HOW COMPLEX ARE THE AUSTRIANS?

pantgrievousAI and Robotics

Nov 30, 2013 (3 years and 11 months ago)

73 views


1













HOW COMPLEX ARE THE AUSTRIANS?








J. Barkley Rosser, Jr.


James Madison University


rosserjb@jmu.edu


http://cob.jmu.edu/rosserjb








March, 2009









Acknowledgements: I thank Angelina Chr
istie and Robert Subrick for provi
ding useful
materials and

Bruce Caldwell,
Roger Koppl
, and participants in the conference on “How
Au
strian are the Austrian Economi
sts?” held at the University of Toronto
, October 17
-
18,
2008,

as well as an anonymous refer
ee
for
useful discussions. The usual caveat holds.









2

Introduction


Roger Koppl (2009, p. 1) argues that “Austrian economics is a school of thought
within
the broader complexity movement in economics.” Is he correct? While there are
many who have ar
gued for some overlapping between the two, I shall argue that this is
probably an overly strong statement. The main reason is that there are substantial
elements and strands within Austrian economics that do not fit in with any of the multiple
varieties o
f complexity

theory
, even though there are some that clearly do.


While I have some disagreements with Koppl’s argument, I think that he does a
good job of identifying some of the main strands of Austrian economics that are
consistent with complexity thoug
ht. The most important of these are associated with the
work of Friedrich
A.
Hayek, who was openly and actively interested in complexity ideas,
especially later in his career as documented by
Bruce
Caldwell (
2004, Chap. 14) as well
as

by

others (Lavoie, 1
989;
Vaughn, 1999;
Rosser, 1999; Koppl,
2000; Vriend, 2002;
Gaus, 2006), with Hayek actually authoring an essay enti
tled “The theory of complex
p
henomena” (Hayek, 1967a
). In addition to Hayek, Koppl also sees
Carl
Menger (1981
[1871]) as a predecessor of
the spontaneous order idea that he and others identify as
being in accord with complexity ideas. Koppl (2006, 2009) also identifies as consistent
with both Austrian economics and complexity, “BRICE,” that is, bounded rationality,
rule following, instituti
onalism, and evolution, a list

I shall discuss further below.


I shall make two broad arguments regarding Koppl’s thesis. On the one hand he
ignores the substantial vein of Austrian thought that is not consistent with complexity.
The central idea of th
is vein is acceptance of the equilibrium approach, and it must be
kept in mind that for most of his career, even Hayek remained loyal to this approach,

3

although he would deviate from it at the very end of his life, supporting Caldwell’s
argument regarding
the ultimate direction of “Hayek’s journey” (
Hayek, 1981
a
; Witt,
1999).
1

This fits in with the idea sometimes argued that Hayek made a “U
-
turn” in his
thinking in the mid
-
1930s. I do not wish to weigh in independently on this subject, but
defer to Caldwe
ll who seems to lean more to the view that while there was clearly a
change in Hayek’s views over time, it was probably more gradual than some have
argued.
2

In any case, Hayek certainly was more conventional and less “complex” in his
earlier economics wri
tings, although his parallel thoughts on psychology dating from his
experiences in World War I already bore the seeds of his later complexity views, with his
The Sensory Order

(1952) laying these ideas out more fully.


On the other hand, while Koppl ignore
s this non
-
complex vein very visible in
much of Austrian thought, if becoming less popular within it over time, he also curiously
ignores another strand of Austrian thought that can be argued to fit in with the complexity
perspective, namely awareness of t
he deeply rooted presence of
fundamental
u
ncertainty
in economics. Admit
tedly this strand comes from
figures somewhat more on the fringes
of Austrian economics, notably
G.L.S.
Shackle (
1973
) and
Ludwig
Lachmann

(1976).
This idea clearly
overlap
s

with Pos
t Keynesian ideas (Rosser, 2006), and it is a bit
surprising that Koppl does not recognize this strand in Austrian economics, given that in
regard to the concept of computational complexity that h
e sees inhering in Hayek’s work

he has been willing to see l
inks with ideas in the Post Keynesian tradition as well (Koppl
and Rosser, 2002).




1

Hayek’s 1981 address in English would be published in 1
984 in German.

2

At opposite extremes are Hutchison (1992) who argues for an abrupt change in Hayek’s views in the
1930s versus Birner (1994) who sees full continuity of Hayek’s views throughout his career, with Caldwell
somewhere between their positions.


4


Varieties of Complexity


This is a well
-
worn topic, nevertheless a brief excursus will be useful for
categorizing the various ways in which Austrian economics overlaps with
the idea of
complexity, given that Seth Lloyd has listed as many as 45 different varieties of
complexity (Horgan, 1997, p. 303). Rosser (2009
a
) provides a current classification
based on Lloyd’s and others’ views on the matter. At the most precise level
we can
identify what could be labeled “Santa Fe complexity,” or what Rosser (1999) labeled
“small tent [dynamic] complexity.” This is called by others agent
-
based or
heterogeneous interacting agents complexity, and models the economy, usually using
comput
er simulations, as a system of locally interacting agents with no central contro
ller,
little tendency to global

equilibrium, and continually evolving dynamics.
3

Many
phenomena such as spontaneous order and emergence can be observed with this form of
compl
exity.


