HOW COMPLEX ARE THE AUSTRIANS?

J. Barkley Rosser, Jr.

James Madison University
rosserjb@jmu.edu
http://cob.jmu.edu/rosserjb
March, !!"
#ckno$led%ements: & thank #n%elina 'hristie and Robert (ubrick )or providin% use)ul
materials and Bruce 'ald$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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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 *oppl:s 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!!<, 'hap. 2<7 as $ell
as by others 6=avoie, 2"5"> ?au%hn, 2"""> Rosser, 2"""> *oppl, !!!> ?riend, !!>
@aus, !!A7, $ith ,ayek actually authorin% an essay entitled +0he theory o) comple8
phenomena/ 6,ayek, 2"A3a7. &n addition to ,ayek, *oppl also sees 'arl Men%er 62"52
B2532C7 as a predecessor o) the spontaneous order idea that he and others identi)y as
bein% in accord $ith comple8ity ideas. *oppl 6!!A, !!"7 also identi)ies as consistent
$ith both #ustrian economics and comple8ity, +BR&'-,/ that is, bounded rationality,
rule )ollo$in%, institutionalism, and evolution, a list & shall discuss )urther belo$.
& shall make t$o broad ar%uments re%ardin% *oppl:s thesis. 1n the one hand he
i%nores the substantial vein o) #ustrian thou%ht that is not consistent $ith comple8ity.
0he central idea o) this vein is acceptance o) the eDuilibrium approach, and it must be
kept in mind that )or most o) his career, even ,ayek remained loyal to this approach,

althou%h he $ould deviate )rom it at the very end o) his li)e, supportin% 'ald$ell:s
ar%ument re%ardin% the ultimate direction o) +,ayek:s journey/ 6,ayek, 2"52a> 9itt,
2"""7.
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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 $as clearly a
chan%e in ,ayek:s vie$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 Order 62"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 ,ayek:s $ork
he has been $illin% to see links $ith ideas in the Gost *eynesian tradition as $ell 6*oppl
and Rosser, !!7.
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,ayek:s 2"52 address in -n%lish $ould be published in 2"5< in @erman.

#t opposite e8tremes are ,utchison 62""7 $ho ar%ues )or an abrupt chan%e in ,ayek:s vie$s in the
2"E!s versus Birner 62""<7 $ho sees )ull continuity o) ,ayek:s vie$s throu%hout his career, $ith 'ald$ell
some$here bet$een their positions.
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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 $ith the idea o)
comple8ity, %iven that (eth =loyd has listed as many as <F di))erent varieties o)
comple8ity 6,or%an, 2""3, p. E!E7. Rosser 6!!"a7 provides a current classi)ication
based on =loyd:s and others: vie$s on the matter. #t the most precise level $e can
identi)y $hat could be labeled +(anta ;e comple8ity,/ or $hat Rosser 62"""7 labeled
+small tent BdynamicC comple8ity./ 0his is called by others a%ent4based or
hetero%eneous interactin% a%ents comple8ity, and models the economy, usually usin%
computer simulations, as a system o) locally interactin% a%ents $ith no central controller,
little tendency to %lobal eDuilibrium, and continually evolvin% dynamics.
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Many
phenomena such as spontaneous order and emer%ence can be observed $ith this )orm o)
comple8ity.
#mon% the earliest e8amples o) a model e8hibitin% this sort o) comple8ity $as
that o) urban se%re%ation due to (chellin% 62"327, (chellin% studied this model by playin%
on a chess board, $ithout any computers involved. ,e sho$ed that in an initially
inte%rated city $ith a%ents payin% attention to their nei%hbors, introducin% only the
sli%htest pre)erences )or one kind o) nei%hbor over another $ould over time lead to a
racially se%re%ated city, a result vie$ed as one o) emer%ence or spontaneous order.
