The Significance of Myth and Misunderstanding
in Social Science Narrative:
Opening Access to Hayek's Copernican Revolution in Economics
by Greg Ransom
PAPER PRESENTED AT THE 1996 ANNUAL MEETINGS OF THE HISTORY OF ECONOMICS SOCIETY AND THE SOUTHERN ECONOMICS ASSOCIATION.
This paper is an edited and slightly revised version of the one presented at the History of Economics Society Conference, U. of British Columbia, June 28 - July 2, 1996 and the Southern Economics Association Conference, Washington, D.C., Nov. 23-25, 1996. I wish to thank in particular Bruce Caldwell and Karen Vaughn for giving me the opportunity to set the work contained in this paper before the professional community of economists and economic theory historians. I would also like to thank Alex Rosenberg, Peter Boettke, Goncalo Fonseca, Steven Horwitz, Robert Nadeau, Ross Emmett, Peter Lewin, Barkley Rosser, and Larry Wright for conversations and correspondence which contributed to the development of this paper. I would also like to thank the talented and indulgent participants of the AUSTECON, PKT, and POPPER E-mail discussions groups for additional helpful conversation, especially Paul Davidson, Alan Isaac, Jim Devine, Steven Keen, and Bill Mitchell. The helpful suggestions of Peter Boettke, Karen Vaughn and other participants at the 1996 HES and SEA conferences are also greatfully acknowledged.
© Greg Ransom. All rights Reserved.
Greg Ransom -- Dept. of Philosophy, UC-Riverside. E-mail: gbransom@aol.com
The Significance of Myth and Misunderstanding
in Social Science Narrative:
Opening Access to Friedrich Hayek's Copernican Revolution in Economics
".. the image of science by which we are now possessed .. has previously been drawn, even by [physical] scientists themselves, mainly from the study of finished scientific achievements as these are recorded in the classics, and, more recently, in the textbooks from which each new scientific generation learns to practice its trade. Inevitably, however, the aim of such books is persuasive and pedagogic; a concept of science draw from them is no more likely to fit the enterprise that produced them than an image of a national culture drawn for a tourist brochure or a language text .. we have been misled by them in fundamental ways .. ".
-- Thomas Kuhn.
A short anecdote.
A simple way to introduce my paper is to say that it seeks to investigate the role of prejudgment in economics. Let me begin with an example of the command which our preconceived ideas can have over the way we perceive or interact with our environment. A common myth in the literature has it that Hayek was Ludwig Mises' student. But in fact Hayek only once attended one of Mises' lectures, and came away rather disliking "a man so conspicuously antipathetic to the kind of Fabian [socialist] views" Hayek then held. Hayek tells an amusing story of his first meeting with Mises, which came during a job interview set up by Hayek's true teacher Friedrich Wieser, just after Hayek's graduation from the University of Vienna. As Hayek tells it, "I was sent to [Mises] by an introduction from Wieser, in which I was described as a promising young economist. Mises, [after] reading this, [said], `Promising young economists? I've never seen you at my lectures'."
1. A gaggle of misconceptions.
In most situations writers are not much interested in carefully doing justice to the character of rival alternatives. Their purposes are instead pedagogic or argumentative. Their aim is to get the reader to the point where he or she has taken on the writer's own particular understanding of a thing. Or the aim is to propel an audience to accept the writer's conclusion about some contention. These pedagogic and argumentative aims transform the narratives we get of the explanatory alternatives which are available within a discipline, and very often they obliterate the character of the alternatives that existed in the past. Philosopher and science historian Thomas Kuhn has provided us with a number of instructive examples showing how classic scientific texts and standard textbook presentations tend to obscure the past and mislead us about the role played by such things as measurement and conceptual change in the process of the development of physical science.
The philosopher of biology David Hull goes further, showing how outright myths have served the pedagogic and argumentative purposes of science studies writers. Among other examples, Hull recounts the venerable myth which has it that the elder John D. Rockefeller, Sr. sought to vindicate the virtue of 19th century American capitalism by appeal to `Darwin's' theory of the survival of the fittest, which was taken to imply that those who were financially successful in the American economy outcompeted others due to their superior fitness as human beings. The usefulness of this myth in advancing the pedagogic or argumentative purposes of many writers is hard to miss. It is also easy to understand why the myth of QWERTY as an inferior technology for typewriter keyboards seems not to die in the path dependence literature, despite the thorough debunking this myth has been given by Liebowitz and Margolis. In order to advance a number of particularly treasured pedagogic or argumentative goals some myths are just too good to give up, no matter how far off the mark these myths may be from the truth.
