Catallaxy: The Forgotten Word That Explains Markets

Catallaxy (kə-TAL-ak-see). 

Friedrich Hayek revived this obscure word from Greek antiquity, dusted it off, and tried to set it to work. It never found its way into the economics lexicon and has largely disappeared from modern discourse. The irony is almost perfect: a word meant to describe emergence could not manage to emerge. Yet Hayek was right; our common words, “market” and “economy,” are too thin and misleading for the reality they attempt to describe.

“Economy,” derived from the Greek oikonomia or household management, suggests unity of purpose: one plan, one set of values, and one direction. A household can be managed in this way, and so can a firm. But a society of millions cannot. To speak of “the economy” at a societal level is already to imagine something that does not exist at scale.

“Market” is better, but still too narrow. It invokes images of stalls, trading pits, or price charts but misses the broader order that emerges when countless individuals, pursuing their own purposes, adjust to one another without central direction.

To name this phenomenon, Hayek borrowed from katallassō. In Greek, the word meant “to exchange,” but also “to admit into community,” and even “to transform an enemy into a friend.” Hayek wanted to emphasize that markets are not machines but emergent orders of cooperation: systems that reconcile diverse aims without requiring central control.

In reviving catallaxy, Hayek was himself engaging in a kind of catallaxy of language. Words, like markets, are not designed but evolve. They shift through countless acts of use and adjustment. A forgotten word can return because people find it useful again. Language is emergent and adaptive, forever in flux. That the word was forgotten does not mean it cannot be remembered again. 

Commerce as Transformation

The Greeks saw something in exchange that modern economics often forgets: trade is not simply a transfer of goods but a transformation of relationships.

In Homer’s Iliad, warriors sometimes exchanged gifts before combat. These gestures did not end competition or rivalry, but they created bonds of obligation that survived the battle. To give was to recognize the other as a participant in a shared code.

Daily life reflected the same principle. The practice of xenia, ritualized hospitality between strangers, made exchange a foundation of trust. A guest received food, shelter, and protection, and assumed various duties in return. To break this code was more than discourtesy; it was a violation of sacred order.

Aristotle distinguished between oikonomia, the management of the household, and chrematistics, the pursuit of wealth. Yet even in his suspicion of money-making, he conceded that exchange made civic life possible. Plato, in the Republic, traced the origins of political society to trade among those who could not produce everything they needed. The act of exchange wove strangers into a fabric of mutual dependence.

The semantic range of katallassō goes even further. In theology, it became katallagē, reconciliation between the divine and the human. To trade was, in a modest way, to overcome estrangement, to make room for difference without violence.

In this neglected word, Hayek found a way to capture what “economy” and “market” both missed. Catallaxy more accurately describes the kind of order that emerges when strangers discover how to live together without agreement on ends.

The Language Problem

Why did Hayek press so hard on language? Because he believed the words we use smuggle in assumptions that shape reality.

A household can be managed; a society cannot. A business can be directed; a civilization finds its order through countless independent plans and actions. Catallaxy was his word to demonstrate this difference. Hayek therefore resisted the language of management.

As he wrote in Law, Legislation and Liberty:

“The term ‘economy’ suggests a household under a single scale of values, with resources directed toward a unitary purpose. The market order, which I propose to call a catallaxy, is entirely different: it is a system in which many independent persons pursue their own ends, each guided by their own knowledge and purposes, and brought into mutual adjustment by the process of exchange.” (Vol. 2, 1976, p. 108)

The point was not merely terminological. Words change the frame. If one believes society is an economy, one naturally assumes there must be a manager. If one sees it as a catallaxy, one understands that order emerges from countless adjustments no one controls, thus promoting liberty. 

This is why the recovery of catallaxy matters: it rescues us from metaphors that ready the ground for tyranny. The pretense of mastery begins with the pretense of language.

Order Without Command

But what does it mean for an order to exist without anyone designing it? This is the heart of Hayek’s insight.

We are trained to associate order with intention. Armies march in step because generals command them. Modern cities expand along grids because planners lay them out. Corporations meet quarterly targets because executives set goals and monitor compliance. This is taxis: constructed order, the visible result of deliberate arrangement.

But Hayek insisted on another form: cosmos. A language develops rules of grammar, though no one decrees them. Science advances by countless experiments, conjectures, and refutations. Markets, too, are cosmos: they generate order because individuals, pursuing their own ends, adjust to one another through exchange.

