Knowledge and Coordination: A Liberal Interpretation

381 Pages·2013·2.78 MB·English

by  Daniel B. Klein

Knowledge and Coordination
Knowledge and Coordination
A Liberal Interpretation
Daniel B. Klein
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Library of Congress Cataloging-in-Publication Data
Klein, Daniel B.
Knowledge and coordination: a liberal interpretation / Daniel B. Klein.
p. cm.
Includes bibliographical references and index.
ISBN 978–0–19–979412–6 (cloth : alk. paper)
1. Liberalism. 2. Economics. I. Title.
HB95.K53 2011
330.1–dc22
2011003596
1 3 5 7 9 8 6 4 2
Printed in the United States of America
on acid-free paper
To Beckski
Somewhere in Holland there lived a learned man, he was an orientalist and was
married. One day he did not come to the midday meal, although he was called.
His wife waits longingly, looking at the food, and the longer this lasts the less
she can explain his failure to appear. Finally she resolves to go over to his room
and exhort him to come. There he sits alone in his work-room, there is nobody
with him. He is absorbed in his oriental studies. I can picture it to myself. She
has bent over him, laid her arm about his shoulders, peered down at the book,
thereupon looked at him and said, “Dear friend, why do you not come over to
eat?” The learned man perhaps has hardly had time to take account of what was
said, but looking at his wife he presumably replied, “Well, my girl, there can be
no question of dinner, here is a vocalization I have never seen before. I have
often seen the passage quoted, but never like this, and yet my edition is an
excellent Dutch edition. Look at this dot here! It is enough to drive one mad.” I
can imagine that his wife looked at him, half-smiling, half-deprecating that such
a little dot should disturb the domestic order, and the report recounts that she
replied, “Is that anything to take so much to heart? It is not worth wasting one’s
breath on it.” No sooner said than done. She blows, and behold the vocalization
disappears, for this remarkable dot was a grain of snuff. Joyfully the scholar
hastens to the dinner table, joyful at the fact that the vocalization had
disappeared, still more joyful in his wife.
Søren Kierkegaard (1978: 126)
CONTENTS
Preface
Acknowledgments
Some Smith-Hayek Homiletics
1. Rinkonomics: A Window on Spontaneous Order
2. Discovery Factors of Economic Freedom
About This Book
3. From a Raft in the Currents of Liberal Economics
The Two Coordinations
4. Concatenate Coordination and Mutual Coordination
5. Joy and the Matrix of Concatenate and Mutual
6. Light Shed by the Two Coordinations
Asymmetric Interpretation
7. Discovery and the Deepself
8. Experiment on Entrepreneurial Discovery
9. Let’s Be Pluralist on Entrepreneurship
10. Knowledge Flat-talk: A Conceit of Supposed Experts and a Seduction to All
Studies in Spontaneous Order
11. Urban Transit: Planning and the Two Coordinations
12. The Integrity of You and Your Trading Partners: The Demand for and
Supply of Assurance
13. Outstripped by Unknowns: Intervention and the Pace of Technology
Rethinking Our Way
14. Unfolding the Allegory behind Market Communication and Social Error and
Correction
15. Conclusion: Liberalism These Past 250 Years
Appendix
16. Owning Up to and Properly Locating Our Looseness: A Critique of Israel
Kirzner on Coordination and Discovery
17. Some Fragments
18. In Defense of Dwelling in Great Minds: A Few Quotations from Michael
Polanyi’s The Study of Man
Glossary
References
Index
PREFACE
In 1917 or so, the pre-eminent English economist Alfred Marshall wrote the
following words intended for publication:
But the more I studied economic science, the smaller appeared the knowledge which I had of it,
in proportion to the knowledge that I needed; and now, at the end of nearly half a century of
almost exclusive study of it, I am conscious of more ignorance of it than I was at the beginning
of the study.
(qtd. in Keynes 1951: 138)
Marshall tossed the sheet with those words into the wastepaper basket, where
it was retrieved by Mrs. Marshall. It remained unpublished. Perhaps Marshall
had the impulse to confess his ignorance of “economic science” as a way of
highlighting something central to economic wisdom, but he lost his nerve.
This book dwells in the richness of knowledge. It dwells in the significance of
that richness for actors within economic processes. It also dwells in the
significance of that richness for the aspirations of the analyst to know economic
processes.
As students and scholars, we read what others write about the economy. We
listen to what others say. But is this like reading descriptions of how to ride a
bicycle? Do we know the economy itself?
The “economy” is a metaphor of organizational management, and yet no one
supervises the organization. Still, we somehow speak from a perspective of some
imagined beholder of it all. What pleases that beholder? What is the beholder’s
“objective function”?
Friedrich Hayek spoke of the division of knowledge, or dispersed knowledge.
But even these expressions may not go far enough. Knowledge is not merely
divided, like a sandwich cut down the middle, or dispersed, like a crowd
formerly amassed, but disjointed, living and moving in separate interpretive
frames, taunting the will to know.
Theorists often make a particular move in their descriptions of things so as to
ensure that interpretation is final and symmetric, a move that also makes it
common to the agents existing within the description. The move is to assume
that the working interpretation is common knowledge (Lewis 1969: 52f; Chwe
2001).
When teaching a course in game theory, in a classroom of students seated in
an inward-looking circle, I demonstrated the idea by holding up a large blue
marker and announcing: “I am holding up a blue marker.” It was common
knowledge that I had held up a blue marker.
What made it common knowledge was not that everyone knew I had held up
a marker, but also that everyone knew that everyone knew, and everyone knew
that everyone knew that everyone knew, and so on.
The higher-order conditions matter: I know and you know that we both would
prefer to meet at the Japanese restaurant, but if I think you think I prefer the Thai
place, then maybe I head there.
When we play poker, it is common knowledge that we look at our own hand
and not at one another’s. That which is common knowledge might be a condition
of asymmetric information.
To make things “rigorous,” game theorists and economic equilibrium model
builders assume that conditions of the model are common knowledge to the
agents within the model.1 That is mainly how theorizing goes in professional
economics. The common-knowledge precept flattens knowledge down to
information. It is flattering to the theorist and seductive to others.
But maybe the common knowledge assumption is misplaced. Society is not a
set of agents gathered in an inward-looking circle. If the economy is a cosmos of
disjointed knowledge, involving asymmetric interpretations, maybe an idiom
rooted in common-knowledge precepts and instincts will neglect important
facets of the problem. When Adam Smith (TMS: 234) remarked on the planner’s
hubris, he pointed out that the actual human being on the ground has not only
information and circumstances of its own, but “a principle of motion of its own,
altogether different from that which the legislature might chuse to impress upon
it.”
Not that people are purely individual, or that the individual is sacred. Smith
(134) said that the strange applications of some clerics have alienated many
people altogether from the contemplation of higher aspirations and more sacred
virtues. Likewise, strange applications have alienated many people from
contemplation of the primacy of the social good. Political individualists
sometimes fall into making their ethics individualistic. It was not by
downgrading the social good that Adam Smith authorized liberal policy and the
pursuit of honest profit.
The way that economists talk has often forsaken the virtues of classical-