The power of misconception and the stake different individuals have in myth is a familiar part of our experience. The director Oliver Stone is compelled to spend tens of millions of dollars on movie productions working out the permutations of an elaborate conspiracy theory which stretches across several decades of the 20th century. Imagine the task school teachers now face in their effort to teach their students an alternative history of events corrective to the vivid scenes and images these students have witnessed first hand in the fictions of Stone.
In many instances it is not hard to grasp the role and purposes of myth, and the need to protect particular views of the world. We are all familiar with the fact that the Church of Rome found it advisable to place Galileo under house arrest, and that not so long ago the Soviet Empire was actively suppressing the conceptions of Gregor Mendel and Charles Darwin. The financial motivation behind Stone's movie making is transparent, and even the personal demons that drive him are not completely outside the range our empathy.
We easily discern the propagation of myth and misunderstanding, and its role in shaping our picture of the world, when we can account for it in terms of the motivation behind it. It is more difficult to appreciate the significance of myth and misunderstanding when no particular motivation appears to propel it. For example, misconceptions of the character of the Darwinian enterprise for many decades helped block understanding and explanatory progress in biology, especially in Germany, France, and the United States in the late 19th and early 20th century. In most cases, the sources of these myths and misconceptions are internal to the scientific project itself, they are not motivated by easily recognizable causes completely outside of the reach of the discipline. If we can identify motivational causes for the misconceptions found during this period, many of these come from within alternative conceptions of the character of knowing and the logical demands these conceptions place upon an explanatory enterprise.
The example of Darwinian biology in the last century and the early part of this century shows how deep misconceptions of the contemporary history of ongoing research can block understanding and constrain explanatory progress in a scientific discipline. Misconceptions of the contemporary history of classical and marginal utility economics during the same period in Germany gives us an example of a similar situation within the history of the development of economics. No doubt there are other examples.
Let's turn our focus, at least for the moment, away from biology and the past, and look instead toward economics and the present. I wish to focus in particular on the myth and misconception found within the narratives provided by leading economists who seek to characterize the problems and explanatory strategy of economics, or the context for understanding the significance of 20th century political economy, with reference to the work of Friedrich Hayek. Here is a sampling of what I am talking about, providing a short sketch of some very common misconceptions found throughout the contemporary economic literature, often in the writings of some of our most influential economists.
Attacks Laissez Faire, Embraces Regulation and the Welfare State.
In his The Road to Serfdom, Hayek advocates 'the substitution of direct regulation by authority' in situations where market competition cannot be made effective. He also advocates government involvement to provide services in situations where great advantage to society would be forthcoming, but where no profit would come to those providing the service if done so privately. Hayek approves of supplying a basic safety net of food, shelter, clothing and health care, and makes room for a comprehensive government system of health, accident, and old age insurance. He also allows for government assistance to the victims of natural disasters. He advocates improved planning of the framework of market competition, attacks the 'wooden' rules of 19th century 'laissez faire' as dogmatic and completely inadequate, and supports regulatory protection against monopolies, environmental pollution, and resource depletion. Finally, Hayek repeats that an intelligently worked out program of regulation and welfare would do nothing to endanger the general liberty of the society. That is, implementing reforms of this kind pose no threat to plunging us into a new slavery. Hayek reprises the same themes again in his The Constitution of Liberty, this time going into greater detail, allowing for a legitimate role of government in such activities as natural resource regulation, education, safety regulations, natural preserves, city sanitation, standards of weights and measures, and the supply of information in geography, health, etc.
Misconception: The false claim is repeatedly made that Hayek rejected all forms of state regulation, welfare provision, or institutional reform. It is also constantly claimed that Hayek advocated returning to the regulatory and welfare practices of mid-19th century laissez faire. Often these claims are combined with the equally false claim that Hayek viewed any form of government regulation, welfare provision, or institutional reform as necessarily negative and the first step in an inevitable path toward a totalitarian state.
Friedrich Wieser -- Hayek's Model, Teacher, and Mentor.
Hayek reports that he pursued a career in economics largely because work in that field allowed him to step into an established intellectual tradition with an institutional basis in the U. of Vienna. For Hayek this meant becoming a member of the Wieser branch of the marginalist school. During the time Hayek was enrolled at the U. of Vienna, only Wieser among the marginalists in Vienna had a chaired position within the University. But Wieser was far more for Hayek than simply an institutional anchor. For Hayek, Wieser, " .. was for a long time my ideal in the field [of economics]." It was Wieser, Hayek tells us, "who directed my interest to the intricacies of the subjective theory of value" and it was Wieser who provided Hayek with his first intellectual problem, working on the question of the marginal valuation of production goods, a problem that would continue to preoccupy Hayek's efforts from the early 1920's to the mid-1940s. Hayek's work in this area helped give rise to the origin of the intertemporal equilibrium construction in Hayek's influential paper "Intertemporal Price Equilibrium and the Movements in the Value of Money" and the equally influential development of this equilibrium construction in his The Pure Theory of Capital.
