Spontaneous Order

Discussion

Spontaneous order from Hume to Hayek

Yanis Varoufakis:

"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, you coined the term. Taking his cue from Adam Smith, Hayek used the ‘spontenous 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.

Hayek’s argument was predicated upon the premise that knowledge is always ‘local’ and all attempts to aggregate it are bound to fail. The world, in his eyes, is too complex for its essence to be distilled in some central node; e.g. the state. If we hardly understand our own preferences and capabilities, how on earth can we hope to aggregate the knowledge of what people want and what societies can produce within some central agency; however well meaning that agency might be? All attempts to centralise this infinite, and unknowable, quantity of knowledge will, inevitably, end up in serfdom.

The miracle of the market, according to Hayek, was that it managed to signal to each what activity is best for herself and for society as a whole without first aggregating all the disparate and local pieces of knowledge that lived in the minds and subconscious of each consumer, each designer, each producer. How does this signalling happen? Hayek’s answer (borrowed from Smith) was devastatingly simple: through the movement of prices. E.g. whenever the price of balloons goes up, this signals to balloon makers that ‘society’ wants more balloons. Thus they produce more, without any agency or ministry telling them to do so; without any need to concentrate in some building or server all information about people’s balloon preferences, or about the technology of producing balloons. As for Hayek’s intense dislike of the state, trades unions, municipalities, indeed any collective agency, the reason is that he believed that (a) such bodies interfere with the price signals (e.g. through ‘distorting’ taxes) that are society’s only chance to coordinate its activities well and efficiently; and (b) aggregating profoundly local knowledge was the first step toward collectivising decision making for the benefit of the decision makers and at great cost to everyone else.

Be that as it may, there is a twofold problem with Smith’s and Hayek’s ‘spontaneous order’: First, it restricts too heavily the scope of Hume’s original notion of an order that evolves spontaneously. Hume thought that humans are prone to all sorts of incommensurable passions (e.g. the passion for a video game, the passion for chocolate, the passion for social justice) the pursuit of which leads to many different types of conventions that, eventually, make up our jointly produced spontaneous order. In contrast, Smith and Hayek concentrate their analysis on a single passion: the passion for profit-making. Moreover, Hume also believed in a variety of signals, as opposed to Hayek’s exclusive reliance on price signalling. Secondly, Hayek’s argument that markets protect us from serfdom (i.e. from authoritarian hierarchies) is weakened substantially by the fact that he has precious little to say about corporate serfdom; about the hierarchies that millions must submit to (when working for Wal-Mart or Microsoft for instance) in order to make a living or to get a chance to unfold their talents." (http://blogs.valvesoftware.com/economics/why-valve-or-what-do-we-need-corporations-for-and-how-does-valves-management-structure-fit-into-todays-corporate-world/)

Spontaneous order as an expression of evolutionary rationalism

From John Marks,

This entry relates spontaneous order in complex systems and two types of rationalities.

URL = http://www.ertnet.demon.co.uk/2kinds.html

"Hayek distinguishes two kinds of rationalism; what he has called constructive rationalism and evolutionary rationalism. And he associates these with two kinds of order: designed or made orders and spontaneous orders. Constructive rationalism derives from Descartes with his twin emphases on logical or mathematical deduction from explicit premises, and on machines as appropriate models for explaining natural phenomena, however complex. According to constructive rationalism, rational actions are those which are determined entirely by known and demonstrable truths, and rational social institutions are those which are deliberately designed to achieve specific, defined purposes.

Constructive rationalism gives rise to designed or made orders, like cars, or silicon chips, buildings or factories, armies or planned economies. All of these have been designed for one or several definite purposes. It is the very success of constructive rationalism in some of these examples - particularly in the less complex situations - that leads to the assumption that all social institutions and all other human productions are, and ought to be, the product of deliberate design.

But such design is neither actual nor feasible. It is not possible for any individual or small group to know all the relevant facts needed to design complex social institutions. To think that this is possible is to suffer from what Hayek calls the synoptic delusion. And many of the social institutions which are indispensable in a modern industrial society have not been consciously designed.

Hence we need to recognise the importance of evolutionary rationalism and of self-generating or spontaneous orders to which the ideas of purpose and design do not apply. Organisms, languages, market economies, societies are orders which were not designed: they evolved. Evolutionary rationalists insist on the distinction between designed and spontaneous orders, especially in understanding man and society.

Man is seen as a rule-following animal as well as a purposive one, and human culture as partly an order of rules which we inherit, and only partly as an order of rules which have been either designed or fully explicated. Many rules and institutions have evolved, and have been strengthened and refined by selection. Man has often been successful because he observed rules, not because he understood why de did so. It is not in any way irrational to follow rules we do not clearly understand. For example, even today we have only a small understanding of the structure of language - yet without language virtually nothing of our culture would exist. So evolutionary rationalists argue that the evolution of social rules and institutions is as important for understanding man and society as is biological evolution for understanding man as a species.

But to recognise this is not to deny the importance of constructive rationalism in limited areas. In almost all real situations, both kinds of rationalism are involved. If we recognise this, we can appreciate more accurately the potential benefits and limitations of conscious design. We shall also, be able, I hope, to distinguish situations where the constructive rationalist model will be most fruitful. A complex self-generating order of individuals, institutions and organisations, which is a modern society, makes continual use of constructive rationalism in limited areas., but in its totality such a society bears little resemblance to a machine. However, if we adopt a constructive rationalist approach and attempt to plan the whole of our society - just as if it were a machine - then we will be moving in a totalitarian direction.

The examples I wish to discuss - the market, science, language, and the structures of liberal societies - all show common features.

1. They all make use of constructive rationalism in limited areas. It is very difficult to think of pure-bred examples of either kind of rationalism.

2. The systems involved are so complex that it is inconceivable that any individual could know all the facts which are relevant to their functioning.

3. Consequently these spontaneous orders have evolved decentralised mechanisms for transmitting information which overcome the limitations of individual knowledge. The development of such mechanisms is a necessary condition for the formation of complex spontaneous orders.

4. A framework of rules is required if the information transmission mechanism of a spontaneous order is to function and the order to survive. These rules are partly explicit and partly tacit, and may in some cases be reinforced by a commonly accepted system of values.

5. By their very nature, spontaneous orders evolve diverse mechanisms for correcting errors or imperfections. These self-correcting mechanisms, which in some ways resemble 'negative feedback loops' in mechanical or electrical systems or homeostatic mechanisms in biological systems, operate at many levels in a spontaneous order, in ways which are scarcely possible in a made order." (http://www.ertnet.demon.co.uk/2kinds.html)