The New Greek Finance Minister on the Scottish Enlightenment, Hayek, and Spontaneous Order

30 01 2015

As most readers of this blog will know, Greece recently elected a hard left-wing government. On the right, there is a tendency to regard all left-wing politicians as economically illiterate morons who think nostalgically about Soviet-style central planning. Indeed, there is a tendency to caricature leftists as monolithically hostile to and ignorant of business.  The new Greek finance minister, Yanis Varoufakis, demolishes this stereotype, as he is smart, worldly thinker with a PhD in economics and wide-ranging interests. Varoufakis is well-know for his study of software company called Valve that operates without most of the managerial hierarchies that are typically found in firms. His research has important implications for how we think about successful organisations or all types, ranging from the military and the church to private companies and indeed the economy as a whole. In his research on Valve, Varoufakis drew on the ideas of F.A. Hayek, who had demonstrated the impossibility of successful central planning by pointing out the sheer complexity of the modern economy and the amount of knowledge embedded in prices. Varoufakis took the ideas of Hayek, who is generally regarded as a conservative (i.e., liberal) thinker and applied them to the study of a single firm.

In a fascinating blog post on the Valve company website, Varoufakis gives us a short intellectual history of the antecedents of Hayek’s ideas.

The idea of spontaneous order comes from the Scottish Enlightenment, and in particular David Hume who, famously, argued against Thomas Hobbes’ assumption that, without some Leviathan ruling over us (keeping us “all in awe”), we would end up in a hideous State of Nature in which life would be “nasty, brutish and short”. Hume’s counter-argument was that, in the absence of a system of centralised command, conventions emerge that minimise conflict and organise social activities (including production) in a manner that is most conducive to the Good Life. Steadily, these conventions acquire a moral dimension (i.e. there is a transition from the belief that others will follow the established conventions to the belief that others ought to follow them), they become more evolutionarily stable and, in the end, function as the glue that allows society to be ordered and efficient albeit without any centralised, formal, hierarchy. In short, spontaneous order emerges in the absence of authoritarian hierarchies.

Hume’s views influenced one young man in particular: Adam Smith, the economists’ patron saint. Indeed, Smith’s ‘invisible hand’ is no more than an application, and extension, of Hume’s spontaneous order to market-societies. Smith’s argument, in case we have forgotten, is that markets are an example of spontaneous order, where price movements (in reaction to market forces) coordinate individual efforts in a manner that, as if by the help of some invisible hand operating behind our backs, promotes the public good (much better than any ruler who strives to promote it).

While the concept of a ‘spontaneous order’ harks back to Hume and Smith, it was Friedrich von Hayek, the doyen of modern day libertarians, who coined the term. Taking his cue from Adam Smith, Hayek used the ‘spontaneous order’ idea as a stick with which to beat into submission all ideas in favour of economic planning (socialist planning in particular) and all arguments in favour of an activist state.

You can read the entire blog post here.

I saw several thoughts about Varoufakis. First, the fact that someone is a quasi-follower of Hayek is a member of a hard left party shows just how far Hayek’s ideas have permeated across the political spectrum. Second, I bet that  Varoufakis has some good ideas for structural reform in Greece. Cutting the bloated military budget would be good start.  Perhaps he will try to make government  ministries more like Valve. Third, I wonder if the realities of Cabinet government will prevent Varoufakis from implementing his ideas.

You can listen to Varoufakis talking about Valve here. You can read more about him here, here, and here.