Hayek shared a good deal more with Wieser than simply an interest in working out the problems of extending marginal valuation into the structure of production through time. Wieser for Hayek was a very personal mentor. Hayek closely identified with Wieser's somewhat 'fabian' social and political ideas. In his early years Hayek viewed Wieser's argument for progressive taxation as "one of the ideals of social justice." On an intellectual level Hayek even identifies his own style of thinking with Wieser, seeing himself like Wieser as a sort of muddler, an intuitive thinker who has to rethink problems for himself, in contrast to Lionel Robbins or Bohm-Bawerk, who Hayek identifies as masters of the detailed state-of-the-art constructions of their discipline. As an undergraduate Hayek was invited to participate in Wieser's very exclusive seminar, and was asked to visit and talk with Wieser in his home. Hayek recalls Wieser as, "a most impressive teacher", and as the professor "from whom I got my main general introduction to economics", and also as the economist who, "originally had the greatest influence on me." Hayek looks back at his years with Wieser at the University of Vienna as one of those situations where, "as very young men do, I fell for a particular teacher."
Misconception: The claim is made that Hayek was the student of Ludwig von Mises, and the significance of Wieser's influence on Hayek's development as an economist is almost universally neglected.
An Objective and Contingent Universal Causal Explanation.
Hayek provides a fully objective and universally recognized explanatory cause for an empirical pattern in our experience. Hayek identifies an empirical problem in our experience that can be given rival causal explanations. This problem arises when we recognize the pattern in which costs repeatedly approach prices of production as a design-like pattern without a top-down omniscient intentional producer. As Eugen Bohm-Bawerk, Frank Knight, and others point out, this pattern is universally recognized and unanimously acknowledged by all parties. Hayek identifies learning, or changes in understanding, within the social context of changing relative price signals and stable rules of just conduct as the most plausible causal explanation for the observed pattern in an extended economy in which prices repeatedly approach costs of production. Hayek identifies other potential rivals to this explanation, including Production by an Omnipotent Super-Mind, or the possibility that we are ant-like creatures who produce a plan-like social order as the result of simple and physically predictable regularities in our behavior.
Hayek consistently points out that the sort of explanations provided by economics that cite the causal category of learning and the logical structure of planning are fully objective and scientific explanations, no less so than are found in biology or the physical sciences. The point is made, for example, in the place where Hayek says, "[The social sciences] deal with phenomena which can be understood only because the object of our study has a mind of a structure similar to our own. That this is so is no less an empirical fact than our knowledge of the external world." Of course, the fact that minds are things which learn in a social context is one of the most profound of the structural similarities between them.
Misconception: It is claimed that Hayek does not provide 'objective' explanations, that his work is not `scientific', that it consists of nothing more than a 'faith', that it is the intellectual equivalent of the arguing that the Earth is flat, and that Hayek rejected the idea that economics either is or could be a science.
Scientism.
Hayek (1942) -- "The methods which scientists or men fascinated by the natural sciences have so often tried to force upon the social sciences were not always necessarily those which the scientists in fact followed in their own field, but rather those which they believed that they employed. This is not necessarily the same thing. The scientist reflecting and theorizing about his procedure is not always a reliable guide. The views about the character of the method of Science have undergone various fashions during the last few generations, while we must assume that the methods actually followed have remained essentially the same. But since it was what scientists believed that they did, and even the views which they had held some time before, which have influenced the social sciences, the following comments on the methods of the natural sciences also do not necessarily claim to be a true account of what the scientists in fact do, but an account of the views on the nature of scientific method which were dominant in recent times."
Misconception: The claim is that Hayek accepted as accurate what Thomas Kuhn has called 'the philosopher's picture of science', and that the notion of 'scientism' which Hayek introduced into the English language in the 1940s assumes that what philosophers and social scientists take for the procedures and strategies of the natural sciences are in fact the actual methods of these sciences. But Hayek's conception of 'scientism' does not assume that efforts by social scientists and economists to imitate the natural sciences has anything to do with the actual procedures and strategies found in those sciences. On the contrary, Hayek plainly suggests that the image of the natural sciences current among the 'scientistic' economists and social scientists is a false one. 'Scientism', then, as Hayek originally uses the term, is the effort by social scientists and economists to imitate a rather dubious (and most likely false) conception of the problems and explanatory strategies of the natural science.