When societies mistake cosmos for taxis, they attempt to impose design on processes that thrive only by emergence. Central planning was a dramatic illustration: impressive in conception, catastrophic in practice. No bureau could gather the dispersed fragments of knowledge embodied in millions of lives. Even modest attempts, such as price controls, generate shortages and waste because they try to replace an order that can only emerge spontaneously. 

The strength of a cosmos is that it reconciles without homogenizing. It allows differences to persist while making cooperation possible. This is the only path to peace in a world of unique beings.

A Lifetime in Pursuit

Catallaxy was not an afterthought to Hayek. It was the condensation of a lifelong inquiry into a stubborn question: how can individuals, each with only fragments of knowledge and divergent aims, generate an order larger than themselves?

Hayek’s earliest breakthrough came in the 1940s in The Use of Knowledge in Society. He argued that knowledge is not a stockpile but a field of fragments scattered across millions of lives. No planner could ever hope to command it all. Only flexible and local prices could convey the shifting conditions of time and place. Thus, order was not designed, but signaled and discovered.

But signaling alone was not enough. For strangers to rely on prices, they had to trust the framework within which those prices operated. In The Constitution of Liberty (1960), Hayek turned to law as general rules that secured the minimum of predictability on which cooperation depends. Contracts would be honored, property respected, and promises enforceable. Liberty and law, he argued, were partners: stability emerging not from control of outcomes, but from trust in the rules themselves.

From there, he pressed deeper. In Law, Legislation and Liberty (1973–79), he drew the decisive distinction between taxis and cosmos, between the constructed orders we design and the emergent orders that arise. Here Hayek gave catallaxy its clearest philosophical shape.

For Hayek, the last step was explaining why catallaxy had endured. In The Fatal Conceit (1988), he answered: cultural evolution. Civilizations that stumbled upon catallactic rules (property, contract, exchange) grew stronger, while those that clung to top-down control eventually failed. The market order, Hayek concluded, is less an invention than an inheritance: fragile, contingent, yet indispensable to the progress of civilization.

Seen together, Hayek’s works form an arc, and catallaxy was the thread that ran through them all. The idea is that order without command is not only possible but a necessary condition for a prosperous society.

Emergence and Liberty

Treating this as a scholastic distinction is tempting: catallaxy instead of economy, cosmos instead of taxis. But at the bottom, freedom is at stake.

Emergence is the deepest law of social life. Every attempt to suppress liberty is, at root, an attempt to suppress emergence (and vice versa). Central planning is not just inefficient; it is anti-human. It assumes that knowledge can be concentrated, that diversity can be eliminated, and that order can be imposed from above. The more power is gathered at the top, the more brittle society becomes. Without the freedom to try, fail, and adjust, there can be no emergence.

Without emergence, there would not be a free society. Liberty is not a luxury of prosperous societies; it is their fuel. The miracle of catallaxy is that humans, each unique and fallible, can still generate a peaceful order. The danger is forgetting that this miracle requires freedom at every step.

Beyond Economics

Hayek generally confined catallaxy to markets, but the principle of spontaneous emergence extends widely. Language evolves without design. Ecosystems adapt naturally. Cultures develop norms and practices that endure because they prove useful.

In this light, markets are not the exception but one instance of a deeper law: that order emerges without command, through the interaction of many independent agents. To recognize this is to resist the illusion of mastery and the fear of chaos. It is to see the harmonies that arise when difference is reconciled without being obliterated.

Reviving the Forgotten Word

Catallaxy is an awkward word, but its awkwardness is its virtue. It forces us to pause and to consider what markets are and what they make possible.

To call society an economy is to imagine one plan. To call it a market is to imagine a place of trade. To call it a catallaxy is to recognize a living order of cooperation among strangers, peacefully reconciling their plans without uniting their ends.

The Greeks glimpsed this truth when they saw in exchange not mere transaction but transformation. Hayek sought to capture it with a word beyond economy. Our task is to remember it again because what we call things shapes our thoughts about them. And how we think about them shapes how we act within them. To recover this word is to recover that knowledge.

Hayek gave the word a second life. If we give it a third, it can remind us that free people, left to their own devices, can weave together not just wealth but trust, not just exchange but peace, and not just survival but progress. Catallaxy is not merely the description of markets. It is a testament to the stubborn, hopeful fact that humanity, for all its differences, can still find peace, harmony, and prosperity.