Among the earliest examples of a model exhibiting this sort of complexity was
that of urban segregation due to Schelling (1971), Schelling studied this model by playing
on a chess board, without any computers involved. He showed that in an initia
lly
integrated city with agents paying attention to their neighbors, introducing only the
slightest preferences for one kind of neighbor over another would over time lead to a
racially segregated city, a result viewed as one of emergence or spontaneous ord
er.


One level up is dynamic complexity, which Rosser (1999) defines, following
Richard
Day (1994), as a system that does not endogenously converge on a point, a limit cycle, or
a smooth explosion or implosion. This “broad tent [dynamic] complexity”
includes the



3

This is precisely the form of complexity that Vriend (2002) is thinking of when he discusses Hayek.


5

one just described along with its earlier fellow “4 C’s,” as mockingly labeled by Horgan
(1997). The others are cybernetics, catastrophe theory, and chaos theory. While the
latter two
4

have had little link with most of Austrian economics (as
ide from Lavoie using
“chaos” in the title of his 1989 paper),
5

much of Hayek’s investigations of complexity
involved cybernetics (Wiener,
1948
) and its close rela
tive, general systems theory (vo
n
Bertalanffy
, 1962)
, with a strong influence from Warren Wea
ver (1948) as well.
.


Broadly speaking, the source of the endogenous irregularities in these sorts of
mathematical models that lead to dynamically complex irregularities depend on nonlinear
dynamics within these systems. Not all nonlinear systems are co
mplex, but when
nonlinear effects become sufficiently great, then such dynamics can occur, often
associated with some destabilization of a previously existing equilibrium state. Thus,
cybernetics focuses on the nature of feedbacks in systems. When these
are negative, then
systems tend to be stable, to return to a previous state after an exogenous shock.
However, when feedbacks are positive, then a system tends to move even further away
from its initial state after the feedbacks add to the shock, and if t
hese are sufficiently
strong, the system can destabilize entirely. Within economics, increasing returns have
long been known to be a source of such potentially destabilizing positive feedback effects
(Arthur, 1994).




4

See Rosser (2002, chap. 2) for a more thorough discussion of the mathematics of catastrophe theory and
chaos theory.

5

The situation is a bit more compl
icated in that as reported by Rosser (1999), based on discussions with
Peter M. Allen and Hermann Haken, Hayek was in communication at various periods of time with the
researchers in the Prigogine group at the Free University of Brussels as well as those a
t the Stuttgart
Institute of Theoretical Physics. Researchers in both of these groups arguably span all four of the C’s from
cybernetics/general systems theory up to agent
-
based models, and including the intermediate catastrophe
and chaos theories, althou
gh it remains the case that Hayek seems to have not been much interested in those
intermediate forms of dynamic complexity. (The conversation with Allen occurred in Beijing, China in
October, 1994, and the one with Haken in Beer
-
Sheva, Israel, October, 19
97.)


6


Finally, we have the broadest categor
y,
meta
-
complexity
, which includes the full
array of definitions provided by Lloyd, as well as others provided by other people.
Probably most important among these in terms of links to Hayek’s work, at least in the
eyes of Koppl (2008, 2009)
,

is computati
onal complexity, with deep development of thi
s
idea due to Velupillai (2005)
.
6

While there are great debates over which of these various
views and definitions are most useful or most legitimate, we shall not concern ourselves
further with such matters, con
fining ourselves to how they relate to various parts of
Austrian economics.



Regarding where Hayek would fit in with this taxonomy of complexities, it would
appear that actually has at least a potential presence at all of these levels. Thus, his
emphasis

on the dispersed nature of tacit economic knowledge and the self
-
organizing
nature of markets through localized interactions of economic agents is very consistent
with the lowest level, the agent
-
based modeling level. His long interest in and affiliation

with cybernetics puts him into the second level. Finally, his understanding of how the
limits of human awareness and consciousness have links with Gödel incompleteness
through diagonal proofs ties him up with the problems studied in computational
complex
ity and halting problems and the limits of computability (Koppl and Rosser,
2002).

.

Austrian Complexity According to Koppl


Koppl (2009) presents a set of ways in which he sees complexity ideas appearing
in Austrian economics. The earliest, and possibly
the most widely recognized and
important, is the question of the
spontaneous emergence of order
. He sees this as



6

Rosser (2009b) provides an overview of the debate between these competing views of complexity.


