The evolutionary dimension of Hayek’s thought: cultural selection and spontaneous order
Loranna Buzzo
Please cite the paper as:
Loranna Buzzo, (2017), The evolutionary dimension of Hayek's thought: cultural selection and spontaneous order, World Economics Association (WEA) Conferences, No. 2 2017, Economic Philosophy, Complexities in Economics
Abstract
The project’s basic axis the notion of order and cultural evolution by selection at the thought of Hayek. However, to highlight this aspect was necessary to analyze many other aspects of his work, as well as enter in the literature on the subject that goes beyond the thought of this author.
The paper as supplied appeared to be a German paper automatically translated by a system unfamiliar with English grammar. That was not all bad as it meant I had to read it closely during the three days it took me to rearrange it sufficiently well to grasp its meaning. One of my problems has been trying to decide what came from Hayek and what was the author’s view.
My interest was due to an old antipathy to Hayek from apparent dishonesty in his 1944 The Road to Serfdom, and Steve Fleetwood suggesting the later Hayek might be saying much what I was trying to say as an infomation scientist. Hayek (1944) cited Belloc’s (1911) The Servile State but used it to condemn socialism, whereas Belloc was saying “a plague on both capitalistic and state socialist houses”: balanced they could be democratic but taken to extremes either became totalitarianism. Here Hayek is not noted as mentioning C E Shannon, the Newton of Information Science, though there is this curious snippet: “most the information will be obtained by observing its occurrence or, as his contemporary Norbert Wiener, the amount of information in a system is the measure of the degree of organization”. Overall, I am grateful to Buzzo for reducing my antipathy: both failings could have arisen from Hayek having read neither Belloc nor Shannon but, triggered by the words “Serfdom” and “Information”, setting off on his own explorations. I am rather reminded of a set of children’s books I used to enjoy that were clearly based on “Wind in the Willows”, but had illustrations which taught me a lot about perspective. Here I’ve found Shannon’s “channel” hiding in the unusual word “conduit”, and the ordering effect of a channel reified as “order”, along with something of German grammar. I’ve learned that (back in the 1970’s) Hayek didn’t understand thinking as well as it is possible to now, nor control as the condition of capability as well as the antithesis of freedom.
If you would like a copy of my revised translation with annotations detailing my comments in context, please advise.
Your work is fundamentally interesting because it reveals a perspective of Hayek that does not come into everyday life in academic circles. Apart from poorly reasoned interpretations, Hayek reveals himself to be a great scholar of science who has greatly contributed to the evolution of complex thinking in economics.
The spontaneous reasoning has its basis in Smith’s proposal to explain the apparent order of a dynamic and growing market model. In this sense, it does not escape much from the interpretation of the “appearance” of capitalism raised by Marx. Of course, in opposite perspective, since Hayek is a defender of the market economy.
How credible is the attempt to defend the market from the equilibrium of the spontaneous order, to Hayek’s return to political economy?
We will keep in touch, appreciate your research and the importance of the rescue of authors in your proposal to contribute to the understanding of Economic Science as a complex and expanding system.
Buzzo made one important observation that Hayek’s concept of “spontaneous order” is closely related to Schumpeter’s “methodological individualism” and Menger’s “atomistic method ” in economic thinking.
There is a wide impression that Hayek’s “SPONTANEOUS ORDER” and Prigogine’s “SELF-ORGANIZATION” had a common methodological perspective that paved the philosophical foundation for complexity economics as well as evolutionary economics. As a former student of Ilya Prigogine and working with him for 22 years, I observed a fundamental difference between Hayek and Prigogine or between Gell-man at Santa Fe Institute and Prigogine of Brussels-Austin School.
The fundamental issue here is what is the DRIVING FORCE in biological and social evolution. Malthus, Darwin, and Prigogine considered the driven force was changing ecology and environment, i.e. NONLINEAR MACRO TREND with LONG WAVES that set SELECTION PRESSURE for micro mutations; while Schumpeter, Hayek, and Gell-man who invented the idea of Complex Adaptive System or CAS, believe that RANDOM MICRO MUTATIONS without life cycles are driven force of macro changes.
In this regards, Adam Smith is bifurcated in methodology.
I think the core contribution of Wealth of Nations was the Smith Theorem that division of labor is limited by MARKET EXTENT that implies market-share competition is central in market competition. It has three implications. First, ecological constraint is the major factor of market extent, therefore, market dynamics must be species competition under resource constraints. Second, military and financial competition would intensified in resource competition, which is the roots of long waves, arm race, and financial crisis. Third, market competition would be mainly occur at group (industry, corporation, state) level rather than individual level. Market-share competition led strategic pricing that outweigh cost pricing or marginal pricing in microeconomics. See. Ping Chen, “Metabolic Growth Theory”, Journal of Evolutionary Economics (2014).