Undesigned order as the problem, change in understanding as cause.
Repeated prices --> costs of production pattern as empirical problem.
"And experience shows us that something of this sort does happen, since the empirical observation that prices do tend to correspond to costs was the beginning of our science."
"It should be remembered that nearly the whole of economic science is based on the empirical observation that prices 'tend' to correspond to costs of production, and that it was this observation which led to the construction of a hypothetical state in which this `tendency' was fully realized."
Changes in understanding as explanatory cause.
"The changes in the opinions which people hold about a particular commodity and which we recognize as the cause of a change in the price of that commodity ..".
" .. it is these apparently subsidiary hypotheses or assumptions that people do learn from experience, and about how they acquire knowledge, which constitute the empirical content of our propositions about what happens in the real world."
"A 'logic of choice' can say something only about the consequences to be drawn from a set of statements known to some one mind, and in this sense it can account for the behavior of one individual. But . . the step from the logic of choice to an empirical science which tells us anything about what can happen in the real world requires additional knowledge abut the process by which information is transmitted or communicated."
Human action or choice is not the object of explanation in economics.
"The misunderstanding is that the social sciences aim at explaining individual behavior and particularly that the elaborate process of classification which we use either is, or serves, such an explanation."
"That this task [of arranging types of conscious action in an orderly fashion] absorbs a great part of the economist's energies should not deceive us about the fact that by itself this 'pure logic of choice' (or 'economic calculus') does not explain any facts .. ".
"In so far as we analyze individual thought in the social science the purpose is not to explain that thought but merely to distinguish the possible types of elements with which we shall have to reckon in the construction of different patterns of social relationships."
Misconception: Causal explanations of individual actions or behaviors are provided by citing belief and desire states conceived within the interpreters own 'given' conceptual framework. The suggestion is repeatedly made that Hayek's explanatory strategy demands that economic explanations or any other social science explanation must provide laws, theories, or interpretations in terms of the belief and desire states of individuals, that is, by providing laws, theories, or interpretations of individual action, individual behavior, or individual psychology. But Hayek offers learning or changes in understanding beyond any 'given' set of belief and desire states as his contingent causal explanation, and rejects the notion that the explanatory task of economics can be fullfilled by the dubious project of providing a 'theory of rational behavior' or 'science of choice' or 'theory of action'. Hayek's explanatory elements are individuals learning and arriving at new understandings of things in a social context. This sort of 'methodological individualism' has nothing to do with logical empiricist style reduction to a set of belief /knowledge and desire/motivation states or 'postulates', nor does is have anything to do with 'rational choice theory', nor with atomistic 'theories of action or behavior', nor even with the methods for the understanding and interpretation of individual behavior in terms of mental belief and desire states. Hayek's explanatory cause is learning, it is not action as we understand, causally explain, and structure in terms of the logic of means and ends. Most of the modern literature on 'methodological individualism' derives directly from Hayek, but it is not an accurate reflection of Hayek's explanatory strategy. Instead this literature deeply misrepresents Hayek's empirical explanatory problem and his contingent explanatory cause.
Examples of the misrepresentation of Hayek's explanatory strategy,and his contingent explanatory component in the literature:
Example -- John Watkins.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Watkins: From the belief states or emotional states of particular individuals, which we infer by analogy to our own belief states and emotional states, we logically derive a theoretical understanding of the social structure of society.
Example -- Robert Nozick.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Nozick: Hayek insists that social scientific theories provide: (1) a theory of individual action; (2) a set of boundary conditions specifying the concrete conditions under which different individuals act, and that only social scientific theories that provides these can be considered `true'. This is a picture inspired by logical positivist account of explanation by reductive logical relations. Nozick cites Ernest Nagel, but it is the same sort of prescriptive deductivist picture of explanation that Nozick picked up from his thesis advisor, the logical positivist Carl Hempel.
Example -- Ernest Nagel.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Nagel: Hayek insists that the aim of social scientific explanations is to provide reduction explanations in psychological terms using the method of interpretation or `verstehende', which provides access to motivational categories.
Example -- Daniel Hausman.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Hausman: Hayek insists upon social explanations provided in terms of laws of individual behavior or laws concerning their individual features, for example, the generalization that individuals prefer more income to less.
Example -- Kenneth Arrow.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Arrow: Hayek's explanation of market phenomena has no role for learning and the acquisition of knowledge, and is not concerned with changes in knowledge. Hayek strategy is to provide explanations using only the formal logic of the intertemporal equilibrium construction, best exemplified today in some sort of game-theoretical rational choice construction.