7

appearing initially in Menger’s work, with Menger in this regard ultimately inspired by
the Scottish Enlightenment of David Hume and Adam Smit
h. There is no central
controller in the economy bringing about its order, but rather the working of the invisible
hand. A more specific example of this in Menger
(1892)
is his discussion of the
spontaneous historical emergence in ancient societies of mo
ney for transactions purposes.
Hayek (1948a) stressed this precise argument, although it appears in an earlier form in his
work that some see as the key to his supposed “U
-
turn,” his “Economics and knowledge”
(1948b), originally written in 1937. In this w
ork, inspired by the socialist calculation
debate, Hayek stressed the reality of how knowledge is dispersed among agents in the
economy
, and how,

nevertheless, market order emerges from the interaction of these
agents in this dispersed system. Both Lavoie

(1989) and Vriend (2002) emphasize this
issue as central
to Hayek
’s complexity viewpoint, as do

Caldwell

(2004
)

and Gaus
(2006)
.

While Hayek basically developed this idea with little direct input from
complexity theorists, it would appear that this idea
was what most strongly motivated his
study of cybernetics and general systems theory, which provided models of
autopoetically self
-
sustaining systems and anagenetic emergence of order.


In a famous passage in “The theory of complex phenomena” (1967
a
, p. 26
) he
directly poses the idea of the emergence of new patterns.

“The ‘emergence’ of ‘new’ patterns as a result of the increase in the
number of elements between which simple relations exist, means that this larger
structure as a whole will possess certain g
eneral or abstract features which will

8

recur independently of the particular values of the individual data, so long as the
general structure (e.g., by an algebraic equation) is preserved.”
7



Another
argument stressed by Koppl, but by few other Austrians,
involves the
idea of computational limits to knowledge, implying bounds to rationality and the need
for policy makers to be humble and proceed with caution.

This idea links to ideas of
computational complexity, and Koppl (2008, 2009), along with Koppl and

Rosser (2002)
see this ultimately inspired by his work on psychology (Hayek, 1952, pp. 185
-
190), and
expressed again strongly in his essay on complex phenomena (1964). The mind operates
as a rule
-
following classifier system. However, as such it is subje
ct to the laws of logic,
and among those laws are the theorems of
Kurt
Gödel that imply incompleteness of
logical systems. This incompleteness is deeply tied to self
-
referencing by systems, and
Hayek in particular cited the diagonal proof method to argue
that the mind cannot know
itself, which can be extended to the idea that no agent or model of the economy can fully
know the economy (Koppl and Rosser, 2002). This then provides a computational
foundation for bounds on rationality.


As Hayek put it in
The

Sensory Order

(1952, pp. 188
-
189, 8.80).

“Applying the same general principles to the
human brain as an apparatus
of classification it would appear to mean that, even though we may understand its
modus operandi

in general terms, or, in other words, posses
s an explanation of the
principle on which it operates, we shall never, by any means of the same brain, be
able to arrive at a detailed explanation of its working in particular circumstances,



7

Curiously this much
-
quoted passage is footnoted to a brief discussion of the British school of
“emergentism,” associated with C. Lloyd Morgan (1933), wh
ich would later be denounced by reductionist
scientists. The emergentists saw the basis of their ideas in the “heteropathic laws” posited originally by
John Stuart Mill (1843), also cited by Hayek at this point. It can be argued that this emergentist vie
w was
consistent with the
organicism

opposed by Menger in favor of
atomistic individualism
.


9

or be able to predict what the results of its operations will be
. To achieve this
would be to require a brain of a higher order of complexity, though it might be
built on the same general principles. Such a brain might be able to explain what
happens in our brain, but it would in turn be unable fully to explain its o
wn
operations, and so on.”


Drawing also on ideas expressed in
The Sensory Order

(p. 192), Koppl also
argues that Hayek advocated the importance of
verstehende

psychology, with this
implying the superiority of a moderately hermeneutic approach to economic
analysis
(Koppl and Whitman, 2004). He further argues that this is linked to complexity, as well
as to views of Lachmann, although I confess that I am not sure which of the many views
of complexity this view links to precisely, although asking precision o
f hermeneutics may
be an unfair demand.



Koppl (2006, 2009) summarizes his view of complexity and Austrian economics
with his BRICE acronym: bounded rationality, rule following, institutions, cognition, and
evolution, seeing essentially all of these as im
plied by Hayek’s work in particular. Thus,
as already discussed, bounded rationality is implied by the limits of knowledge due to
logical and computational limits to self
-
awareness both in individuals and in the broader
economy.

Rule following is how Hay
ek sees our minds operating and agents ope
rating in
the economy
.
In my view this is perhaps the weakest of these five elements in terms of
its ability to generate complexity. Certainly there are plenty of systems that are based on
rule
-
following that are

not particularly complex by any definition. But if the rules
connect up with generating positive feedback loops or enhance local interactions in a

10

heterogenous agent
-
based systems, they may lead to complex outcomes. Certainly for
Hayek the rules that dr
ive thought can lead to complexities. Vernon Smith (2010) has
argued that for Adam Smith, the fundamental definition of
fairness

depended on rules,
and that these rules could lead to the spontaneous emergence of order in markets.