1ne level up is dynamic comple8ity, $hich Rosser 62"""7 de)ines, )ollo$in% Richard
Iay 62""<7, as a system that does not endo%enously conver%e on a point, a limit cycle, or
a smooth e8plosion or implosion. 0his +broad tent BdynamicC comple8ity/ includes the
one just described alon% $ith its earlier )ello$ +< ':s,/ as mockin%ly labeled by ,or%an
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0his is precisely the )orm o) comple8ity that ?riend 6!!7 is thinkin% o) $hen he discusses ,ayek.
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62""37. 0he others are cybernetics, catastrophe theory, and chaos theory. 9hile the
latter t$o
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have had little link $ith most o) #ustrian economics 6aside )rom =avoie usin%
+chaos/ in the title o) his 2"5" paper7,
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much o) ,ayek:s investi%ations o) comple8ity
involved cybernetics 69iener, 2"<57 and its close relative, %eneral systems theory 6von
Bertalan))y, 2"A7, $ith a stron% in)luence )rom 9arren 9eaver 62"<57 as $ell..
Broadly speakin%, the source o) the endo%enous irre%ularities in these sorts o)
mathematical models that lead to dynamically comple8 irre%ularities depend on nonlinear
dynamics $ithin these systems. Jot all nonlinear systems are comple8, but $hen
nonlinear e))ects become su))iciently %reat, then such dynamics can occur, o)ten
associated $ith some destabiliHation o) a previously e8istin% eDuilibrium state. 0hus,
cybernetics )ocuses on the nature o) )eedbacks in systems. 9hen these are ne%ative, then
systems tend to be stable, to return to a previous state a)ter an e8o%enous shock.
,o$ever, $hen )eedbacks are positive, then a system tends to move even )urther a$ay
)rom its initial state a)ter the )eedbacks add to the shock, and i) these are su))iciently
stron%, the system can destabiliHe entirely. 9ithin economics, increasin% returns have
lon% been kno$n to be a source o) such potentially destabiliHin% positive )eedback e))ects
6#rthur, 2""<7.
;inally, $e have the broadest cate%ory, meta-complexity, $hich includes the )ull
array o) de)initions provided by =loyd, as $ell as others provided by other people.
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(ee Rosser 6!!, chap. 7 )or a more thorou%h discussion o) the mathematics o) catastrophe theory and
chaos theory.
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0he situation is a bit more complicated in that as reported by Rosser 62"""7, based on discussions $ith
Geter M. #llen and ,ermann ,aken, ,ayek $as in communication at various periods o) time $ith the
researchers in the Gri%o%ine %roup at the ;ree University o) Brussels as $ell as those at the (tutt%art
&nstitute o) 0heoretical Ghysics. Researchers in both o) these %roups ar%uably span all )our o) the ':s )rom
cybernetics/%eneral systems theory up to a%ent4based models, and includin% the intermediate catastrophe
and chaos theories, althou%h it remains the case that ,ayek seems to have not been much interested in those
intermediate )orms o) dynamic comple8ity. 60he conversation $ith #llen occurred in Beijin%, 'hina in
1ctober, 2""<, and the one $ith ,aken in Beer4(heva, &srael, 1ctober, 2""3.7
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Grobably most important amon% these in terms o) links to ,ayek:s $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.
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9hile 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) the spontaneous emergence of order. ,e sees this as
appearin% initially in Men%er:s $ork, $ith Men%er in this re%ard ultimately inspired by
the (cottish -nli%htenment o) Iavid ,ume and #dam (mith. 0here is no central
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Rosser 6!!"b7 provides an overvie$ o) the debate bet$een these competin% vie$s o) comple8ity.
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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"<5a7 stressed this precise ar%ument, althou%h it appears in an earlier )orm in his
$ork that some see as the key to his supposed +U4turn,/ his +-conomics and kno$led%e/
62"<5b7, ori%inally $ritten in 2"E3. &n this $ork, inspired by the socialist calculation
debate, ,ayek stressed the reality o) ho$ kno$led%e is dispersed amon% a%ents in the
economy, and ho$, nevertheless, market order emer%es )rom the interaction o) these
a%ents in this dispersed system. Both =avoie 62"5"7 and ?riend 6!!7 emphasiHe this
issue as central to ,ayek:s comple8ity vie$point, as do 'ald$ell 6!!<7 and @aus
6!!A7. 9hile ,ayek basically developed this idea $ith little direct input )rom
comple8ity theorists, it $ould appear that this idea $as $hat most stron%ly motivated his
study o) cybernetics and %eneral systems theory, $hich provided models o)
autopoetically sel)4sustainin% systems and ana%enetic emer%ence o) order.
