Catallaxy and Scale: From Self to Society

Planning dinner for a household is a test of coordination. Ingredients must be available, likes and dislikes remembered, dietary restrictions respected, time managed, and budgets followed. And this is a simplified case. Even at the scale of just a single family, ingredients can go missing or stale, schedules collide, and minor miscalculations make for a stressful supper time. 

Now imagine attempting the same task for an entire city.

Someone would need to decide which foods are purchased, from whom, and in what quantities; how they are transported, stored, priced, and distributed; how tastes differ across neighborhoods; how shortages are handled; how waste is minimized; how tomorrow’s demand is anticipated; and countless other decisions. The knowledge required would not merely be vast, it would be dispersed, partial, often contradictory, and constantly changing.

And yet, for most people, in free societies, dinner arrives most evenings without fanfare.

No one plans this outcome. No authority assigns dinners. Coordination occurs without a citywide menu, without instructions, and without agreement on ends. No Supreme Commissar of Supper ensures caloric equity or compliance with the approved flavor profile. The puzzle is not why planning fails at scale, but how order appears where planning cannot reach.

This is the central paradox of social order: what can be planned does not scale, and what scales cannot be planned.

Between these limits emerges a different kind of coordination that does not impose a single purpose, but reconciles many. Individuals freely pursue their own ends, guided by fragments of knowledge available only to them, and yet find their actions woven into a workable order.

F. A. Hayek gave this order a name: catallaxy.

Hayek contrasted catallaxy with a different order, called taxis: one that is deliberately arranged, directed toward a known purpose, and governed by command. Taxis is effective where purposes are shared, knowledge is concentrated, and scale is limited. Beyond those bounds, its reach collapses.

Catallaxy, by contrast, reconciles many purposes rather than imposing a single one, and becomes necessary when scale renders planning ineffective (or counterproductive). 

To better understand society, then, is to understand where catallaxy begins, where it does not apply, and how different forms of order emerge as human association expands from the individual, to the household, to the firm, the city, and finally the vastness of global exchange.

The Individual

The individual is the foundation of all human order.

Alone, a person is a planner of one: a mind organizing its own resources and directing its own body. There is no dispersed knowledge to reconcile and no conflicting purposes to align. Order exists, but it is entirely internal because there is no coordination problem yet, and therefore no role for catallaxy.

This is why a solitary individual cannot generate emergent order. There is nothing to reconcile, no encounter between separate wills, and no coordination required beyond the boundaries of a single mind.

When Robinson Crusoe washes up on his deserted island, he must decide what to eat, where to shelter, and how to spend his hours. These are choices (with tradeoffs), not negotiations. He cannot exchange with himself or act on knowledge he does not yet possess (though he can learn). And yet, even in isolation, the social element has not totally disappeared.

The tools Crusoe salvages were designed by others. The language he thinks in evolved through centuries of interaction (a catallactic process of its own). The techniques he applies (agriculture, carpentry, and navigation) emerged from countless experiments by people he never knew, and were preserved and transmitted through cultures he once inhabited. Even his capacity to plan rests on concepts and categories that arose through social interaction long before he ever used them.

As Hayek observed, the individual “always rests on his expectations about the actions of others, expectations which themselves rest on the experience of past conduct.” Even alone, Crusoe operates within an inherited order. He is not creating civilization from nothing; he is drawing upon fragments of one.

The individual, then, both negates catallaxy and depends upon its existence. In isolation, emergent order cannot form, yet the individual’s capacity to plan, adapt, and survive rests on tools, knowledge, and habits that could only have emerged through the unplanned coordination of others.

True Catallaxy, though, begins only with encounter.

The Family

That encounter first takes shape in the family. More than one will now occupies the same space. Knowledge fragments, purposes diverge, and the need for coordination becomes unavoidable. Yet the family is not a market.

Within the household, shared ends dominate. Children must be raised, meals prepared, and the vulnerable cared for. These are not matters of contract but of obligation. Coordination here is sustained largely through shared purpose and mutual knowledge. Planning works because differences remain limited and ends are largely aligned.

As Hayek noted, “Within small groups, agreement on a common hierarchy of ends can be achieved, but this is possible only where the numbers are small and the ends simple.”

But even within the household, coordination is never complete or fully specified. Shared purposes provide structure, but they do not eliminate divergence. When a constraint binds (time, space, or attention), order emerges through adjustment. Plans shift, expectations recalibrate, and a workable arrangement settles into place without anyone designing it in advance. Not quite market exchange, but no longer simple authority either.

The boundary becomes clearer still between different households. Neighbors coordinate over noise, parking, shared fences, and borrowed tools through reciprocal adjustment. Extended family members with different values and priorities cannot be commanded into harmony. They must find ways to coexist that respect differences rather than impose unity.

The family is therefore best understood as a hybrid order: rooted in shared purpose, but increasingly reliant on emergent coordination as differences deepen. As the scale increases further, this balance cannot be sustained. Shared ends weaken, authority weakens, and what obligation once coordinated begins to strain.

The Firm

The firm arises precisely at this point.

It exists to economize on the limits of catallaxy by temporarily replacing continual negotiation with authority where constant bargaining would overwhelm production. Within the firm, tasks are assigned rather than negotiated, roles stabilize, and coordination proceeds through deliberate organization.

