Catallaxy, key to an Open Society

Catallaxy, key to an Open Society by Sauvik Chakraverti

For a market society, the appropriate political value is not a sense of ‘community’. Rather, it is ‘catallaxy’

The political value of “community” is collectivist. Community lies at the root of communism, socialism and nationalism. It stood behind Nazism, apartheid and white supremacy. It justified “ethnic cleansing” in Eastern Europe recently and promotes immigration barriers worldwide. In India, the idea of community lies behind the Hindutva and Marathi manoos agendas. The scheming politician loves a homogeneous community.

Yet, community is a bogus value in a market society, which, in order to succeed, must be urban and cosmopolitan. Community makes sense in a village comprising one caste or in a small, exclusive tribe where everyone knows everyone else. It makes no sense in a city where individuals operate, peacefully trading with complete strangers. For such a society, the appropriate political value is “catallaxy”, which means an open trading arena. But first, a little about this word.

In the 20th century, Austrian economists alone used the word “catallactics” to denote the science of exchange. In Ludwig von Mises’ Human Action(1949), the section dealing with traditional economic issues is titled “Catallactics”. Derived from the Greek word for “exchange”, Mises mentions that catallactics was first used by the British economist and theologian Bishop Whately in the previous century, which means the word was well known to the classical political economists. Mises’ student from his Vienna years, Nobel laureate Friedrich Hayek, confessed to having “fallen in love with this word”, for which he discovered two additional meanings that the ancient Greeks ascribed to it: first, “to welcome into the community”; and second, “to turn from enemy into friend”. These connotations of the word indicate its importance to an Open Society.

The ancient Greeks traded and mingled with all nations around the Mediterranean. Their societies employed special people, called xenos, or “guest-friend”, who looked after foreigners and their wares as they went about their trades in the Greek city-states. At the pinnacle of their glory, in Athens, they achieved an Open Society, as Pericles’ “Funeral Oration” teaches us. There was no “xenophobia”, as in our modern world.

The success of any market society lies in its openness and inclusiveness, and not in a narrow sense of community. There is no “chief” issuing commands to all traders. A market society is not a “command economy”. Such a society is strongly individualistic, wherein each trader takes independent decisions and is responsible only to himself for his own gains and losses. Further, such a society is marked by “impersonality”. There are good manners, yes, but there is no personal relationship between trader and customer.

Going deeper, a market society is characterized by “competitive individualism”: we all compete as sellers; we all compete as buyers. We all realize that we prosper when this catallactic competition is at fever pitch. We gain when there are a huge number of sellers as we go to buy. We gain when there are a huge number of buyers as we go to sell. The bazaar that is humming with catallactic energy is the crowded bazaar, not the vacant one. Thus, we all realize that openness matters. A successful catallaxy is open to strangers from all parts of the globe and hospitable towards them. It is not a closed community.

As we witness the economic decline of Western nations, we must realize that the primary cause of this decline is their misplaced faith in community. All of them operate “national economies” with national fiat currencies, central banking, immigration barriers, protectionism and rampant interventionism. Socialist India follows the same path.

However, the great thing about India is that all our cities are cosmopolitan. They are truly “melting pots” of humanity. This is our inherent strength. If we are to use it to get ahead of the competition, we must ditch the political value of community and opt instead to become a nation of free-trading and self-governing cities and towns—all of them catallaxies that are open to strangers. We must do away with trade and migration barriers. Our bazaars must be possessed of the highest degree of catallactic energy to be found anywhere in the world. Our biggest industry must be tourism.

Hayek defines community as “a common recognition of the same rules”. Such rules can be religious or tribal—or they can be secular. In an open catallaxy, only one rule need be recognized by all: private property. Happily enough, as Hayek also points out, this rule has been the cornerstone of open markets for millennia. Whenever people exchange, they exchange properties. Thus, most trade takes place without legal paperwork of any kind. Hayek said that the rule of private property operates in all of us “between instinct and reason”. We follow the property rule without knowing why. We have given up the instinct to plunder, to snatch and grab—but we don’t know why.

Thus, there is a “natural order” in all cosmopolitan open catallaxies. Posses of armed policemen are not required to “maintain order” in any crowded marketplace anywhere in the world. This order exists on its own. Without the “narrow domestic walls” of community, the idea of catallaxy solves the social problem for all individuals, while also uniting humanity in a rational, natural order.