Example -- Karl Popper.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Popper: Hayek explanatory strategy is to estimate the deviation of the actual behavior of individuals from a model of individual behavior which assumes a complete rationality of behavior from a stock of complete information on the part of all individuals in the situation modeled. (1957/141)
Example -- Marina Bianchi.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Bianchi: Hayek's explanatory strategy forces us to think of rules in terms of choice incentives, not in terms of dispositions.
Example -- John Elster.
Hayek's picture of the problems and explanations provided in economics and the social sciences, according to Elster: Hayek's explanatory strategy is to start with some sort of motivational assumption, such as rational self-interest, and then from this starting point to proceed on to explain how spontaneous order is possible as an unintended consequence of this motivational postulate, a strategy taken up since by Nozick, Ullman-Margalit, Schotter, Hardin, Axelrod, Sudgen, and Taylor.
Continues work on economic explanation.
In the mid-1930's Hayek set to work fleshing out his own new explanatory picture, and laying out the differences between this new explanatory strategy and other rival pictures of economics and social science. Hayek spent the preponderance of his research time over the course of the rest of his life working out the details of the explanatory strategy, logical character, and substantive content of economics. Hayek's work after the mid-1930s in theoretical psychology, political theory, neuroscience, theory of knowledge, public policy, and the history of ideas were all contributions toward Hayek's core project fleshing out his new rival explanation of economic order in an extended society.
timeline.
1942-1944. The "Scientism and the Study of Society" series is published, largely concerned with the logical character of economics, including a noteworthy attack on explanations which assume direct causal relations between social aggregates, as is assumed by Keynes and backward looking cost-based price theory and monetary economic.
1942. "The Ricardo Effect", advances Hayek's program in monetary economics, and provides a critique of long-period aggregated cost macroeconomics.
1944. The Road to Serfdom is centered around Hayek's picture of the problems of economics.
1945. Essay "The Use of Knowledge in Society" is published.
1946. Hayek lectures on "The Meaning of Competition", which provides critique of both 'perfect competition' and `monopoly capitalism' pictures of the functioning of the market.
1948. Hayek is still planning to produce a major work unifying the ideas in his Individualism and Economic Order. Hayek finally does something approaching this with his Law, Legislation, and Liberty (1973-1979), and his The Fatal Conceit (1988), which summarize large parts of a half-century of research.
1950. "Economics" in the Chambers' Encyclopaedia.
1950. "Full Employment, Planning and Inflation".
1952. Hayek's The Sensory Order works out the autonomy and irreducibility of the realm of changes in human understanding -- the causal explanatory element of his new explanatory picture in economics.
1955. Hayek's essay "Degrees of Explanation" largely concerned with exploring the logical status and explanatory strategy of economics.
1958. "Inflation Resulting from the Downward Inflexibility of Wages".
1959. Hayek's The Constitution of Liberty begins with an account of the logical character of problems and explanations in economics and the social sciences, and concludes with a large section on the problems of contemporary economic and social policy, including social insurance, rent control, and monetary policy, discussed from the perspective of Hayek's explanatory framework in economics.
1960. Hayek thinking of a new book to be titled The New Look at Economic Theory.
1961. Hayek begins working on what will become Law, Legislation, and Liberty, a book with large selections on the logical character of economics and the implications of economic theory for the design of social, commercial, and political institutions.
1961. "The `Non Sequitur' of the `Dependence Effect'".
1962. "The Uses of `Gresham's Law' as an Illustration of `Historical Theory'".
1964. "The Theory of Complex Phenomena" largely concerned with the logical character and explanatory strategy of economics.
1968. Lectures on "Competition as a Discovery Procedure".
1969. "Three Elucidations of the Ricardo Effect".
1969. Hayek's Law, Legislation, and Liberty is largely finished in draft form.
1972. A Tiger by the Tail: The Keynesian Legacy of Inflation.
1973-1979. Law, Legislation, and Liberty, a book containing large sections dealing with economic explanation and economic problems.
Dec. 1974. Delivers Nobel Lecture, "The Pretence of Knowledge".
Dec. 1974. Delivers lecture which covers notes for the introduction to a new book provisionally titled Catallaxy: The Science of Exchange.
1975. Hayek lectures in Italy and the United States on money and inflation.
Sept. 1975. Lecture "International Money".
1976. Full Employment at any Price?
1976. "The New Confusion about Planning".
1976. Choice in Currency: A Way to Stop Inflation.
1977. Hayek is contemplating a new book of essays with the provisional title What's Wrong with Economics, containing an essay pointing out the errors of the Ricardo-Mill tradition and the closely related Marshall-Cambridge tradition.