Ronald Coase explained why. If every task required a separate contract, and every interaction had to be negotiated, priced, and legally specified, the cost of coordination would overwhelm the value of cooperation. Authority, then, substitutes for endless exchange where the latter becomes too costly.

But here is the deeper insight: the firm exists because markets work.

Entrepreneurs do not discover the boundaries of the firm through theory. They discover them through experiment, within a competitive order that punishes error and rewards improvement. A firm that attempts to produce everything internally finds itself outcompeted by firms that specialize and purchase from others. A firm that outsources too much drowns in coordination costs.

The boundary between internal organization and external exchange is not fixed by logic. It emerges through trial and error, tested continuously against market alternatives. Firms expand when internal coordination proves more efficient than contracting. They shrink when markets outperform commands. The market itself determines where planning ends and emergence begins.

The firm then is not an exception to catallaxy, but evidence of its depth: even the boundary between planning and emergence is itself discovered through emergence.

The City

With the city, catallaxy comes fully into view. Coordination among strangers becomes routine rather than exceptional.

Shared purpose recedes, knowledge disperses further, and order emerges through continual adjustment. The city is not so much designed as it is inhabited, and through that inhabitation, patterns form that no blueprint specified in advance.

Shops cluster in ways planners never intended. One street quietly converges on a single trade and becomes the flower district. Restaurants cluster where people linger. Colors repeat along a row of houses until a block becomes unmistakable. Districts acquire specializations. Customs develop. Neighborhoods gain character not because anyone decreed it, but due to countless small decisions — where to locate, when to open, which routes to take — that compound over time into recognizable order.

Jane Jacobs called it the sidewalk ballet: a choreography of ordinary lives moving in loose harmony. Children dart toward bright windows and promised delights. Strollers roll past briefcases. Businesspeople quicken their pace while parents slow. Shopkeepers step out to sweep their thresholds, exchanging nods they’ve shared a hundred times before. Paths cross, separate, and rejoin. No one leads, and yet a peaceful dance unfolds.

At this scale, planning does not merely become less effective; it becomes informationally outmatched. The knowledge required to direct urban life is too dispersed, too contextual, and too in flux to be gathered and acted upon in time. Cities flourish when this emergent order is allowed to operate. They decay when planning attempts to replace it, mistaking the ability to impose structure for the ability to generate a peaceful, living order.

The Market

Only at the scale of nations and global exchange do the conditions of catallaxy fully emerge.

Here, complexity dominates. Knowledge is radically dispersed, purposes diverge completely, and no shared hierarchy of ends is possible. What could be coordinated through obligation or authority at smaller scales now lies entirely beyond the reach of command.

As Hayek wrote, the core economic problem is that knowledge “never exists in concentrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” The market does not solve this problem by centralizing knowledge. It solves it by abandoning that ambition altogether. Individuals act on what they know and where they are, and prices reconcile those actions into order.

This is catallaxy at its purest. As systems grow more complex, emergent order becomes not optional but indispensable. Now, diversity and dispersion are not obstacles; they are the conditions that enable coordination.

The market is therefore both impersonal and deeply human: cooperation without agreement, order without command.

The Architecture of Nested Orders

The coordination problem does not appear once. It repeats—inside families, firms, cities, and markets—but never under identical conditions.

These orders are nested. Families exist within cities; cities within markets; markets within civilizations. Each layer shapes the next, while remaining subject to forces it cannot command. Firms hire individuals formed by families. Families depend on wages set by markets they never see. Cities compete for capital whose movements reflect preferences dispersed across continents.

This nesting multiplies complexity. Decisions made at one level ripple outward, refracted through other orders with different rules, incentives, and time horizons. No layer is sovereign. Each is constrained both from above and below.

The tension is permanent. A family that ignores economic reality impoverishes itself. A firm that disregards price signals stagnates. A city that replaces emergence with direction becomes brittle. A society that attempts to plan what must emerge erases the mechanisms that allow adaptation at every level.

What prevents collapse is not the absence of planning, but its confinement to appropriate domains. Families may plan households. Firms may plan production. Cities may plan infrastructure. But when planning attempts to substitute for emergence across layers, coordination fails.

As Hayek reminds us, civilization is “an order of human action but not of human design.” Nested orders do not simplify coordination; they compound it. And it is precisely this layered, fractal complexity that makes freedom—not control—the precondition for flourishing.

Conclusion

When you sit down to dinner tonight, you will almost certainly give little thought to how the meal arrived on your table. Ingredients gathered from distant places. Labor coordinated across strangers. Preferences aligned without negotiation. No one planned this outcome. This is not a minor convenience. It is the resolution of a problem that admits no design: how millions of separate plans, formed on different knowledge and guided by incompatible purposes, are brought into workable alignment without a commanding mind. That this occurs at all is remarkable.

Catallaxy names the process by which it happens. At sufficient scale, no alternative exists. The knowledge required to replace it is not merely unavailable; it does not exist in a form that could be gathered, ordered, or acted upon in time. The purposes involved cannot be unified without coercion, and the coordination required cannot be issued as instruction.

This is the point most often missed. The order we observe is not fragile because it lacks direction ; it is resilient because it lacks a director.

The error is believing that scaled order is the product of command.
The consequence is the replacement of discovery with authority.
And the result is a system that cannot learn.