Institutions are seen as
key, again in Hayek, with his later emphasis on evolution
of institutions central. While this is correct, it must be kept in mind that more generally
there was a historical conflict between institutionalism and Austrian economics, going
back to that betwe
en Menger and the predecessors of the institutionalists in the German
Historical School, led by Gustav
von
Schmoller
in the
Methodenstreit

(Caldwell, 2004,
Chap. 3). Even though Hayek studied briefly with Wesley Clair Mitchell, most American
institutional
ists of the 20
th

century were not very sympathetic to Austrian economics.

Cognition clearly relates again to Hayek’s views of pattern formation in the mind
in his psychological theory. Such pattern formation out of perceptions can be seen as
another examp
le of the spontaneous emergence of order in the complex system of the
mind, although it is less clear how this relates to economics except perhaps through
bounded rationality. Indeed, to the extent that such perceived patterns represent “real
truth” (as a

subjectivist approach would assert), this may offer a way around the bounds
on rationality.

Of course, from a perspective that is not purely subjectivist, the patterns
remain bounded in terms of knowledge of certain aspects of objective reality, such as
of
the future.

Finally there is the matter of evolution, with Koppl mostly stressing how in his
later years Hayek deeply studied the evolution of institutions.

It is unequivocal that

11

Hayek saw evolution as deeply linked to complexity, as this quotation fr
om “The theory
of complex phenomena” indicates (1967
a
, p. 31):

“Probably the best illustration

of a theory of complex phenomena which is
of great value, although it describes merely a general pattern whose detail we can
never fill in, is the Darwinian theo
ry of evolution by natural selection.”


Caldwell (2004, Chap. 16) notes the peculiar paradox that eventually appeared as
Hayek would come to advocate group selection of institutions over time, which contrasts
with his usual assertion of methodological ind
ividualism, although Caldwell argues that
throughout his career Hayek was never as wedded to this idea as many think.

A curious aspect arises here in that at the end Koppl mentions briefly
Israel
Kirzner (1973) and his arguments, drawing on work of
Ludwig
von
Mises

(1966)
, for the
important role of entrepreneurs in driving the evolutionary process of the economy,
including the process of technological change, an idea traceable back to
Friedrich
von
Wieser (1884). Complexity can arise in many ways in this p
rocess, including through
such phenomena as path dependence and technological lock
-
in as argued by Arthur
(1989). While Koppl did not develop it much, many (Hodgson, 2006) argue that
evolution is the centerpiece of the complexity view
, in

this not too far

off from Hayek
’s
view.

A loose end here that potentially links to Post Keynesian economics and
complexity is the idea of radical uncertainty (Rosser, 2006), which was stressed by both
Shackle (1973) and Lachmann (1976). Both dynam
ic and computational com
plexity
imply such ultimate uncertainty, although few Austrians play this idea up as much as do
some of the Post Keynesians (Davidson, 1994).
There may also ultimately be differences

12

in the source of such uncertainty between the two schools, with most Aus
trians relying on
the same sort of comp
utational arguments that underlie

their view

of the limits of
knowledge and rationality, whereas Davidson at least argues that such uncertainty is
more profoundly ontological and axiomatic, arguing that this was Keyne
s’s view.


The Non
-
Complexity Tradition in Austrian Economics



We have seen so far that even if it was not always well
-
defined or focused, there
have been elements and followers of the Austrian School whose work can be viewed as
being consistent with a co
mplexity perspective, especially Hayek in his later years,
who
followed to some degree
the School’s founder, Carl Menger. But what then of the other
members of the School, and was there (is there) a non
-
complexity tradition among
Austrian economists? The

answer is certainly yes.


The theme in Austrian economics that most clearly stands against this complexity
perspective is the emphasis on marginalism and equilibrium. Thus, it must be
remembered that in the
Methodenstreit
, it was the Austrians who upheld

the nascent
neoclassical orthodoxy of marginalist equilibrium theory against the proto
-
institutionalism and opposition to abstract theory articulated by Schmoller
(1978 [1900
-
1904]
)
and the followers of the German Historical School.
8

Menger himself is ge
nerally
listed with Jevons and Walras as the German
-
speaking of the three putatative discoverers
of marginal utility and how it can be used to solve the paradox of value, although Menger
was somewhat different from the other two in his relative dislike of
mathematics and was



8

Caldwell (2004, p. 80) argues that the term “Austrian economics” was originally a term of derision
applied by members of the German Historical School to the Austr
ians during the
Methodenstreit
.


13

arguably closer in approach in some ways to
von
Schmoller than to Jevons or Walras.
9

Thus, Menger was a complicated figure in this matter, exhibiting a tendency towards
complexity in his invocation of evolution and the emergence of spo
ntaneous orders, even
while he defended abstract theorizing and marginalism against the historical approach.


