How Complex Are the Austrians

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HOW COMPLEX ARE THE AUSTRIANS?

J. Barkley Rosser, Jr.

James Madison University [email protected]

http://cob.jmu.edu/rosserjb

March, !!"

#ckno$led%ements: & thank #n%elina 'hristie and Robert (ubrick )or providin% use)ulmaterials and Bruce 'ald$ell, Ro%er *oppl, and participants in the con)erence on +o$

#ustrian are the #ustrian -conomists held at the University o) 0oronto, 1ctober 23425,

!!5, as $ell as an anonymous re)eree )or use)ul discussions. 0he usual caveat holds.

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mailto:[email protected]://cob.jmu.edu/rosserjbmailto:[email protected]://cob.jmu.edu/rosserjb


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Introduction

Ro%er *oppl 6!!", p. 27 ar%ues that +#ustrian economics is a school o) thou%ht

$ithin the broader comple8ity movement in economics. &s he correct 9hile there are

many $ho have ar%ued )or some overlappin% bet$een the t$o, & shall ar%ue that this is

probably an overly stron% statement. 0he main reason is that there are substantial

elements and strands $ithin #ustrian economics that do not )it in $ith any o) the multiple

varieties o) comple8ity theory, even thou%h there are some that clearly do.

9hile & have some disa%reements $ith *oppls ar%ument, & think that he does a

%ood job o) identi)yin% some o) the main strands o) #ustrian economics that are

consistent $ith comple8ity thou%ht. 0he most important o) these are associated $ith the

$ork o) ;riedrich #. ayek, $ho $as openly and actively interested in comple8ity ideas,

especially later in his career as documented by Bruce 'ald$ell 6!!


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althou%h he $ould deviate )rom it at the very end o) his li)e, supportin% 'ald$ells

ar%ument re%ardin% the ultimate direction o) +ayeks journey 6ayek, 2"52a> 9itt,

2"""7.2 0his )its in $ith the idea sometimes ar%ued that ayek made a +U4turn in his

thinkin% in the mid42"E!s. & do not $ish to $ei%h in independently on this subject, but

de)er to 'ald$ell $ho seems to lean more to the vie$ that $hile there $as clearly a

chan%e in ayeks vie$s over time, it $as probably more %radual than some have

ar%ued. &n any case, ayek certainly $as more conventional and less +comple8 in his

earlier economics $ritin%s, althou%h his parallel thou%hts on psycholo%y datin% )rom his

e8periences in 9orld 9ar & already bore the seeds o) his later comple8ity vie$s, $ith his

The Sensory Order62"F7 layin% these ideas out more )ully.

1n the other hand, $hile *oppl i%nores this non4comple8 vein very visible in

much o) #ustrian thou%ht, i) becomin% less popular $ithin it over time, he also curiously

i%nores another strand o) #ustrian thou%ht that can be ar%ued to )it in $ith the comple8ity

perspective, namely a$areness o) the deeply rooted presence o) )undamental uncertainty

in economics. #dmittedly this strand comes )rom )i%ures some$hat more on the )rin%es

o) #ustrian economics, notably .=.(. (hackle 62"3E7 and =ud$i% =achmann 62"3A7.

0his idea clearly overlaps $ith Gost *eynesian ideas 6Rosser, !!A7, and it is a bit

surprisin% that *oppl does not reco%niHe this strand in #ustrian economics, %iven that in

re%ard to the concept o) computational comple8ity that he sees inherin% in ayeks $ork

he has been $illin% to see links $ith ideas in the Gost *eynesian tradition as $ell 6*oppl

and Rosser, !!7.

2ayeks 2"52 address in -n%lish $ould be published in 2"5< in erman.#t opposite e8tremes are utchison 62""7 $ho ar%ues )or an abrupt chan%e in ayeks vie$s in the

2"E!s versus Birner 62""


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Varieties of Co!"e#it$

0his is a $ell4$orn topic, nevertheless a brie) e8cursus $ill be use)ul )or

cate%oriHin% the various $ays in $hich #ustrian economics overlaps $ith the idea o)

comple8ity, %iven that (eth =loyd has listed as many as


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62""37. 0he others are cybernetics, catastrophe theory, and chaos theory. 9hile the

latter t$o


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Grobably most important amon% these in terms o) links to ayeks $ork, at least in the

eyes o) *oppl 6!!5, !!"7, is computational comple8ity, $ith deep development o) this

idea due to ?elupillai 6!!F7.A9hile there are %reat debates over $hich o) these various

vie$s and de)initions are most use)ul or most le%itimate, $e shall not concern ourselves

)urther $ith such matters, con)inin% ourselves to ho$ they relate to various parts o)

#ustrian economics.