However, when Smith talked about “invincible hand”, his main case was that international trade would be self-balanced. Smith gave one example, say, a merchant ship transport grain from Prussia to Portugal, and in return they would ship wine from Portugal back to Prussia. Smith did not realized the total value of two-way trade may not be in balance. History proved that Smith’s idea of self-balanced trade by invisible hand was wrong. Britain had persistent trade deficit with China for 170 years in tea and opium trade; and US had persistent trade deficit since 1970. Even Opium War and Mid-East Wars could not balance international trade in several decades.
Prigogine discovered the fundamental difference between CLOSED SYSTEM (with thermodynamic equilibrium) and OPEN SYSTEM (far from equilibrium with constant energy flow, matter flow, and information flow, which are necessary condition for DISSIPATIVE STRUCTURE in living organism from the perspective of THERMODYNAMICS OF EVOLUTION. While Hayek’s utopian market has no state, no war, even no human design (consider all the invention of house, army, state, corporation, bank, airplane, and atomic power station ~ all of them are planing of various degree at the molecule level rather than atomic level). For classical literature in complexity thinking, I highly recommend three works for complex scholars: E. Schrodinger, What Is Life (1944); I. Prigogine, From Being to Becoming, 1980; and R.M.May, Stability and Complexity in Model Ecosystems (1973).
Clearly, there are two groups among complexity economists. Macro, institutional economists mainly concern the long-term and large scale issues, while micro and psychologists mainly study micro behavior. The philosophical issue in economics is complexity philosophy should be based on macro-historical or micro-individual perspective? Historically, Austrian school was marginalized by Keynesian school not because of mathematical competition in economic theory, but by policy competition during the Great Depression and the World War II. If evolutionary economics and complexity economics ignore contemporary issues of poverty, war, climate change, and ecological crisis at the macro, and international level, but narrowly focus on individual behavior, we may develop many interesting toy models in economic modeling, but we will lost the major battle in policy competition.
Neoclassical models are wrong, not because they choose beautiful math model, but they choose wrong type of model for economic dynamics.
If division of labor is essentially collective phenomena and market/resource is limited, we should choose nonlinear ecological model that is equivalent to chemical reaction model for modeling self-organization and persistent cycles that are observed in macro, finance index and historical events. If human actors have no interaction, then random walk and Brownian motion could not generate endogenous cycles in spontaneous order.
The Frisch model of noise-driven cycles in econometrics is a perpetual motion machine that against the second law of thermodynamics. Same is true for Coasian world of zero transaction costs. See: Ping Chen, Economic Complexity and Equilibrium Illusion, Routledge (2010).
Our philosophical debate just began along with technical progress in complexity economics.
Ping Chen, China Institute, Fudan University, Shanghai, China
And
Center of Complex Quantum Mechanics (former Prigogine Center of Statistical Mechanics and Complex Systems),
University of Texas at Austin, USA
Ping Chen here seems to be very close to the fundamental disagreement on the Santa Fe interpretation of complexity I referred to in my comments on Delorme’s paper (that it take Shannon’s noise as his signal).
“As a former student of Ilya Prigogine and working with him for 22 years, I observed a fundamental difference between Hayek and Prigogine or between Gell-man at Santa Fe Institute and Prigogine of Brussels-Austin School. The fundamental issue here is what is the DRIVING FORCE in biological and social evolution”.
I’ve not yet had much access to Prigogine, so would appreciate more information from his colleague about his relationship with Santa Fe.