This more orthodox strand would be further emphasized by his immediate
followers, the second wave of Austrian economists: Eugen
von
Böhm
-
Bawerk an
d
Friedrich von
Wieser. While as noted
,

Wieser would to some extent favor a dynamic
approach in his view of entrepreneurs and technological change, both of these figures
would more clearly stress the importance of marginalism, even if with an emphasis on
subjective marginal utility over supply
-
side aspects such as marginal cost, and more
importantly the idea of economic equilibrium and its link to determining value in
conjunction with marginalism (
Böhm
-
Bawerk, 1891;
Wieser, 1893)
, in short, an even
more st
rongly orthodox neoclassicism than exhibited by Menger.


The more famous of the two, Böhm
-
Bawerk, would particularly support a very
orthodox approach with essentially no hint of complexity, arguably the extreme opposite
of Hayek in this regard, within th
e Austrian tradition. He would develop the idea of the
average period of production as the independent measure of the value of capital
, which he
then used along with the subjectivist view of marginal utility as a battering ram to
criticize the Marxian mod
el

(Böhm
-
Bawerk, 1975 [1898])
, thus establishing this theme in



9

Streissler (2001) has argued that rather than being a founder of marginalism, Menger was actually the
culmination of a proto
-
neoclassical school that had been operating in Germany since the late 1830s, and
had incorporated

marginal utility and even had innovated the use of supply and demand curves with price
on the vertical axis as early as 1841 by Karl Heinrich Rau, with Marshall later taking this idea from them.
This school was a product of the period in Germany before t
he Bismarckian unification in 1871, when
these figures would be identified with small regions in Germany, only to be swept away and dominated by
the German Historical School approach coming out of Berlin that was identified with the newly unified
Germany.

In that regard the epithet of “Austrian” applied to them by the Germans had a political aspect of
their being outside the political jurisdiction and control by von Schmoller and his allies. Menger was
especially influenced by Roscher from this group, to
whom he dedicated his
Principles

book.


14

Austrian economics that would be taken up later by von Mises and Hayek in the socialist
calculation debate. But in contrast to them, especially Hayek, he did so essentially from
within the con
fines of neoclassical orthodoxy with nary a whiff of a complexity
perspective, Marx being the anti
-
equilibrium, c
omplexity economi
st by contrast with
Böhm
-
Bawerk, who was also much more famous in hi
s day than either Menger or
Wieser.

It would take a long
time and a lot of effort to overcome this deeply rooted
neoclassicism emphasized and enforced by Böhm
-
Bawerk.


Of the ideas involved here, probably adherence to the equilibrium approach was
the greater obstacle to adopting a complexity perspective than was

the subjectivist
emphasis on the importance of marginal utility
, although for von Mises the subjectivism
of this would become tied up with a rationalistic
a priorism

that also inhibited a more
dynamic approach compatible with the complexity perspective.

Von Mises
emphasized
the equilibrium approach, which would also have this rationalistic foundation
.

Thus, in
the socialist calculation debate he strongly emphasized the inability of the socialist
planner to calculate prices that would reflect the r
ational
ity of a
market equilibrium,
determined by the actions of profit
-
seeking owners of factors of production such as land
and capital

(von Mises, 1981
, Chap. 6
)
. While Hayek would agree with this, he would
emphasize more the problem of dispersed information,
which, as we have seen argued
above would lead him away from the more orthodox position on to his journey towards
complexity.


Nevertheless, von Mises was not fully wedded to the equilibrium approach,
invoking static equilibrium as a useful concept, but ul
timately emphasizing the
importance of dynamic processes of entrepreneurs pursuing profits and generating prices

15

in doing so, with the system constantly changing and moving on, never settling down to
any static equilibrium, a view that would strongly influ
ence his followers, Kirzner and
Lachmann.

Thus he declares that

“To assume stationary economic conditions is a theoretical expedient and
not an attempt to describe reality.” (von Mises, 1981, p. 142)
10

He goes on to declare that capitalist market processe
s involve a constant dynamic, and
that it is socialism that seeks a stationary state, which is part of the fundamental problem
with it as a system. Indeed, arguably the ultimate source of economic stagnation in
actually existing command planned socialist
economies was not their static
microeconomic inefficiency, but the lack of technological dynamism and tendency to
adhere to a stationary condition.
Von Mises repeatedly emphasizes the uncertain nature
of the future and necessity for dynamic “speculators”
to constantly bring forth new
innovations to keep the economy moving and evolving. In this regard, as von Mises
emphasizes the dynamic over the static, he becomes more of a complexity economist.


We are now at the point of confronting that old bugaboo amo
ng Austrian
economists of the split betwee
n von Mises and his
follower, Hayek, which is tied up with
this matter of Hayek moving away from a more conventional, non
-
complexity approach
towards the complexity perspective.

