• Abstract and Figures
• Public Full-text

Orders, Orders, Everywhere …On Hayek’s The Market and other Orders COSMOS + TAXIS Orders, Orders, Everywhere … On Hayek’s The Market and other Orders PAUL LEWIS PETER LEWIN Department of Political Economy The Naveen Jindal School of Management K ing’s College London The University of Texas at Dallas Room S2.36 SM 42 Strand Campus 800 West Campbell Road London WC2R 2LS Richardson, TX 75080-3021 United Kingdom United States Email: [email protected] Email: [email protected] W eb: http://www.kcl.ac.uk/sspp/departments/politicaleconomy/ W eb: http://jindal.utdallas.edu/faculty/peter-lewin people/academic/lewis.aspx Bio-sketch: Paul Lewis is Reader in Economics and Public Policy. He has published extensively in both theoretical and applied political economy. Peter Lewin is Clinical Professor, Finance and Managerial Economics. He is the author of Capital in Disequilibrium: The Role of Capital in a Changing World (1999, Routledge) and dozens of journal articles. Abstract: This review essay of The Market and Other Orders (volume 15 of the Collected Works of F. A. Hayek) uses the essays 1 collected in the volume as a vehicle to discuss certain key issues raised by Hayek’s work, including that the knowledge required for plan coordination is provided not only by prices but also by formal and informal social rules; that the capacity of the price mechanism to coordinate people’s plans is best viewed as an emergent property of the market system; that this emergent coor- dinative power also forms the basis for the process of group-selection in Hayek’s theory of cultural evolution; that the nature of the interaction between the overall order of actions and the causal powers of other emergent entities is shaped by social + TAXIS COSMOS structures; that Hayek’s notion of ‘order’ is different from the economist’s notion of ‘general equilibrium’; and that Hayek’s ideas anticipate those of modern complexity theory. Keywords: Hayek, complexity, emergent properties, systems, evolution, group selection, rules, order. 1 INTRODUCTION Pretence of Knowledge’ ([1975] 2014). The selected papers illustrate this unity in a very instructive way. Throughout his Friedrich Hayek was a scholar of uncommon breadth and professional career Hayek wrestled with issues related to the depth whose work will be a source of insight for many years coordination of interrelated human actions, positing from to come. Over his long career his interests spanned a wide early on that there was some kind of ‘ordering’ or ‘coordi- range of subjects including psychology, economics, political nating’ set of properties to the market process. This theme philosophy, the philosophy of (social) science, and intellec- of ‘spontaneous order’ is the connecting thread that runs tual history. It is perhaps, therefore, something of a surprise through all of his work, not just in economics but also in the- to find an extraordinary consistency and unity in his thought oretical psychology and political philosophy. In this volume running through time and subject matter. In volume 15 of we can trace the development of Hayek’s ideas on this topic the Collected Works of F. A. Hayek (Hayek 2014), entitled through his career, relating it in particular to his emerging ‘The Market and other Orders’, editor Bruce Caldwell has se- view of the economy as a complex system. lected papers that range in date of publication from Hayek’s We begin in the next section with a discussion of Hayek’s pivotal 1937 paper on ‘Economics and Knowledge’ ([1937] crucial ‘early years’ (the 1930s and 1940s at the London 2014) to his 1975 Nobel Memorial prize lecture on ‘The School of Economics). The articles published in this peri- ORDERS, ORDERS, EVERYWHERE … ON Hayek’S THE MARKet AND other ORDERS od—still frequently cited today—contain penetrating analy- 2 EQUILIBRIUM, PRICES, RULES AND SOCIAL ses of the nature of equilibrium, knowledge and the market ORDER process. In writing these early papers, Hayek was coming to grips with the themes that were to define the rest of his long It was in a lecture delivered in 1936 to the London Economics career. In the third section of the paper, we discuss Hayek’s Club that Hayek first grappled with some of the enduring treatment of complexity in the social world. We bring out in themes that were to shape the remainder of his career. This particular the fact, often unappreciated, that on Hayek’s ac- paper is clearly a major departure for him: count the coordinative power of the market is an emergent property of the free market system that is formed when peo- It was really the beginning of my looking at things in ple’s interactions are structured by certain kinds of formal a new light. If you asked me, I would say that up un- and informal rules. We also highlight the point, also insuf- til that moment I was developing conventional