Re%ardin% $here ayek $ould )it in $ith this ta8onomy o) comple8ities, it $ould

appear that actually has at least a potential presence at all o) these levels. 0hus, his

emphasis on the dispersed nature o) tacit economic kno$led%e and the sel)4or%aniHin%

nature o) markets throu%h localiHed interactions o) economic a%ents is very consistent

$ith the lo$est level, the a%ent4based modelin% level. is lon% interest in and a))iliation

$ith cybernetics puts him into the second level. ;inally, his understandin% o) ho$ the

limits o) human a$areness and consciousness have links $ith Kdel incompleteness

throu%h dia%onal proo)s ties him up $ith the problems studied in computational

comple8ity and haltin% problems and the limits o) computability 6*oppl and Rosser,

!!7.

.

Austrian Co!"e#it$ Accordin% to &o!!"

*oppl 6!!"7 presents a set o) $ays in $hich he sees comple8ity ideas appearin%

in #ustrian economics. 0he earliest, and possibly the most $idely reco%niHed and

important, is the Duestion o) thespontaneous emergence of order. e sees this as

appearin% initially in Men%ers $ork, $ith Men%er in this re%ard ultimately inspired by

the (cottish -nli%htenment o) Iavid ume and #dam (mith. 0here is no central

ARosser 6!!"b7 provides an overvie$ o) the debate bet$een these competin% vie$s o) comple8ity.

A


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controller in the economy brin%in% about its order, but rather the $orkin% o) the invisible

hand. # more speci)ic e8ample o) this in Men%er 625"7 is his discussion o) the

spontaneous historical emer%ence in ancient societies o) money )or transactions purposes.

ayek 62"


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#nother ar%ument stressed by *oppl, but by )e$ other #ustrians, involves the

idea o) computational limits to kno$led%e, implyin% bounds to rationality and the need

)or policy makers to be humble and proceed $ith caution. 0his idea links to ideas o)

computational comple8ity, and *oppl 6!!5, !!"7, alon% $ith *oppl and Rosser 6!!7

see this ultimately inspired by his $ork on psycholo%y 6ayek, 2"F, pp. 25F42"!7, and

e8pressed a%ain stron%ly in his essay on comple8 phenomena 62"A


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ar%ued that )or #dam (mith, the )undamental de)inition o) fairnessdepended on rules,

and that these rules could lead to the spontaneous emer%ence o) order in markets.

&nstitutions are seen as key, a%ain in ayek, $ith his later emphasis on evolution

o) institutions central. 9hile this is correct, it must be kept in mind that more %enerally

there $as a historical con)lict bet$een institutionalism and #ustrian economics, %oin%

back to that bet$een Men%er and the predecessors o) the institutionalists in the erman

istorical (chool, led by ustav von (chmoller in theMethodenstreit6'ald$ell, !!


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+Grobably the best illustration o) a theory o) comple8 phenomena $hich is

o) %reat value, althou%h it describes merely a %eneral pattern $hose detail $e can

never )ill in, is the Iar$inian theory o) evolution by natural selection.

'ald$ell 6!!


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kno$led%e and rationality, $hereas Iavidson at least ar%ues that such uncertainty is

more pro)oundly ontolo%ical and a8iomatic, ar%uin% that this $as *eyness vie$.

T'e Non(Co!"e#it$ Tradition in Austrian Econoics

9e have seen so )ar that even i) it $as not al$ays $ell4de)ined or )ocused, there

have been elements and )ollo$ers o) the #ustrian (chool $hose $ork can be vie$ed as

bein% consistent $ith a comple8ity perspective, especially ayek in his later years, $ho

)ollo$ed to some de%ree the (chools )ounder, 'arl Men%er. But $hat then o) the other

members o) the (chool, and $as there 6is there7 a non4comple8ity tradition amon%

#ustrian economists 0he ans$er is certainly yes.