We have noted above that according
to Caldwell, it
was Hayek’s essay first written in 1937 on “Economics and knowledge” that first moved
him away from the conventional view, even though his psychology side had harbored
some of these thoughts for nearly 20 years.
11

Caldwell

(2004
, Chap. 10)
goes further to



10

I thank an anonymous referee for pointing out this quote and the related argument.

11

Caldwell (2004, pp. 138
-
139) reports that Hayek nearly majored in psychology rather than economics,
his interest in the two being
so even, with the better prospect for employment in economics being the
ultimate deciding factor in his decision to pursue economics primarily.


16

argue that this essay was specifically written as a criticism of the
a priorism

of von
Mises, although it was so mutedly so that few observers realized this, and that Hayek
covered this aspect over by his maintaining a personally diplomatic

relationship with von
Mises as long as the latter was alive. It would only be after von Mis
es’s death in writing
the Forewo
rd to the 1981 edition of von Mises’s
Socialism

that Hayek would more
openly express his criticism in a famous passage

(Hayek, 1981
b, pp. xxiii
-
xxiv).

.



I had always felt a little uneasy about that statement of his basic
philosophy, but only now can I articulate why I was uncomfortable with it. Mises
asserts in this passage that liberalism “regards all social cooperation as an
eman
at
i
on of rationally recognized utility, in which all power is based on public
opinion, and can undertake no course of action that would hinder the free decision
of thinking men.” [p. 418 of von Mises, 1981] It is the first part of this statement
only whic
h I now think is wrong. The extreme

rationalism of this passage, which
as a child of his time he could not escape from, and which he perhaps never fully
abandoned, now seems to me factually mistaken. It certainly was not rational
insight into its general

benefits that led to spreading of the market economy.”

This throws us back to the question of the evolution of Hayek’s views from being a

faithful follower of von Mises to the apostate student of complexity.


In his early economic writings such as
Prices
and Production

(1967b [1935]),

Hayek
clearly followed in the mold of not only von Mises, but his predecessor, Böhm
-

Bawerk, as well. Analysis focuses on static equilibrium states, even if intertemporal
equilibria are allowed. The value of capital is giv
en by average period of production, and
indeed Hayek’s macroeconomic theory that was posed against the Keynesian model

17

emphasized deviations from the natural rate of interest associated with the equilibrium
average period of production as the source of bus
iness cycle fluctuations.


However, starting with “Economics and knowledge,” Hayek became aware that in
a world of dispersed information there may be an aggregation problem. He continued to
accept the idea of equilibrium for the individual, but came to fe
el that this did not
necessarily imply or correspond with equilibrium in the aggregate. This would set him
off on his most frustrating project, and would lead to his least
-
read book by his fellow
Austrian economists,
The Pure Theory of Capital

(1941). Wh
ile in effect st
ruggling to
reconcile micro with

macro equilibrium in a world of heterogeneous capital he would
give up the doctrine of the average period of production as the measure of the value of
capital, recognizing in effect some of the problems late
r raised in the Cambridge
controversies in the theory of capital. The book’s frustrating conclusions reflect the mire
Hayek felt himself in as his older, more conventional view clashed unresolvedly with his
newer, more complexity
-
oriented view.


Neverthel
ess, Hayek held on to the idea of equilibrium for most of his life and
career, only finally abandoning it in 1981 in his not widely
-
known essay on

“The flow of
goods and services” (Hayek, 1981a, p. 8).

“It is tempting to describe as an ‘equilibrium’ an ide
al state of affairs in
which the intentions of all participants precisely match and each will find a
partner willing to enter into the intended transaction. But because for all
ca
pitalistic production there must

exist a considerable interval of time betwe
en the
beginning of a process and its various later stages, the achievement of an
equilibrium is strictly impossible. Indeed, in the literal sense,
a stream can never

18

be in equilibrium
, because it is disequilibrium which keeps it flowing and
determining i
ts directions. Even an apparent momentary state of balance in which
everybody succeeds in selling or buying what he intended may be
inherently

unrepeatable, irrespective of any change in the external data, because some of the
constituents of
t
he stream wi
ll be the results of past conditions which have
changed long ago.”

Ironically, in the end, it may well have been that Hayek was the deeper believer in
equilibrium than was von Mises, holding on to the notion until very late in life, while von
Mises in many

ways abandoned it for his more
dynamic and
process
-
oriented approach,
although it continued to haunt the a

prioristic part of his
weltanschauung
.


Conclusion


In the end we must conclude that Austrian economics is only partly compatible
with the complexit
y perspective. Deep roots, perhaps most firmly associated with Böhm
-
Bawerk, are essentially fully conventionally neoclassical, albeit more strongly oriented
towards a subjectivist perspective. However, the subjectivist perspective is not inherently
a com
plexity perspective, even if it can be compatible with it.

This tradition, especially
that part emphasizing the equilibrium approach, is not part of the complexity perspective.