1976. Denationalization of Money.
1979. "Towards a Free Market Monetary System".
1980. "Free Choice of Currency Standards"
1980. Hayek's essay "The Muddle of the Middle" attacks the economics of J. S. Mill.
1983. Knowledge, Evolution, and Society containing lectures pointing out the errors and explanatory irrelevance of a good portion of contemporary economics.
1983. "Two Pages of Fiction on Socialist Calculation".
1983. "The Austrian Critique of Keynes".
1978. Begins planning formal debate over socialism -- the genesis of Hayek's final efforts, which culminate in his The Fatal Conceit.
Misconception: It is claimed that Hayek abandoned work on the development of the science of economics after the early 1940s.
Continues to embrace his work in capital theory.
Hayek (1994) -- "I rather hoped that what I'd done in capital theory would be continued by others. This was a new opening which was fascinating. The .. situation would have meant working for a result which I already knew, but had to prove it, which was very dull."
Hayek, of course, defended his real-world monetary economics against the confusions of John Hicks in Hayek's 1969 Journal of Political Economy article, "Three Elucidations of the Ricardo Effect", in his lectures on "The Campaign Against Keynesian Inflation", in his 1974 Nobel Prize lecture "The Pretence of Knowledge", and in his essay "Personal Recollections of Keynes and the 'Keynesian Revolution'".
Misconception: It is claimed that Hayek renounced his work in capital theory and monetary economics.
Continues to embrace role of equilibrium constructions in economics.
Hayek (1978) -- "Of the direct significance of equilibrium analysis to the explanation of the events we observe, I never had any doubt."
Hayek assumes the usefulness of the equilibrium construction for several different purposes in work published in the 1940s, 1950s, 1960s, 1970s, and 1980s.
Misconception: It is claimed that Hayek renounced any role for equilibrium constructions in economics.
Real-world monetary economics provided in his Pure Theory.
The fourth part of Hayek's book The Pure Theory of Capital is titled "The Rate of Interest in a Monetary Economy", and includes almost 60 pages working out the basics of his later monetary economics. The original plan of the book Hayek was working on during the 1930s included two sections, a non-explanatory logic section, and a real-world monetary economics explanatory section. Hayek tell us that, "The final draft of [the original plan of the book] was in an advanced state of completion when the war [World War Two] broke out." Hayek then explains, "it became clear that, if I could hope to publish the book at all, I must not delay too long to make it unduly large. The result is that Part IV [the real-world explanatory monetary economics section] has become rather more condensed and sketchy than I had intended." Note that although Hayek saw this section as sketchy and condensed, it was in fact included and published as the nearly 60 page Part IV of his The Pure Theory of Capital. Part IV of The Pure Theory is in fact the substantive core of Hayek's mythical missing second volume on "The Dynamics of Capital Production". Hayek's 1939 essay "Profits, Interest and Investment", his 1942 essay "The Ricardo Effect", Part IV of Hayek's The Pure Theory, and several other essays published by Hayek on the monetary economy and its explanation could be combined together to produce a fairly substantial volume.
Misconception: The misconception is that Hayek never provided any of the monetary section of his project on capital theory and monetary economics Hayek worked on during the 1930s.
Hayek and The General Theory.
Hayek, in several different places his The Pure Theory of Capital, directly attacked the economics provided by Keynes in the General Theory. He did so by criticizing the view presented there on the most fundamental empirical and theoretical grounds, and by offering an explanatory alternative to the Keynesian project. At the same fundamental level Hayek offered a broadside to Keynes's explanatory effort in a series of essays on the explanatory strategy of economics and other social sciences written before and after his Pure Theory, beginning with his classic essay "Economics and Knowledge" written only shortly after the publication of the General Theory in 1936. Hayek wrote several articles in the 1940's critiquing and attacking the economics of Keynes and the Keynesians, and did so again in the 1950's, and again in the 1960's, and again in the 1970's, on into the 1980's.
Misconception: The misconception is that Hayek never criticized Keynes and the ideas contained in the General Theory.
Membership selection provides nonproblematic evolutionary mechanism.
