Sunday, July 13, 2008

Order: Spontaneous versus Hierarchical

Decision making occurs at two-levels, where one acts independent and autonomous of one another (as through the institution of market) and where one acts through directions from above and outside (as within a business organisation or state). Spontaneous order refers to the age old dictum and logic of Adam Smith’s invisible hand (this is the domain of market) while hierarchical order refers to command which could materialize at the level of state or business organisation (this is the domain of planning and policy, whether centralized or decentralized). In an economy, decision making (the study of microeconomics) occurs at both levels and students should have a crystal clear idea of the place and importance of both as also their relationship.

Contributed by:
Dr. Anjan Chakrabarti
Head, Department of Economics
University of Calcutta

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