However, there has also been from its beginnings with Carl Menger, a vein wit
hin
Austrian economics that has emphasized the spontaneous emergence of social orders out
of dispersed processes. This view would culminate in the work of Hayek, who began
with the more conventional approach, but influenced strongly by his studies of
psyc
hology and his consideration of the problems of dispersed knowledge, would move

19

towards a complexity approach and would consciously pursue this perspective, including
actively contacting many important individuals involved in its early development. Due
la
rgely
to his influence, today, Austrian economics is much more oriented towards a
complexity approach.



References

Arthur, W. Brian. 1989. “Competing technologies, increasing returns, and lock
-
in by
historical events.”
Economic Journal
99, 116
-
131.


Arthu
r, W. Brian. 1994.
Increasing Returns and Path Dependence in the Economy
. Ann
Arbor: University of Michigan Press.


Bertalanffy, Ludwig vo
n. 1962.
General Systems Theory
. New York: Braziller.


Birner, Jack. 1994. “Introduction: Hayek’s grand research progr
amme.” In Jack Birner
and Rudy van Zijp, eds.,
Hayek, Coordination, and Evolution: His Legacy in Philosophy,
Politics, Economics, and the History of Ideas
. London: Routledge, 1
-
21.


Böhm
-
Bawerk, Eugen von. 1891.
“The Austrian Economists.” Translated by Hen
riette
Leonard,
Annals of the American Academy

of

Political and Social Sciences

1, 244
-
271.


Böhm
-
Bawerk, Eugen von. 1975 [1898].
Karl Marx and the Close of His System
. In Paul
Sweezy, ed.,
Karl Marx and the Close of His System and Böhm
-
Bawerk’s Criticism
of
Marx
. Clifton: Kelley, 3
-
118.


Caldwell, Bruce. 2004.
Hayek’s Challenge
: An Intellectual Biography of F.A. Hayek
.
Chica
go: University of Chicago Press.


Davidson, Paul. 1994.
Post Keynesian Macroeconomic Theory
. Aldershot: Edward Elgar.


Day, Richard H.

1994.
Complex Economic Dynamics, Volume I: An Introduction to
Dynamical Systems and Market Mechanisms
. Cambridge: MIT Press.


Gaus, Gerald F. 2006. “Hayek on the evolution of society and mind.” In Edward Feser,
ed.,
The Cambridge Companion to Hayek
. Cambr
idge: Cambridge University Press, 232
-
258.


Hayek, Friedrich A. 1941.
The Pure Theory of Capital
. Chicago: University of Chicago
Press.



20

Hayek, Friedrich A. 1948a.
Individualism and Economic Order
. Chicago: University of
Chicago Press.


Hayek, Friedrich A.

1948b [1937]. “Economics and knowledge.” In
Individualism and
Economic Order
. Chicago: University of Chicago Press, 33
-
56.


Hayek, 1952.
The Sensory Order: An Inquiry into the Foundations of Theoretical
Psychology
. Chicago: University of Chicago Press.


H
ayek, Friedrich A. 1967
a
. “The theory of complex phenomena.”

In
Studies in
Philosophy, Politics, and Economics
. Chicago: University of Chicago Press, 22
-
42

(original shorter version published in 1964).


Hayek, Friedrich A. 1967b [1935].
Prices and Producti
on
, 2
nd

edn. New York: Kelley.


Hayek, Friedrich A. 1981
a
. “The flow of goods and services.” Address to the London
School of Economics, January 27 (published in German, 1984, “Der strom

und der güter
und leistungen.” Tübingen: Mohr (Siebeck)).


Ha
yek, Frie
drich A. 1981b. “Forewo
rd” to
Socialism

by Ludwig von Mises.
Indianapolis:
Liberty Fund.


Hodgson, Geoffrey M. 2006.
Essays in the Shadows of Darwin and Marx: Notes on
Institutional and Evolutionary Themes
. Cheltenham: Edward Elgar.


Horgan, John. 1997.
Th
e End of Science: : Facing the Limits of Knowledge in the
Twilight of the Scientific Age
, paperback edition. New York: Broadway Books.




Hutchison, Terence W. 1992. “Hayek and ‘modern Austrian’ methodology: Comment on
a non
-
refuting refutation.”
Research
in the History of Economic Thought and
Methodology

10, 17
-
32.


Kirzner, Israel M. 1973.
Competition and Entrepreneurship
. Chicago: University of
Chicago Press.


Koppl, Roger. 2000. “Policy implications of complexity: An Austrian perspective.” In
David Col
ander, ed.,
The Complexity Vision and the Teaching of Economics
.
Cheltenham: Edward Elgar, 97
-
117.


Koppl, Roger. 2006. “Austrian economics at the cutting edge.”
Review of Austrian
Economics

19, 231
-
241.


Koppl, Roger. 2008.
“Thinking impossible things: A
review essay.”
Journal of Economic
Behavior and Organization

66, 837
-
847.



21

Koppl, Roger. 2009. “Complexity and Austrian economics.” In J. Barkley Rosser, Jr., ed.,
Handbook of Complexity Research
. Cheltenham: Edward Elgar, in press.