Sauvik Chakraverti is an author and columnist. He blogs at Sauvik-antidote.blogspot.com

Comments are welcome at theirview@livemint.com

For a private law society

For a private law society by Sauvik Chakraverti
Posted: Tue, Jan 5 2010. 9:03 PM IST The Live Mint

The coercive power of law lies in the idea that it can be centrally made. We need to kill this notion

Friedrich Hayek pointed out the phenomenon of “fragmentation of knowledge” in markets—the butcher, the baker and the barber—showing that central economic planning can never work, because such knowledge can never be centralized. However, it is Hayek’s friend Bruno Leoni, the great Italian classical liberal, lawyer and legal philosopher, who provides us with the parallel insight: that this very same problem affects centralized lawmaking, which is democratic legislation, or “public law”. We do not study the works of Leoni only at our own peril, for when the law goes wrong, society cannot function as it should.

How is public law created? A description of a division bell at the House of Commons, the acknowledged “mother of all parliaments”, by Anthony Sampson in his Anatomy of Britain goes somewhat as follows: The MPs are all at the bars, drinking and talking, when the bell rings. They leave their drinks and rush to the doors of the House, where they are met by their party whips, who direct them which way to vote. They troop in and vote. They promptly troop out again, back to their drinks, which are kept lying exactly as and where they left them. Cheers!

The other method of arriving at law is through the decentralized actions of individuals in markets. In this method, each of the two persons in a dispute engages a private scholar in law to argue their respective cases before an impartial judge. These private scholars—lawyers—scour through the books for past decisions in similar cases. Here, the law is not “made”; it is “found”. The law always comes from the past. Very rarely does a judge set a “precedent” by which the law advances a small step.

However, under public law, all law is “new law”. Legislatures manufacture such spurious new laws every day. This is “democratic tyranny”—and it plays a crucial role in imposing not only socialism, but also bureaucratization, both inter-related phenomena. It is through coercive legislation that socialist governments attempt to direct all economic activity. It is “subordinate legislation” that empowers all the bureaus. This is how tyrannies are multiplied; how liberty is lost.

If history is to be our guide, then it must be concluded that neither in ancient Rome nor in “common law” England did centralized lawmaking play an important role. According to economic historian Sudha Shenoy, ordinary English people of the Middle Ages looked upon legislation as the king’s instrument, as an interference in their lives. For justice, they always turned to the common law, which was “found”: Stare decisis, as they say.

The great 13th century English judge Bracton writes that whereas on the continent they had written laws, the English never had them, preferring custom and tradition to written law—the law being “found”. Bracton, it is said, modelled himself after Ulpian, the great Roman jurist. Both were private scholars in law. In Rome, as in England, society lived in harmony under private law. None presumed to know how to make laws for all. Even Justinian’s Corpus was a compilation of old laws and decisions, including the opinions of private jurists such as Ulpian.

We all make private law. A tenancy agreement that is binding on the parties who sign it is an example of law that is privately made, as is a deed of sale. The world of private law is a world of property, contracts and torts. Indeed, as Professor Bruce Benson points out in his classic The Enterprise of Law, among the ancient Anglo-Saxon tribes there were no “crimes” except crimes against individuals, which were torts. Greedy Norman kings legislated “crimes against the king” in order to appropriate the fines established by the old tort laws. In the end, this is why we suffer under state police forces all over the world today. And victims are never compensated. Benson underlines the fact that tort laws are the oldest laws of the Anglo-Saxons. In India, we do not have them. But we have a state police. And all crimes are “crimes against the state”. Victims get nothing—see Bhopal. Or take the case of traffic accidents, or hooch tragedies, or building collapses. Further, property titles don’t work for a majority of the population. Contract enforcement is poor, too. We need to strengthen private law—not turn to the state for help.

What is public law meant for? The only purpose of democratic assemblies today is “running the government”. They control the budgets and the powers of the various departments of their government. The public law should only apply to these departments. It is precisely these which are “lawless” today, in the strict sense of the word. The best democratic society, then, is one in which there are clear and separate spheres of private law and public law. Civil society lives under private law; the constitutional government functions under public law.

Law is a very serious thing. It is the protection for every individual. Today, especially in socialist India, the law is but naked coercion, offering zero protection. At fault is the pernicious idea that law can be centrally made. Or, to put it another way, law is that which is “legally made”. Kill this idiotic idea—and we will not only be secure, but also free.

Sauvik Chakraverti is an author and columnist. He blogs at sauvik-antidote.blogspot.com Comments are welcome at theirview@livemint.com