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.