how complex are the austrians
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HOW COMPLEX ARE THE AUSTRIANS?
J. Barkley Rosser, Jr.
James Madison University rosserjb@jmu.edu
http://cob.jmu.edu/rosserjb
March, !!"
#ckno$led%ements: & thank #n%elina 'hristie and Robert (ubrick )or providin% use)ulmaterials and Bruce 'ald$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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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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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$i%. 2"3A. +;rom Mises to (hackle: #n essay on #ustrian economics and
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(hackle, eor%e =.(. 2"3E.pistemics and conomics) + Critique of conomic$octrines. 'ambrid%e: 'ambrid%e University Gress.
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