&n a )amous passa%e in +0he theory o) comple8 phenomena/ 62"A3a, p. A7 he
directly poses the idea o) the emer%ence o) ne$ patterns.
+0he Lemer%ence: o) Lne$: patterns as a result o) the increase in the
number o) elements bet$een $hich simple relations e8ist, means that this lar%er
structure as a $hole $ill possess certain %eneral or abstract )eatures $hich $ill
recur independently o) the particular values o) the individual data, so lon% as the
%eneral structure 6e.%., by an al%ebraic eDuation7 is preserved./
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'uriously this much4Duoted passa%e is )ootnoted to a brie) discussion o) the British school o)
+emer%entism,/ associated $ith '. =loyd Mor%an 62"EE7, $hich $ould later be denounced by reductionist
scientists. 0he emer%entists sa$ the basis o) their ideas in the +heteropathic la$s/ posited ori%inally by
John (tuart Mill 625<E7, also cited by ,ayek at this point. &t can be ar%ued that this emer%entist vie$ $as
consistent $ith the organicism opposed by Men%er in )avor o) atomistic individualism.
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#nother ar%ument stressed by *oppl, but by )e$ 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 $ork on psycholo%y 6,ayek, 2"F, pp. 25F42"!7, and
e8pressed a%ain stron%ly in his essay on comple8 phenomena 62"A<7. 0he mind operates
as a rule4)ollo$in% classi)ier system. ,o$ever, as such it is subject to the la$s o) lo%ic,
and amon% those la$s are the theorems o) *urt @Kdel that imply incompleteness o)
lo%ical systems. 0his incompleteness is deeply tied to sel)4re)erencin% by systems, and
,ayek in particular cited the dia%onal proo) method to ar%ue that the mind cannot kno$
itsel), $hich can be e8tended to the idea that no a%ent or model o) the economy can )ully
kno$ the economy 6*oppl and Rosser, !!7. 0his then provides a computational
)oundation )or bounds on rationality.
#s ,ayek put it in The Sensory Order 62"F, pp. 255425", 5.5!7.
+#pplyin% the same %eneral principles to the human brain as an apparatus
o) classi)ication it $ould appear to mean that, even thou%h $e may understand its
modus operandi in %eneral terms, or, in other $ords, possess an e8planation o) the
principle on $hich it operates, $e shall never, by any means o) the same brain, be
able to arrive at a detailed e8planation o) its $orkin% in particular circumstances,
or be able to predict $hat the results o) its operations $ill be. 0o achieve this
$ould be to reDuire a brain o) a hi%her order o) comple8ity, thou%h it mi%ht be
built on the same %eneral principles. (uch a brain mi%ht be able to e8plain $hat
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happens in our brain, but it $ould in turn be unable )ully to e8plain its o$n
operations, and so on./
Ira$in% also on ideas e8pressed in The Sensory Order 6p. 2"7, *oppl also
ar%ues that ,ayek advocated the importance o) verstehende psycholo%y, $ith this
implyin% the superiority o) a moderately hermeneutic approach to economic analysis
6*oppl and 9hitman, !!<7. ,e )urther ar%ues that this is linked to comple8ity, as $ell
as to vie$s o) =achmann, althou%h & con)ess that & am not sure $hich o) the many vie$s
o) comple8ity this vie$ links to precisely, althou%h askin% precision o) hermeneutics may
be an un)air demand.