0he theme in #ustrian economics that most clearly stands a%ainst this comple8ity

perspective is the emphasis on mar%inalism and eDuilibrium. 0hus, it must be

remembered that in theMethodenstreit, it $as the #ustrians $ho upheld the nascent

neoclassical orthodo8y o) mar%inalist eDuilibrium theory a%ainst the proto4

institutionalism and opposition to abstract theory articulated by (chmoller 62"35 2"!!4

2"!


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0hus, Men%er $as a complicated )i%ure in this matter, e8hibitin% a tendency to$ards

comple8ity in his invocation o) evolution and the emer%ence o) spontaneous orders, even

$hile he de)ended abstract theoriHin% and mar%inalism a%ainst the historical approach.

0his more orthodo8 strand $ould be )urther emphasiHed by his immediate

)ollo$ers, the second $ave o) #ustrian economists: -u%en von BKhm4Ba$erk and

;riedrich von 9ieser. 9hile as noted, 9ieser $ould to some e8tent )avor a dynamic

approach in his vie$ o) entrepreneurs and technolo%ical chan%e, both o) these )i%ures

$ould more clearly stress the importance o) mar%inalism, even i) $ith an emphasis on

subjective mar%inal utility over supply4side aspects such as mar%inal cost, and more

importantly the idea o) economic eDuilibrium and its link to determinin% value in

conjunction $ith mar%inalism 6BKhm4Ba$erk, 25"2> 9ieser, 25"E7, in short, an even

more stron%ly orthodo8 neoclassicism than e8hibited by Men%er.

0he more )amous o) the t$o, BKhm4Ba$erk, $ould particularly support a very

orthodo8 approach $ith essentially no hint o) comple8ity, ar%uably the e8treme opposite

o) ayek in this re%ard, $ithin the #ustrian tradition. e $ould develop the idea o) the

avera%e period o) production as the independent measure o) the value o) capital, $hich he

then used alon% $ith the subjectivist vie$ o) mar%inal utility as a batterin% ram to

criticiHe the Mar8ian model 6BKhm4Ba$erk, 2"3F 25"5C7, thus establishin% this theme in

#ustrian economics that $ould be taken up later by von Mises and ayek in the socialist

calculation debate. But in contrast to them, especially ayek, he did so essentially )rom

$ithin the con)ines o) neoclassical orthodo8y $ith nary a $hi)) o) a comple8ity

perspective, Mar8 bein% the anti4eDuilibrium, comple8ity economist by contrast $ith

the erman istorical (chool approach comin% out o) Berlin that $as identi)ied $ith the ne$ly uni)ied

ermany. &n that re%ard the epithet o) +#ustrian applied to them by the ermans had a political aspect o)

their bein% outside the political jurisdiction and control by von (chmoller and his allies. Men%er $as

especially in)luenced by Roscher )rom this %roup, to $hom he dedicated hisPrinciplesbook.

2E


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BKhm4Ba$erk, $ho $as also much more )amous in his day than either Men%er or

9ieser. &t $ould take a lon% time and a lot o) e))ort to overcome this deeply rooted

neoclassicism emphasiHed and en)orced by BKhm4Ba$erk.

1) the ideas involved here, probably adherence to the eDuilibrium approach $as

the %reater obstacle to adoptin% a comple8ity perspective than $as the subjectivist

emphasis on the importance o) mar%inal utility, althou%h )or von Mises the subjectivism

o) this $ould become tied up $ith a rationalistic a priorismthat also inhibited a more

dynamic approach compatible $ith the comple8ity perspective. ?on Mises emphasiHed

the eDuilibrium approach, $hich $ould also have this rationalistic )oundation. 0hus, in

the socialist calculation debate he stron%ly emphasiHed the inability o) the socialist

planner to calculate prices that $ould re)lect the rationality o) a market eDuilibrium,

determined by the actions o) pro)it4seekin% o$ners o) )actors o) production such as land

and capital 6von Mises, 2"52, 'hap. A7. 9hile ayek $ould a%ree $ith this, he $ould

emphasiHe more the problem o) dispersed in)ormation, $hich, as $e have seen ar%ued

above $ould lead him a$ay )rom the more orthodo8 position on to his journey to$ards

comple8ity.