Santa Fe Institute has different approaches to complexity. Brian Arthur was an old friend of Prigogine and he also invited me to give speech on economic chaos at SFI. Arthur’s work on increasing returns on scale and path dependenth was inspired by Prigogine’s idea of constructive role of positive feedback such as catalytic reaction in chemistry. Paul Krugman also discuss increasing returns in trade within neoclassical framework. I would argue that Arthur is belong to Complexity Camp in the sense of Non-equilibrium and Nonlinear mechanism while Krugman is belong to Simplicity camp. However, We have different views on the Origin of Biological & Economic Complexity. Prigogine considered life was essentially a chemical phenomena at the molecule level in an open system, which is govern by Non-Equilibrium Thermodynamics, while Philip Anderson preferred his spin-glass model, which may stimulate the simulation approach of automata and agent-based model. Gell-Mann provided a philosophical framework of Complex Adaptive System (CAS) without address fundamental issues in evolutionary theory in biology and economy, such as evolutionary process is Convergent (equilibrium/optimization) or Divergent (non-equilibrium, bifurcation tree), gradual or punctuated? Etc. More fundamental difference between Murray Gell-Mann and Pregogine is about the nature of quantum mechanics and statistical mechanics. Gell-Mann holds orthodox view of Copenhagan School of probability explanation while Prigogine explored deep roots of time arrow in dynamics. We also have difference in understanding the meaning of chaos. I disagree with the unstable picture of so-called “Edge of Chaos” for living order. On the contrary, nonlinear oscillator in continuous time called “Color Chaos” can better described Schrodinger’s idea of non-periodic crystal with meta-stability = stability & variability, as well as Schumpeter’s “biological clock” and economic organism. While econophysics models like self-critically, sand-pile, power law, fractal Brownian motion models are more erratic and unstable to describe biology and economy. We discovered the birth-death process in chemistry and non-equilibrium statistical mechanics is a better alternative that has multi-regimes including calm and turbulent regime, can be used in financial market. In short, there are competing approaches within Complexity camp. The core issue is how to understand flexible organization and multi-faces of Evolution in physics, chemistry, biology, economy, plus psychology, sociology, and history.
Reading on, I have quickly seen the point of the end of Ping Chen’s comment. Would he agree that
” The Frisch model of noise-driven cycles in econometrics is a perpetual motion machine that against the second law of thermodynamics. Same is true for Coasian world of zero transaction costs”
is very simply illustrated by the cybernetic model of navigating a ship, whose transaction costs are those of the energy supplied to the motor; it is merely driven off-course (unless corrections are made) by the waves, winds, tides and obstacle avoidance. But when the motor stops, one loses steerage way.
“If division of labor is essentially collective phenomena and market/resource is limited, we should choose nonlinear ecological model that is equivalent to chemical reaction model for modeling self-organization and persistent cycles that are observed in macro, finance index and historical events. If human actors have no interaction, then random walk and Brownian motion could not generate endogenous cycles in spontaneous order.”
I am less sure of how a collective ecological model is equivalent to a chemical reaction model. This last explains the formation of neural synapses, but the pulsation is surely of the organisation which emerges? On human interaction, I offered Delorme the model of a traffic roundabout, where the interaction is at the information level and emergent human self-control permits giving way to prevent physical interaction forcing individual journeys into collective flows. Elsewhere I have argued that in two dimensions (complex number) mathematics, Nash equilibrium has the previously unexpected outcome of equilibrium in the noise dimension rather than that representing intentions. Ping Chen recommends reading Prigogene’s “From Being to Becoming”, which sounds wonderfully apt; I would recommend him and his heterodox friends to sample the wisdom of Chesterton’s incredible “Orthodoxy”, written humorously for non-academics, in which he says of Utilitarian’s happiness:
“The test of all happiness is gratitude … the happiness depended on NOT DOING SOMETHING which you could at any moment do and which, very often, it was not obvious why you should not do”.
Thus the pain of having to give way on Malvern’s narrow roads so other cars can get past is usually turned into pleasure by hands briefly waving in acknowledgement.
Peter Allen did pioneer work on Darwin’s evolutionary dynamics by means of nonlinear ecological model. The relation between chemical reaction and ecological dynamics was studied by Nicolis, Gregoire and Ilya Prigogine, Self-Organization in Nonequilibrium Systems: From Dissipative Structures to Order through Fluctuations, Wiley, New York (1977).
Economic movements are generated by shocks of noise or waves can be observed by their auto-correlation of observed time series. Theoretically speaking, organizing phenomena in biology and economy can only generated by organized energy flow, such as solar energy, chemical energy, and kinetic energy, but not random energy like heat or background noise. Frisch is wrong when he assumed a pendulum can be kept alive by random shocks. Physicists proved in theory and experiments that a pendulum (or any oscillator) under shocks of Brownian motion would damped exponentially. The same is true when children play swing. You have to push the swing periodically rather than randomly in order to keep it oscillating. There is no solid evidence that macro business cycles and financial crisis were driven by random shocks. Econometric models only play numerical game without addressing fundamental issues on the roots of endogenous business cycles.
Dave Taylor made many interesting comments at this forum. I am curious about your research filed and life experience. Your discussion on Orthodoxy is quite interesting in religion, science, and politics. I would like to communicate with you in future. My major works are listed at http://www.complexeconomics.org, email: pchen@nsd.pku.edu.cn. How to know your work and communication methods.
Ping Chen, at Austin, Texas, USA and Shanghai, China.