In more than a half-dozen different places Hayek provides for the selection over individuals for patterns of behaviors that produce group-level properties, a causal process which gives him all he needs for a selection mechanism absent any of the logical problems inherent in V. C. Wynne-Edwards' conceptually flawed 'group selection' construction in population genetics. In no place does Hayek sanction or use the purely logical constructions of game theory or rational choice as economists and others today hope to use these (so far without much success) in his own explanations of the genesis and evolution of affluence enabling non-constructed historical institutions. For Hayek, 'rationality' and 'selfishness' in the sense of the logical constructions of rational choice theory and game theoretic models are inessential to his own explanatory strategy. Quoting Hayek on a closely related subject, "[Competition in the real world] is not understood by those who maintain that the argument for competition rests on the assumption of rational behavior of those who take part in it .. rational behaviour is not a premise of economic theory, though it is often presented as such." The explanatory causal components of Hayek's work are (1) the imitation of patterns of behavior; (2) changes in understanding in a social context which contribute to a plan, be it an other regarding plan or not; (3) the entry or exclusion of individuals and groups on the basis of behavior patterns that produce group level properties, e.g. such as honest behavior in accord with negative rules of just conduct. None of these are out-of-this-world fantasy logical constructions, they are all the real stuff of our everyday experience. Hayek's actual descriptions of the differential survival and evolution by descent of groups displaying rule-governed behaviors lacking in other groups combines the sort of membership selection process described just above with the sort of non-Wynne-Edwards style species sorting discussed by Niles Eldredge's in his recent Reinventing Darwin. It is often forgotten that the 'gene selectionist' picture of Darwinian evolution provided by George Williams and Richard Dawkins, the principle critics of Wynne-Edwards' 'group selection', is itself conceptually troubled, and has yet to be accepted by a majority in either population biology or paleontology.
Misconception: The claim is that Hayek is committed to some weird kind of 'holistic' group selection which violates Hayek's supposed 'methodological' requirement that all explanations in the social sciences be provided in terms of rational choice theory, or some other 'theory of action' or 'choice'. It is also claimed that Hayek is committed to a hopeless rational choice Wynne-Edwardsian 'group selection' mechanism for his explanation of the differential selection of groups expressing different group properties, affecting the evolution by descent of groups displaying affluence enhancing group-level properties -- such as behavior patterns in accord with negative rules of just conduct, rather than action in accord with traditional tribal rules and commands, or the autocratic dictates of an all-powerful sovereign. Other times, criticisms of Hayek's work are simply based on deep misconceptions about the character of legitimate functional and teleological explanation, their relation to selection mechanisms, and the distinction to be made between these explanations, and the 'social functionalism' of sociologists, anthropologists, and Marxists like Talcott Parsons and G. A. Cohen.
Hayek was never an apriorist.
Hayek's early background was in the empiricism of Wieser, Schlick, Mach, James, and Wittgenstein. In fact, Hayek's intense study of the anti-Kantian and 'anti-metaphysical' works of empiricists like Schlick, Mach, James, and Wittgenstein came before Hayek's exposure to the thought of Wieser. It is no surprise, then, to find Hayek sending of a letter to Terrence Hutchison in 1981 to declare flatly that he was never an apriorist. Hayek identifies Schlick as the person who first showed him that philosophy could make sense. In 1919 Hayek read Schlick's book on the theory of knowledge in which he attacks Kant's notion of synthetic aprior knowledge, and in which Schlick identifies all empirical knowledge as hypothetical knowledge. In 1921 Hayek 'closely read' his cousin Wittgenstein's Tractatus, a book which identifies all formal knowledge as telling us nothing about the world, and which identifies all knowledge that tells us something about the world as contingent knowledge.
A story Hayek tells about his experience with other explanatory programs in psychology and political economy illustrates the strong influence of Schlick, Wittgenstein, and others on Hayek's thinking in the early 1920s:
"The two chief subjects of discussion among students of the U. of Vienna in the years immediately after the war were Marxism and psychoanalysis .. I made a conscientious effort to study both the doctrines but found them the more unsatisfactory the more I studied them. It seemed to me then and has so appeared ever since that their doctrines were thoroughly unscientific because the so defined their terms that their statements were necessarily true and unrefutable, and therefore said nothing about the world."
Wieser always insisted that, "The method of economic theory is empirical." Hayek's various accounts of scientific explanation, both early and late [like that quoted in a later section below] consistently echoes perspectives found in Wieser's explanatory strategy. Wieser's approach emphasized the importance of the context created by explanatory problems. It also used a procedure of empirical description through decreasing levels of abstraction as an explanatory strategy. In his tribute to Wieser upon his death in 1926 Hayek lauds Wieser's investigative strategy of using abstractive isolation and description at ever lower levels of generality as `exemplary' and `trendsetting' for the social sciences. In his essays on the explanatory strategies of the social and natural science Hayek repeatedly emphasizes the primacy of problems in the scientific enterprise -- an insight first found in an early form in Hayek's statement that, "[Wieser] did not believe that methodological speculations divorced from he treatment of concrete problems could advance science and was convinced that theoretical analysis of a specific topic would yield an appropriate method for the particular task."