evertheless, von Mises $as not )ully $edded to the eDuilibrium approach,

invokin% static eDuilibrium as a use)ul concept, but ultimately emphasiHin% the

importance o) dynamic processes o) entrepreneurs pursuin% pro)its and %eneratin% prices

in doin% so, $ith the system constantly chan%in% and movin% on, never settlin% do$n to

any static eDuilibrium, a vie$ that $ould stron%ly in)luence his )ollo$ers, *irHner and

=achmann. 0hus he declares that

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the ;ore$ord to the 2"52 edition o) von Misess Socialismthat ayek $ould more

openly e8press his criticism in a )amous passa%e 6ayek, 2"52b, pp. 88iii488iv7.

. +& had al$ays )elt a little uneasy about that statement o) his basic

philosophy, but only no$ can & articulate $hy & $as uncom)ortable $ith it. Mises

asserts in this passa%e that liberalism +re%ards all social cooperation as an

emanation o) rationally reco%niHed utility, in $hich all po$er is based on public

opinion, and can undertake no course o) action that $ould hinder the )ree decision

o) thinkin% men. p.


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constituents o) the stream $ill be the results o) past conditions $hich have

chan%ed lon% a%o.

&ronically, in the end, it may $ell have been that ayek $as the deeper believer in

eDuilibrium than $as von Mises, holdin% on to the notion until very late in li)e, $hile von

Mises in many $ays abandoned it )or his more dynamic and process4oriented approach,

althou%h it continued to haunt the a prioristic part o) his weltanschauung.

Conc"usion

&n the end $e must conclude that #ustrian economics is only partly compatible

$ith the comple8ity perspective. Ieep roots, perhaps most )irmly associated $ith BKhm4

Ba$erk, are essentially )ully conventionally neoclassical, albeit more stron%ly oriented

to$ards a subjectivist perspective. o$ever, the subjectivist perspective is not inherently

a comple8ity perspective, even i) it can be compatible $ith it. 0his tradition, especially

that part emphasiHin% the eDuilibrium approach, is not part o) the comple8ity perspective.

o$ever, there has also been )rom its be%innin%s $ith 'arl Men%er, a vein $ithin

#ustrian economics that has emphasiHed the spontaneous emer%ence o) social orders out

o) dispersed processes. 0his vie$ $ould culminate in the $ork o) ayek, $ho be%an

$ith the more conventional approach, but in)luenced stron%ly by his studies o)

psycholo%y and his consideration o) the problems o) dispersed kno$led%e, $ould move

to$ards a comple8ity approach and $ould consciously pursue this perspective, includin%

actively contactin% many important individuals involved in its early development. Iue

lar%ely to his in)luence, today, #ustrian economics is much more oriented to$ards a

comple8ity approach.

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References

#rthur, 9. Brian. 2"5". +'ompetin% technolo%ies, increasin% returns, and lock4in by

historical events.conomic !ournal "", 22A42E2.

#rthur, 9. Brian. 2""


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ayek, ;riedrich #. 2"A3a. +0he theory o) comple8 phenomena. &n Studies inPhilosophy( Politics( and conomics. 'hica%o: University o) 'hica%o Gress, 4


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=achmann, =ud$i%. 2"3A. +;rom Mises to (hackle: #n essay on #ustrian economics and

the kaleidic society.!ournal of conomic *iterature2


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(hackle, eor%e =.(. 2"3E.pistemics and conomics) + Critique of conomic$octrines. 'ambrid%e: 'ambrid%e University Gress.

(mith, ?ernon =. !2!. +9hat $ould #dam (mith 0hink!ournal of conomicehavior and Organi4ation, )orthcomin%.

(treissler, -rich 9. !!2. +Rau, ermann and Roscher: 'ontributions o) erman

economics around the middle o) the nineteenth century.uropean !ournal of the&istory of conomic Thought5, E224EE2.

?au%hn, *aren. 2""". +ayeks theory o) the market order as an instance o) the theory o)

comple8 adaptive systems.!ournal des economists et des 5tudes humaines", 9eaver, 9arren. 2"

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