capitalism

486 Spontaneous Order
A major achievement of the Salamanca school was its
discovery of the quantity theory of money. Sixteenth- and
17th-century Spain had experienced a massive inflation, a
result of the influx of gold and silver from the New World.
Molina and other Salamanca writers developed a theory of
inflation that, in turn, led to their justifying banking; profits
on exchange dealings were not usurious, they argued,
because they contributed to production and were not
against natural law—despite the fact that both canon and
civil law forbade usury.
It has always been a strong theme of spontaneous order
that the automatic coordinating and self-correcting mechanisms
in society extended not just to economics, but to
other areas. In the 17th century, it was extended to a theory
of common law by Sir Matthew Hale, who concluded that
law did not derive from abstract reason, but rather required
a kind of practical reasoning. Law depended on the application
of general principles to particular cases, and this
elaboration was largely a function of experience. It is better
to rely on a body of stable and known rules “though the particular
reason for them appear not.” Hale attacked Hobbes’s
theory of sovereignty. While conceding that the final
authority of law rested on the King or Parliament, he did
not think that they should be unconstrained. He was writing
in an English tradition that regarded common law as superior
to statue, a battle that the judiciary eventually lost after
1688 when the British constitution became associated with
the unlimited power of a sovereign Parliament. It is, of
course, true that the common law system has survived, but
that raises a fundamental problem regarding spontaneous
order theory—namely, whether it simply celebrates the
unaided survival of a social order or whether it also protects
the liberty of the individual. It might not prove sufficient to
ensure a free society to solely rely on institutions that are
the result of social evolution. It is possible that a written
constitution determined by an abstract reason may be
needed for the preservation of the spontaneous order.
Moreover, was not the sovereignty of Parliament the result
of spontaneous order inasmuch as it was established in
Britain by a series of common law decisions that are consistent
with Hale’s jurisprudence?
Spontaneous order theory proposed that orderly societies
could emerge from the self-interested actions of decentralized
individuals who had no direct concern with the common
good. Yet political philosophy had always assumed that the
pursuit of the common good depends on the suspension of
self-interest. Therefore, what is needed is a theory that makes
self-interest consistent with socially valuable action. The
foundations for that approach were laid down by Bernard
Mandeville. He was the author of the “amoral” “Fable of the
Bees,” published in 1714. Mandeville was writing at a time
of moral fervor when egoism was condemned and people
were urged to act altruistically by sacrificing their self-interest
in favor of the public interest. Mandeville contended that this
endeavor was vain and pointless and that self-interest unintentionally
generated social well-being. The “bees,” when
acting egoistically, he observed, produced the division of
labor, the free market, and international trade. This object
lesson led him to contrast virtue and commerce and to praise
egoism: “Thus every part was full of vice/ Yet the whole
mass a paradise.” The actions of the vilest contributed something
valuable. “The worst of all the multitude/ Did something
for the common good.”
However, Mandeville did not offer a broader explanation
of how self-interest could generate social harmony in
economics and society. That problem was solved by David
Hume, who, while destroying the rational foundations of
ethics, was yet able to produce a compelling morality and
one appropriate for spontaneous order. His claim was to
“whittle” down the claims of reason. He maintained that
“it is not contrary to reason to prefer the destruction of the
world to the scratching of my finger,” but this paradox did
not preclude a demonstration of spontaneous order.
Further, Hume conceived of self-interest as more or less
constant: “As it is impossible to change or correct anything
material in our nature, the utmost we can do is to change
our circumstances and situation and render the observance
of the laws of justice our nearest interest and their violation
the most remote.”
Hume observed that we learn the laws of justice by constant
interaction, often through trading with others, which
quickly leads to the establishment of three social rules
whose origins are in convention—the stability of ownership,
its transference by consent, and the performance of
contract. Whereas Hobbes saw the social game as a onceand-for-all
experience in which desperate people surrender
all their rights to a sovereign, Hume envisaged repeat
games in which people learn the advantages of cooperation.
However, the nature of these rules does not change; they
are derived from “the confined generosity of man, along
with the scant provision nature has made for his wants.”
The conventions that develop through repeated social interaction
are artificial, but still natural to man. Men also
develop the capacity for reciprocity by which selfish men
can advance their interests by occasionally acting generously:
“I learn to do a service for another,” he wrote, “without
bearing any real kindness because I foresee that (the
other) will return my service.”
Adam Smith, like Hume, was highly skeptical of the role
of reason in human affairs, especially of attempts to make
society conform to an abstract plan divorced from experience:
The legislator, he maintained, would not have the
knowledge of time and place that individuals, with their natural
liberty, employ to coordinate human actions. Most valuable
social institutions are not the product of reason. The
division of labor is not the effect of human wisdom, but is
the necessary consequence of “a certain propensity to truck,
barter and exchange one thing for another.” In general, if