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An “Economy” Is Really a Catallaxy

Summary:
In my most-recent column for AIER, I emphasize the importance of the Hayekian distinction between “organizations” and “orders.” (In econo-jargon, only the former has an “objective function”; the latter – contrary to a nearly universal presumption – does not.) A slice: Wikipedia reports that Aristotle, in his Nicomachean Ethics, defined “the word ‘economy’ as ‘the art of household management’.” Each household can be run well or poorly; when run well, it is run “economically.” The household’s means — its space, its furniture, its appliances, its inventories of food and drink, its time — are used to promote as many as possible of the household’s ends. Likewise for you as an individual. You marshal your means to fulfill as many as possible of your ends. So too for a business. Each

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In my most-recent column for AIER, I emphasize the importance of the Hayekian distinction between “organizations” and “orders.” (In econo-jargon, only the former has an “objective function”; the latter – contrary to a nearly universal presumption – does not.)

A slice:

Wikipedia reports that Aristotle, in his Nicomachean Ethics, defined “the word ‘economy’ as ‘the art of household management’.” Each household can be run well or poorly; when run well, it is run “economically.” The household’s means — its space, its furniture, its appliances, its inventories of food and drink, its time — are used to promote as many as possible of the household’s ends.

Likewise for you as an individual. You marshal your means to fulfill as many as possible of your ends. So too for a business. Each business uses its capital and inputs to earn profits.

And to marshal means in a manner that fulfills as many as possible ends requires not only planning, but also conscious effort to execute the plan.

In sharp contrast to an individual, a household, and an organization such as a business firm, what is today called an “economy” has no purposes. The economy has no hierarchy of goals that it or its participants pursue. Each American, each American household, and each American firm (for-profit and not-for-profit, and governmental) has a hierarchy of goals that it pursues, and each does so by acting within the American — actually, within the global — economy. But these many attempts to fulfill individual goals are no part of a collective effort to fulfill higher goals.

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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