*oppl 6!!A, !!"7 summariHes his vie$ o) comple8ity and #ustrian economics
$ith his BR&'- acronym: bounded rationality, rule )ollo$in%, institutions, co%nition, and
evolution, seein% essentially all o) these as implied by ,ayek:s $ork in particular. 0hus,
as already discussed, bounded rationality is implied by the limits o) kno$led%e due to
lo%ical and computational limits to sel)4a$areness both in individuals and in the broader
economy.
Rule )ollo$in% is ho$ ,ayek sees our minds operatin% and a%ents operatin% in
the economy. &n my vie$ this is perhaps the $eakest o) these )ive elements in terms o)
its ability to %enerate comple8ity. 'ertainly there are plenty o) systems that are based on
rule4)ollo$in% that are not particularly comple8 by any de)inition. But i) the rules
connect up $ith %eneratin% positive )eedback loops or enhance local interactions in a
hetero%enous a%ent4based systems, they may lead to comple8 outcomes. 'ertainly )or
,ayek the rules that drive thou%ht can lead to comple8ities. ?ernon (mith 6!2!7 has
"
ar%ued that )or #dam (mith, the )undamental de)inition o) fairness depended 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$een Men%er and the predecessors o) the institutionalists in the @erman
,istorical (chool, led by @ustav von (chmoller in the Methodenstreit 6'ald$ell, !!<,
'hap. E7. -ven thou%h ,ayek studied brie)ly $ith 9esley 'lair Mitchell, most #merican
institutionalists o) the !
th
century $ere not very sympathetic to #ustrian economics.
'o%nition clearly relates a%ain to ,ayek:s vie$s o) pattern )ormation in the mind
in his psycholo%ical theory. (uch pattern )ormation out o) perceptions can be seen as
another e8ample o) the spontaneous emer%ence o) order in the comple8 system o) the
mind, althou%h it is less clear ho$ this relates to economics e8cept perhaps throu%h
bounded rationality. &ndeed, to the e8tent that such perceived patterns represent +real
truth/ 6as a subjectivist approach $ould assert7, this may o))er a $ay around the bounds
on rationality. 1) course, )rom a perspective that is not purely subjectivist, the patterns
remain bounded in terms o) kno$led%e o) certain aspects o) objective reality, such as o)
the )uture.
;inally there is the matter o) evolution, $ith *oppl mostly stressin% ho$ in his
later years ,ayek deeply studied the evolution o) institutions. &t is uneDuivocal that
,ayek sa$ evolution as deeply linked to comple8ity, as this Duotation )rom +0he theory
o) comple8 phenomena/ indicates 62"A3a, p. E27:
2!
+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!!<, 'hap. 2A7 notes the peculiar parado8 that eventually appeared as
,ayek $ould come to advocate %roup selection o) institutions over time, $hich contrasts
$ith his usual assertion o) methodolo%ical individualism, althou%h 'ald$ell ar%ues that
throu%hout his career ,ayek $as never as $edded to this idea as many think.
# curious aspect arises here in that at the end *oppl mentions brie)ly &srael
*irHner 62"3E7 and his ar%uments, dra$in% on $ork o) =ud$i% von Mises 62"AA7, )or the
important role o) entrepreneurs in drivin% the evolutionary process o) the economy,
includin% the process o) technolo%ical chan%e, an idea traceable back to ;riedrich von
9ieser 6255<7. 'omple8ity can arise in many $ays in this process, includin% throu%h
such phenomena as path dependence and technolo%ical lock4in as ar%ued by #rthur
62"5"7. 9hile *oppl did not develop it much, many 6,od%son, !!A7 ar%ue that
evolution is the centerpiece o) the comple8ity vie$, in this not too )ar o)) )rom ,ayek:s
vie$.
# loose end here that potentially links to Gost *eynesian economics and
comple8ity is the idea o) radical uncertainty 6Rosser, !!A7, $hich $as stressed by both
(hackle 62"3E7 and =achmann 62"3A7. Both dynamic and computational comple8ity
imply such ultimate uncertainty, althou%h )e$ #ustrians play this idea up as much as do
some o) the Gost *eynesians 6Iavidson, 2""<7. 0here may also ultimately be di))erences
in the source o) such uncertainty bet$een the t$o schools, $ith most #ustrians relyin% on
the same sort o) computational ar%uments that underlie their vie$ o) the limits o)
22
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 $as *eynes:s vie$.