The Use and Abuse of Environmental Knowledge: A Bloomington School Interpretation of the Canadian Fisheries Act of 1868

25 11 2014

The Review of Austrian Economics has just published my article The Use and Abuse of Environmental Knowledge: A Bloomington School Interpretation of the Canadian Fisheries Act of 1868 

Abstract: This paper will focus on the ambitious plan for regulation embodied in the Dominion Fisheries Act of 1868, a law passed by the Canadian federal parliament in its very first year of existence. The 1868 law was intended to bring the nation’s fisheries firmly under the control of officials employed by the new federal government. The paper argues that 1868 law, which was designed to address what would today be called Tragedy of the Commons problems, was a product of the hubris identified by Hayek as “the fatal conceit.” The centralized and bureaucratic approach to governing fisheries represented by the 1868 Fisheries Act did not work well because the knowledge that would have been required for successful management of fisheries was highly dispersed. Drawing on Hayek and the Bloomington School, this paper argues that the experience of Canada’s fisheries sector in the generation after 1868 illustrates the problems with centralized management Common-Pool Resources. In the 1890s, the centralized approach represented by the Fisheries Act of 1868 was replaced by a more flexible and decentralized system Hayek’s theory of knowledge would suggest the reversal of centralization over environmental policy in the 1890s was a positive development that helped Canadians to reconcile the goals of economic development and the protection of the environment. The Hayekian paradigm of knowledge management suggests that control over environmental policy should be devolved downwards to the levels of government closest to resource users.

F.A. Hayek

F.A. Hayek

Special thanks to Viv Nelles, Pierre Desrochers and Mark Pennington for commenting on an earlier draft of this paper. I also received valuable feedback when I presented this paper at a workshop at the Rotman School of Management in Toronto.  Thanks also to the Foundation for Canadian Studies in the United Kingdom for its financial support.

James C. Scott, F.A. Hayek, and Organization Studies

18 07 2014



Daron Acemoglu and James A. Robinson have been posting a series of blog posts on the ideas of James C. Scott, the author of  Seeing Like a State and The Art of Not Being Governed. I believe that Scott is one of the most important social thinkers around today.  Scott’s paradigm blends the best of conservative and left-wing insights. Scott transcend the left-right political spectrum we use to categorize thinkers.  As Brad De Long has shown, Scott’s ideas incorporate a variety of insights from F.A. Hayek and Austrian economics.






Back in 2007, De Long wrote this about Scott’s Seeing Like a State:

 Heaven knows that I am no Austrian–I am a liberal Keynesian and a social democrat–but within economics even liberal Keynesian social democrats acknowledge that the Austrians won victory in their intellectual debate with the central planners long ago.


This book marks the final stage because it shows the spread of what every economist would see as “Austrian ideas” into political science, sociology, and anthropology as well.


No one can finish reading Scott without believing–as Austrians have argued for three-quarters of a century–that centrally-planned social-engineering is not an appropriate mechanism for building a better society.

De Long mentions that Hayekian ideas have gone mainstream in political science, sociology, and anthropology.  I’m convinced that the ideas of Scott and Hayek also offer a lot to management academics in the field of organizations studies. (I’m actually working, on and off, on a paper on that subject. I suppose I’ll present it at EGOS next year). Anyway, there are signs of growing interest in Scott’s paradigm on the part of people who study large companies. Consider this article:

James Ferguson, “Seeing like an oil company: space, security, and global capital in neoliberal Africa.” American anthropologist 107, no. 3 (2005): 377-382.

As the title suggests, the author draws on Scott’s ideas to understand not a state but another type of organization that replaces market with hierarchy, namely, a big vertically-integrated oil company.

Last year, Nicolai J. Foss and Peter G. Klein published a paper called “Hayek and Organizational Studies.” I have tremendous respect for both Foss and Klein and I liked this paper, which discussed the impact of Hayek’s ideas on people in Organization Studies. They listed Hayek’s direct and indirect influence on the field. For instance, they show that the knowledge management concept and knowledge-based view of the firm are based on Hayekian ideas. There was, in view, a serious omission from their paper in that they don’t mention Scott, who has been a conduit for the transmission of clearly Hayekian ideas to a range of scholars of organization, particularly those who are associated with the Critical Management Studies tradition.  I’ve often thought that the intellectual traditions of Austrian economics and CMS are very similar in a number of ways. I think that Scott is a bridge between these two camps.


Update: I’m including this cool video in which Scott talks about his research.