwig von Mises, and Carl Menger before them, were all from Austria and they had to flee ahead of Hitler’s invasion of Austria.

Von Mises came eventually to Switzerland and to New York. Hayek went to England and then to Chicago and established their school of thought, Austrian school of thought here, largely based on this notion of individual action by the millions of people is much more wise than directed by political insiders who want to control other people’s lives.

Kent: And the spontaneous order isn’t just localized and accepted by the Austrian school too. It’s kind of like a broad economic principle across the economic profession. You know, Paul Krugman and many others talk about the spontaneous order and different things. It’s just that it’s just I think the Austrians take it a little further perhaps, is that right?

Schoolland: Well, I think they apply it consistently across the board rather than just selectively. Yeah, I think Milton Friedman, for example, was one who much appreciated the free market actions of individuals in the marketplace.

He still, for most of his career, favored a role of the central bank and the Federal Reserve System, hoping that it could get away from this discretionary actions that presume to know what to do with society and money supply and things like that.

I think David Friedman probably had it better, his son, who wrote a book called “The Machinery of Freedom,” which talks about spontaneous individual action in creating solutions in so many other areas of society.

Kent: So that pie chart of the world I talked about where maybe it works here but not here. He tackled the whole chart and looked from A to Z to see if a spontaneous approach would work and what that would look like — “The Machinery of Freedom.”

So if people would want to spontaneously navigate to learn more about your work, where can they go?

Schoolland: Well, I would advise them my website jonathangullible.com. It’s based on my book “The Adventures of Jonathan Gullible: A Free Market Odyssey,” now in 57 languages with theatrical productions around the world. And it was endorsed by Milton Friedman, Walter Williams, John Stossel, Steve Forbes, Mark Skousen and other economists. So I do try to portray the workings of the free market society through that.

Kent: Well, good. And if you want to learn about our work, go to grassrootsinstitute.org. Otherwise, thanks, Ken Schoolland, for joining us today. And thank you all for watching. Aloha.