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 (chool:s )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 the Methodenstreit, it $as the #ustrians $ho upheld the nascent
neoclassical orthodo8y o) mar%inalist eDuilibrium theory a%ainst the proto4
institutionalism and opposition to abstract theory articulated by (chmoller 62"35 B2"!!4
2"!<C7 and the )ollo$ers o) the @erman ,istorical (chool.
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Men%er himsel) is %enerally
listed $ith Jevons and 9alras as the @erman4speakin% o) the three putatative discoverers
o) mar%inal utility and ho$ it can be used to solve the parado8 o) value, althou%h Men%er
$as some$hat di))erent )rom the other t$o in his relative dislike o) mathematics and $as
ar%uably closer in approach in some $ays to von (chmoller than to Jevons or 9alras.
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5
'ald$ell 6!!<, p. 5!7 ar%ues that the term +#ustrian economics/ $as ori%inally a term o) derision
applied by members o) the @erman ,istorical (chool to the #ustrians durin% the Methodenstreit.
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(treissler 6!!27 has ar%ued that rather than bein% a )ounder o) mar%inalism, Men%er $as actually the
culmination o) a proto4neoclassical school that had been operatin% in @ermany since the late 25E!s, and
had incorporated mar%inal utility and even had innovated the use o) supply and demand curves $ith price
on the vertical a8is as early as 25<2 by *arl ,einrich Rau, $ith Marshall later takin% this idea )rom them.
0his school $as a product o) the period in @ermany be)ore the Bismarckian uni)ication in 2532, $hen
these )i%ures $ould be identi)ied $ith small re%ions in @ermany, only to be s$ept a$ay and dominated by
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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 B25"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 $hom he dedicated his Principles book.
2E
BKhm4Ba$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 priorism that 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.
Jevertheless, 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
2<
+0o assume stationary economic conditions is a theoretical e8pedient and
not an attempt to describe reality./ 6von Mises, 2"52, p. 2<7
2!
,e %oes on to declare that capitalist market processes involve a constant dynamic, and
that it is socialism that seeks a stationary state, $hich is part o) the )undamental problem
$ith it as a system. &ndeed, ar%uably the ultimate source o) economic sta%nation in
actually e8istin% command planned socialist economies $as not their static
microeconomic ine))iciency, but the lack o) technolo%ical dynamism and tendency to
adhere to a stationary condition. ?on Mises repeatedly emphasiHes the uncertain nature
o) the )uture and necessity )or dynamic +speculators/ to constantly brin% )orth ne$
innovations to keep the economy movin% and evolvin%. &n this re%ard, as von Mises
emphasiHes the dynamic over the static, he becomes more o) a comple8ity economist.
9e are no$ at the point o) con)rontin% that old bu%aboo amon% #ustrian
economists o) the split bet$een von Mises and his )ollo$er, ,ayek, $hich is tied up $ith
this matter o) ,ayek movin% a$ay )rom a more conventional, non4comple8ity approach
to$ards the comple8ity perspective. 9e have noted above that accordin% to 'ald$ell, it
$as ,ayek:s essay )irst $ritten in 2"E3 on +-conomics and kno$led%e/ that )irst moved
him a$ay )rom the conventional vie$, even thou%h his psycholo%y side had harbored
some o) these thou%hts )or nearly ! years.
22
'ald$ell 6!!<, 'hap. 2!7 %oes )urther to
ar%ue that this essay $as speci)ically $ritten as a criticism o) the a priorism o) von
Mises, althou%h it $as so mutedly so that )e$ observers realiHed this, and that ,ayek
covered this aspect over by his maintainin% a personally diplomatic relationship $ith von
Mises as lon% as the latter $as alive. &t $ould only be a)ter von Mises:s death in $ritin%
2!
