Government: From the Knowledge Problem to Localism

by Kai Weiss

This article is part of the series Spontaneous Order: A Rich Tradition with Lessons for Today. Read the previous article here.

The spontaneous order leads to economic flourishing, prosperity, and collaboration around the globe. Through history, social institutions and traditions emerge organically, building a social fabric and healthy civil society. All this is happening in a bottom-up, decentralized way over time. And in a way in which it seems as though no top-down, centralized authority is needed. Is there room for a state in the spontaneous order, and, if so, what would its role be?

Carl Menger (1840-1921) contended that not only is a government needed, but that this very government could even come into being in that same process of spontaneous order, writing that “the state has been the unintended result of efforts serving individual interests, at least in its most original forms.” Indeed, “no unprejudiced person can doubt that under favorable conditions the basis for a community capable of development can be laid by the agreement of a number of people with a territory at their disposal.” That is, as a community emerges, specific decision-making processes and mechanisms will equally arise, potentially coming to constitute something akin to a state.

This does not mean that this has historically always been the case. After all, as Douglass North (1920-2015) has convincingly shown, states have often come into being through conquest by the stronger over the weaker.

There are several other reasons to be skeptical of government having too big of a role. As we have established in previous chapters of this series, the spontaneous order, if it works properly, lets a prosperous economy and a healthy and cohesive society come into being. To justify massive government intervention would assume that the government could do better than the spontaneous order.

This is, by and large, highly unlikely; for whereas in the spontaneous order, every individual and any other organization (naturally composed of individuals) can plan on his, her or its own terms – making the spontaneous order a highly democratic form of societal organization – any form of government will naturally hinder some from doing what they want. And the more the government is doing, the more this is the case, as Friedrich Hayek (1899-1992) realized when he wrote that “the more the state ‘plans’ the more difficult planning becomes for the individual.”

Additionally, whereas the spontaneous order can only work through the voluntary collaboration of individuals and groups – i.e., bringing people together peacefully – centralized government has a tendency to be divisive and polarizing, particularly when it is dominated by special interests and powerful minority factions, when the decision-making takes place far away from the governed, or when the government enacts controversial policies, which may be seen as beneficial by a majority, but are considered completely unacceptable to those opposed.

Finally, a fully centralized state will have a difficult – or impossible – time to make decision-making as effective as on a decentralized scale. Ludwig von Mises (1881-1973) has proven this convincingly with the socialist system. Hayek’s knowledge problem shows how this is the case for all centralized systems. How could a government whose people are composed of millions of people (and sometimes hundreds of millions) have the ability to coordinate all activities in that territory? How could it compile and order all the knowledge in that society and make use of it appropriately? Indeed, if the state were to try, it would be more likely that it would not only be unsuccessful, but due to the constant intrusion into the spontaneous order, it could be catastrophic, with even the last elements of spontaneity being destroyed, as we had to observe regularly in the twentieth century.

All of this is not to say that government has no role whatsoever – not all governments become dictatorships. Indeed, as long as that government honors the existence and, even more so, general superiority of the spontaneous order over centralized decision-making, and as long as it doesn’t depart from republican, liberal democratic principles, it can take on the form that Hayek envisioned it would have: a strong yet small government that would set the basic framework in which the spontaneous order can develop and progress, particularly by ensuring the rule of law and defining and protecting property rights and individual liberties.

In this, governments could follow a legal tradition that is based on spontaneous order convictions: the common law. In a common law system, law emerges bottom-up and through history, thereby, in the words of Roger Scruton (1944-2020) condensing “into itself the fruits of a long history of human experience.” The law would then provide “knowledge that can be neither contained in a single formula nor confined to a single human head,” but would be “dispersed across time, in the historical experience of an evolving community.”

Meanwhile, on the more decentralized, local level, governments can potentially take on bigger roles, since it is on this level that governing institutions can actually emerge in the spontaneous way that Menger imagined. In a scenario of local communities assembling to decide on issues that affect the entire community and making democratic decisions in the local town hall setting which Alexis de Tocqueville (1805-1859), for example, described so colorfully, the government can, indeed, be embedded in this organic order.

Such a government, being part of the spontaneous order, would truly have to arise from this same order. It would be wrong-headed to first have a government, based on some concept of a social contract, and then let things unfold. Instead, first a community has to form itself and subsequently a government may emerge. As Roger Scruton put it, a community only decides to want to develop collective decision-making processes if the people in the community “already belong together, already acknowledge that the welfare of each depends upon the actions of all.”

Thus, the true role of government in the tradition of spontaneous order is always somewhat fluid, depending on the exact circumstances, the precise system of government, and the territorial size of that government. Excessive centralization will inevitably fail. Overconfident governments ruling millions of people without a strong societal bond will cause disruption and polarization – and prevent the benefits of a spontaneous order from emerging. By contrast, a small republican government and local democracy may actually be a great boon for both the spontaneous economy as well as society.

Do you want to add something to Kai’s thoughts? Or do you disagree? Then feel free to respond to it by sending or pitching us an article.

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Kai Weiss is the Research and Outreach Coordinator of the Austrian Economics Center and a board member of the Friedrich A. v. Hayek Institute.