Koppl, Roger and J. Ba
rkley Rosser, Jr. 2002. “All that I have to say has already crossed
your mind.”
Metroeconomica

53, 339
-
360.


Koppl, Roger and Douglas Glen Whitman. 2004. “Rational choice hermeneutics.”
Journal of Economic Behavior and Organization

55, 295
-
317.


Lachmann,
Ludwig. 1976. “From Mises to Shackle: An essay on Austrian economics and
the kaleidic society.”
Journal of Economic Literature

14, 54
-
62.


Lavoie, Don. 1989. “Economic chaos or spontaneous order: Implications for political
economy of the new view of scienc
e.”
Cato Journal

8, 613
-
635.


Lloyd Morgan, C. 1933.
The Emergence of Novelty
. London: Williams and Norgate.


Menger, Carl. 1892. “On the origin of money.”
Economic Journal

2, 239
-
255.


Menger, Carl. 1981 [1871].
Principles of Economics

translated by James

Dingwell and
Bert F. Hoselitz. New York: New York University Press.


Mill, John Stuart. 1843.
A System of Logic: Ratiocinative and Inductive
. London:
Longmans Green.


Mises, Ludwig von. 1966.
Human Action: A Treatise on Economics
, 3
rd

edition. Chicago
:
He
nry Regnery
.


Mises, Ludwig von. 1981 [1922].
Socialism: An economic and sociological analysis
, 3
rd

edn., translated by J. Kahane. Indianapolis: Liberty Fund.


Rosser, J. Barkley, Jr. 1999. “On the complexities of complex economic dynamics.”

Journal of Ec
onomic Perspectives

13(4), 169
-
192.


Rosser, J. Barkley, Jr. 2000.
From Catastrophe to Chaos: A General Theory of Economic
Discontinuities, Vol. I: Mathematics, Microeconomics, Macroeconomics, and Finance
,
2
nd

edition. Boston: Kluwer.


Rosser, J. Barkley,

Jr. 2006.
“Complex dynamics and post Keynesian economics.” In
Mark Setterfield, ed.,
Complexity, Endogenous Money and Macroeconomics: Essays in
Honour of Basil J. Moore
. Cheltenham: Edward Elgar, 74
-
98.


Rosser, J. Barkley, Jr. 2009
a
. “Introduction.” In J
. Barkley Rosser, Jr., ed.,
Handbook of
Research

on Complexity
. Cheltenham: Edward Elgar,
pp. 3
-
11,
in press.



22

Rosser, J. Barkley, Jr. 2009b. “Computational and Dynamic Complexity in Economics.”
In J. Barkley Rosser, Jr., ed.,
Handbook of Research on Compl
exity
. Cheltenham: Edward
Elgar, pp. 22
-
35, in press.


Schelling, Thomas C. 1971. “Dynamic Models of Segregation.”
Journal of Mathematical
Sociology

1, 143
-
186.


Schmolle
r, Gustav

von
. 1978 [1900
-
1904].
Grundriss der allgemeinen
Volkswirtschaftslehre
, Vols
. I and II. Berlin: Duncker & Humblot.


Shackle, George L.S. 1973.
Epistemics and Economics: A Critique of Economic
Doctrines
. Cambridge: Cambridge University Press.


Smith, Vernon L. 2010. “What would Adam Smith Think?”
Journal of Economic
Behavior and Or
ganization
, forthcoming.


Streissler, Erich W. 2001. “Rau, Hermann and Roscher: Contributions of German
economics around the middle of the nineteenth century.”
European Journal of the
History of Economic Thought

8, 311
-
331.


Vaughn, Karen. 1999. “Hayek’s t
heory of the market order as an instance of the theory of
complex adaptive systems.”
Journal des economists et des é
tudes humaines

9, 241
-
256.


K. Vela Velupillai, ed. 2005.
Computability, Complexity and Constructivity in Economic
Analysis
. Oxford: Blackwe
ll.


Vriend, Nicolaas J. 2002. “Was Hayek an Ace?”
Southern Economic Journal

68, 811
-
840.


Weaver, Warren. 1948. “Science and complexity.”
American Scientist

36,
536
-
544.


Wiener, Norbert. 1948.
Cybernetics: Or Control and Communication in the Animal and
t
he Machine
. Cambridge, MIT Press, 2
nd

edition, 1961, same publisher.


Wieser, Friedrich

von
. 1884.
Über den Ursprung und die Hauptgesetze des
wirtschaftlichen Werthes
. Vienna: Hölder.


Wieser, Friedrich von. 1893.
Natural Value
. Edited by William Smart, tr
anslated by
Christian Malloch. London: Macmillan.


Witt, Ulrich. 1999. “Hayekian macroeconomics.” Paper presented at the Liberty Fund
conference, “The Legacy of F.A. Hayek,” Bleibach, Germany, May.