& thank an anonymous re)eree )or pointin% out this Duote and the related ar%ument.
22
'ald$ell 6!!<, pp. 2E542E"7 reports that ,ayek nearly majored in psycholo%y rather than economics,
his interest in the t$o bein% so even, $ith the better prospect )or employment in economics bein% the
ultimate decidin% )actor in his decision to pursue economics primarily.
2F
the ;ore$ord to the 2"52 edition o) von Mises:s Socialism that ,ayek $ould more
openly e8press his criticism in a )amous passa%e 6,ayek, 2"52b, pp. 88iii488iv7.
. +& had al$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./ Bp. <25 o) von Mises, 2"52C &t is the )irst part o) this statement
only $hich & no$ think is $ron%. 0he e8treme rationalism o) this passa%e, $hich
as a child o) his time he could not escape )rom, and $hich he perhaps never )ully
abandoned, no$ seems to me )actually mistaken. &t certainly $as not rational
insi%ht into its %eneral bene)its that led to spreadin% o) the market economy./
0his thro$s us back to the Duestion o) the evolution o) ,ayek:s vie$s )rom bein% a
)aith)ul )ollo$er o) von Mises to the apostate student o) comple8ity.
&n his early economic $ritin%s such as Prices and Production 62"A3b B2"EFC7,
,ayek clearly )ollo$ed in the mold o) not only von Mises, but his predecessor, BKhm4
Ba$erk, as $ell. #nalysis )ocuses on static eDuilibrium states, even i) intertemporal
eDuilibria are allo$ed. 0he value o) capital is %iven by avera%e period o) production, and
indeed ,ayek:s macroeconomic theory that $as posed a%ainst the *eynesian model
emphasiHed deviations )rom the natural rate o) interest associated $ith the eDuilibrium
avera%e period o) production as the source o) business cycle )luctuations.
,o$ever, startin% $ith +-conomics and kno$led%e,/ ,ayek became a$are that in
a $orld o) dispersed in)ormation there may be an a%%re%ation problem. ,e continued to
2A
accept the idea o) eDuilibrium )or the individual, but came to )eel that this did not
necessarily imply or correspond $ith eDuilibrium in the a%%re%ate. 0his $ould set him
o)) on his most )rustratin% project, and $ould lead to his least4read book by his )ello$
#ustrian economists, The Pure Theory of Capital 62"<27. 9hile in e))ect stru%%lin% to
reconcile micro $ith macro eDuilibrium in a $orld o) hetero%eneous capital he $ould
%ive up the doctrine o) the avera%e period o) production as the measure o) the value o)
capital, reco%niHin% in e))ect some o) the problems later raised in the 'ambrid%e
controversies in the theory o) capital. 0he book:s )rustratin% conclusions re)lect the mire
,ayek )elt himsel) in as his older, more conventional vie$ clashed unresolvedly $ith his
ne$er, more comple8ity4oriented vie$.
Jevertheless, ,ayek held on to the idea o) eDuilibrium )or most o) his li)e and
career, only )inally abandonin% it in 2"52 in his not $idely4kno$n essay on +0he )lo$ o)
%oods and services/ 6,ayek, 2"52a, p. 57.
+&t is temptin% to describe as an LeDuilibrium: an ideal state o) a))airs in
$hich the intentions o) all participants precisely match and each $ill )ind a
partner $illin% to enter into the intended transaction. But because )or all
capitalistic production there must e8ist a considerable interval o) time bet$een the
be%innin% o) a process and its various later sta%es, the achievement o) an
eDuilibrium is strictly impossible. &ndeed, in the literal sense, a stream can never
be in equilibrium, because it is diseDuilibrium $hich keeps it )lo$in% and
determinin% its directions. -ven an apparent momentary state o) balance in $hich
everybody succeeds in sellin% or buyin% $hat he intended may be inherently
unrepeatable, irrespective o) any chan%e in the e8ternal data, because some o) the
23
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.
25
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