ideas. ficiently widely acknowledged, that Hayek provides a satis- With the ’37 lecture … I started my own way of think- factory explanation of how order is possible in decentralized ing. (Hayek 1983, quoted by Caldwell 2014: 3) market economies only in his later work, which is ostensibly on political philosophy rather than economics. In the fourth In this lecture Hayek explored for the first time the con- section we discuss Hayek’s vision of the world as consisting cept of equilibrium from a subjectivist perspective, a route of many different (hierarchically organized) complex orders, which took him immediately to questions about action, time, of which the market is only one. Far from being an ontologi- knowledge and expectations. Hayek realized that, unlike its cal reductionist, as he is sometimes (mis-)portrayed, Hayek counterpart in the physical world, the notion of equilibrium subscribes to a view of the world as consisting of a series of in economics must refer to the views of individuals as they 2 ontologically distinct, and irreducible, layers of phenomena. act in the social world. Hence Hayek defined equilibrium as COSMOS + TAXIS COSMOS We explore this further in the fifth section, examining the a situation in which ‘the different plans which the individu- implications of Hayek’s views for the possibility of multi- als composing [a society] have made for action in time are level interaction, arguing−contrary to some readings of mutually compatible’ (Hayek [1937] 2014: 64). Equilibrium his work−that Hayek’s approach admits the possibility that is here conceived as a situation in which individual knowl- emergent properties possessed by social systems include the edge and expectations, and the actions based on them, are capacity to shape, via downward causation, human agency. compatible with the ‘data,’ where the ‘data’ for one individu- In the sixth section we turn to the question of how different al include the plans and actions of other individuals. Hayek societies come to be characterized by different sets of orders wonders how people’s plans are in fact synchronized and co- and thus different levels of economic success. Hayek posited ordinated. All successful human action is based on perceived a group selection evolutionary process that has been the sub- and reliable causal connections between those actions and ject of some criticism. We examine this and find Hayek’s sto- their effects. Disparate expectations, implying the inevitabil- ry to be more plausible than the critics have suggested. In the ity of widespread errors and plan failures, would appear to seventh and eigth sections we examine Hayek’s perception preclude successful action. Having been pushed by the logic of the market as a dynamic process occurring in real time. of equilibrium in a changing world to consider this question, We focus on two questions in particular: how do real-world it became a preoccupation of Hayek’s throughout his career, economic actors cope with radical uncertainty; and what is even as he moved beyond economics narrowly understood. the nature of any tendency towards plan coordination? We But it was also the beginning of his penetrating critique of argue in particular that Hayek’s analysis implies that, even in some aspects of accepted theory and practice, most notably the absence of external shocks, the question of whether the the meaning of competition and the market process, that are market system tends to produce greater plan coordination the themes of the other three articles that comprise Part 1 cannot be answered on the basis of a priori arguments alone. of the volume under review, entitled The Early Years. In ret- The final section concludes with an examination of Hayek’s rospect, these papers can be seen to have laid the basis for ideas in relation to modern complexity theory. his later work on the nature of the rules and practices that facilitate successful human action in dynamically changing societies, societies that are essentially complex phenomena. VOLUME 2 | ISSUE 2 2015 COSMOS + TAXIS In what is his most cited article, Hayek ([1945] 2014) to suggest that they provide unambiguous signals to people posits that the high degree of coordination observed in eco- about what needs to be done. nomic life reflects the pivotal role of prices as both signals One way of resolving this tension is to interpret the later and incentives. Price movements signal changes to which in- article as taking the success of the market process as a given, dividuals are motivated to adapt even in the absence of any as confirmed by our shared experience, and proceeding then knowledge as to their causes. His example of a sudden scar- to describe the implications of this success, and the pitfalls city in the supply of tin, which results in a rise in its price of failing to understand it.

Load more

  17

Copy Link