In Law, Legislation and Liberty, vol 2, Hayek discusses a fateful ambiguity in the word “economy.” He is worth quoting at some length.
An economy, in the strict sense of the word . . . consists of activities by which a given set of means is allocated in accordance with a unitary plan among the competing ends, according to their relative importance. The market order serves no such single order of ends. What is commonly called a social or national economy is in this sense not a single economy but a network of many interrelated economies. Its order shares . . . with the order of an economy proper some formal characteristics but not the most important one: its activities are not governed by a single scale or hierarchy of ends. (107-8)
In the older sense of the word, a household, a business, and you and I have economies we do a better or worse job of managing. All of us together, all our economies, make up the national or world economy. This ambiguity accompanies much of our other discussions of social spontaneous orders.
Hayek identified a important confusion, and until it is made clear our understanding will be hobbled by inappropriate expectations and contexts for understanding. This confusion runs through all spontaneous orders with roots predating liberalism’s rise: the market order, the scientific order, and the democratic order. This is because it was only when, and to the degree that, societies became liberal that spontaneous orders developed within them.
Consider as an example a scientist doing scientific research. He or she has a question to explore, probably a hypothesis to investigate, and a plan of research to try and get greater clarity over the issue. There is a goal, tools to seek that goal, and a greater or lesser ability to use those tools in attempting to do so. And we say this is a scientist doing science. This kind of personal investigation has ancient roots.
At the same time science is that now world wide network of scientists investigating an enormous number of issues across the breadth of what can be explored by means of some mix of experiment, measurement, and prediction. As with Hayek’s examples of different senses of ‘economy,’ both science as what a scientist does and science as a network of what scientists do share some important formal characteristics, particularly those involved with standards of testing propositions. But, as with the “economy,” the doings of all scientists taken together are not “governed by a single scale or hierarchy of ends.” Doing science is pursuing a hierarchy of ends in accordance with scientific standards, but science also describes the network of exploration and discovery done by all scientists collectively, an exploration that is more than the sum of their individual explorations because, as with the national economy, on balance the network empowers their individual efforts.
Let us examine a third case. a somewhat more complex one. In World War Two, when the democratic world was fighting for its existence against Nazi Germany, the national economies and scientific research of the various warring powers were largely devoted to a single overarching end: winning the war. In the economy civilian production beyond basic necessities took a back seat to military production. The same held for the resources available for scientific research. Science and the economy were subordinated to a single over arching goal, although this was largely achieved by control over resources rather than seeking to replace the market or scientific process.
Democratic nations achieved this subordination because their citizens were overwhelmingly in favor of winning the war. Their governments therefore used the power of the law and the purse to shape other parts of society in service to this goal. But they also did the same for the democracy itself. In peacetime freedom of political speech is a basic component of the democratic world. It is limited in war time. In peace time freedom of the press is equally vital and constitutive, and in war time it is not. In peace time any political position can be argued for electorally. This is not true in war-time. Political freedoms that inhibited the war effort were proscribed. Speaking and organizing freely over political matters is acting as a good citizen during peacetime, but may be acting disloyally during war-time.
We therefore find a similar ambiguity in our term “democracy.” On the one hand it can describe a system where all or nearly all citizens are united in attaining an overarching goal. On the other, it can describe a political system with no over arching goal, and with many parties and citizens advocating shifting and often contradictory sets of goals that will certainly change before long. Both these political systems may have the same individuals, but they play by different rules. The democracy at war is akin to a business’s economy or a scientist’s research project. But a democracy at peace is more like the network of all scientists or all economies. The very freedoms limited by democracies at war are defining elements in what makes them democratic during peacetime.
This ambiguity in the character of democracy has led some scholars to argue that democracies are forms of democratic organization as are labor unions, cooperatives, and some clubs, as Robert Dahl did in his Preface to Democratic Theory. Others have argued that simple popular support as such is democratic, such that popular dictatorships can be ‘democratic’ in a sense. As I remember, this argument is often encountered among more authoritarian and sometimes conservative political writers. In a related form of this confusion, for such it is, we find some scholars arguing that even highly authoritarian systems are “pluralistic,” in ways analogous to Western pluralistic democracies, as Jerry Hough did with regard to the late Soviet Union.
These confusing usages of economy, science, and democracy arise from failing to make a basic distinction between what Hayek calls “spontaneous orders” and what he calls “made organizations.” This confusion arose in part at least from the fact that beginning in the early modern world a decisive change in the rules governing human social relationships took place within activities that evolved into science, and later spread to much of the rest of human life. In the process, science shifted from a small network of individuals often personally known to one another into an enormous world-wide undertaking where no one knew much of anything or anyone outside his or her small field of expertise. The same transformation happened in business and in politics. Businesses had had economies for millennia before the growing network of businesses operating largely through money mediated feedback signals generated the economy Adam Smith described in 1776.
Similarly, in government democracy shifted from the workings of a small town or, in representative democracy, of a small and rather homogenous elite often personally known to one another, into networks of millions of citizens and interest groups operating largely out of sight of the politicians who served as its lawmakers. James Madison wrote that in truth the new American system was something genuinely new to the world, one where traditional language no longer really fit and European traditions of political thought misunderstood. It is symbolically appropriate that this shift also began in 1776.
Since that time we have used old words to describe old things as well as new, without really paying much attention to the fact they describe fundamentally different social institutions. Birds and butterflies fly, but most of the time we shed little light in conflating the two. The same holds when we ignore the profound differences between two kinds of economy, two kinds of science, and two kinds of democracy.