Misconception: It is repeatedly suggested that Hayek embraced an apriorist picture of the logical status of economic explanation.
Hayek's critical response to Mises.
"[Mises] had great influence on me, but I always differed ..". ".. while I owe [Mises] a great deal, it was perhaps most important that even though he was very persuasive, I was never quite convinced by his arguments." "I only met Mises really after I had taken my degree." "At first we all felt he was frightfully exaggerating and even offensive in tone .. [after a long time] I just learned he was usually right in his conclusions, but I was not completely satisfied with his arguments." "If I had come to him as a young student, I would probably have just swallowed his views completely. As it was, I came to him already with a degree. I had finished my elementary courses; so I pushed him in a slightly more critical fashion." "I thing already Menger's resistance against mathematical economics was based on the same awareness [implied in the recognition of the inadequacy of the perfect competition, perfect knowledge approach to micro problems] that you deal with the phenomena where your specific information is limited, but none of them have ever really spelled it out -- not even Mises -- adequately." "I had always felt a little uneasy about [the following] statement of basic philosophy [in Mises' Socialism] .. Mises asserts .. that liberalism `regards all social cooperation as an emanantion of rationally recognized utility' .. this statement .. I now think wrong. The extreme rationalism of this passage .. now seems to me factually mistaken."
Hayek also rejected Mises' long-period aggregated equilibrium construction, along with Mises' picture of the logic of the valuation of production goods through time, which failed to take productivity differences through time into account.
Misconception: The misconception is that Hayek was Mises' student and disciple, who accepted Mises' aprioristic account of the logical status of economic explanation, as well as Mises' picture of the problem of collectivist economic planning, Mises' picture of its solution, and Mises' picture of the theory of capital and monetary economics.
Popper had little or no influence on Hayek's explanatory strategy.
Misconception: The misconception is that Popper's conception of scientific explanation played some central role in the genesis and development of Hayek's new explanatory strategy in economics.
Understanding within a context is not 'information' or 'data'.
There is a distinction to be made between the causal explanation of a deliberate action in terms of given belief and desire states and what we recognize as learning, or changes in understanding in unique social, physical, and biological historical contexts. These is also a distinction to be made between the pure relational valuation logic of resource use planning and changes in understanding in unique social, physical and biologial historical contexts.
Thomas Kuhn, ".. people do not see stimuli; our knowledge of them is highly theoretical and abstract .. much neural processing takes place between the receipt of a stimulus and the awareness of a sensation. Among the few things that we know about it with assurance are: that very different stimuli can produce the same sensations; that the same sensation is in part conditioned by eduction. Individuals raised in different societies behave on some occasions as though they saw different things. If we were not tempted to identify stimuli one-to-one with sensations, we might recognize that they actually do so." "None of this would be worth saying if Descartes had been right in positing a one-to-one correspondence between stimuli and sensations. But we know that nothing of the sort exists. The perception of a given color can be evoked by an infinite number of differently combined wavelengths. Conversely, a given stimulus can evoke a variety of sensations, the image of a duck in one recipient, the image of a rabbit in another. Nor are repsonses like these entirely innate. One can learn to discriminate colors or patterns which were indistinguishable prior to training."
Ludwig Wittgenstein uses the example of using the sound 'tove' and in the context of gesturing toward a pencil to illustrate the point that the significance of a word cannot be handed from one person to another like a hat in a ribboned box from one person to another by a single act of ostensive definition. We are misled by our talk of `the meaning' words to seek out items or substantives that might be the things which are the significance of our uses of language. This has been the standard fallacy of students of knowledge, logic, and mathematics since at least Plato. The alternative 'reversal of metaphysics' expressed in the picture of the primacy of 'doing' or 'practice' provided in the work of Wittgenstein, Thomas Kuhn, Gerald Edelman, and Hayek, among others, locates significance not in 'given' semantic items, but in shared dispositions or ways of going on together within a context. The 'substantist' or 'entity' picture of significance has led to the notion of 'information' or 'data' as items that are given directly to us or which exit in the world and are handed to us like a hat in a box independent of the context of shifting neuronal brain structures or independent of our shared ways of going on together. The problem, as Edelman puts it, is that "we are tempted to reify [`information'] as a prior or immanent property of the world."
Hayek, "But the concrete knowledge which guides the action of any group of people never exists as a consistent and coherent. It only exists in the dispersed, incomplete, and inconsistent form in which it appears in many individual minds, and this dispersion and imperfection of all knowledge is one of the basic facts from which the social sciences have to start."
Misconception: The misconception is that Hayek's important insight into limits, imperfections, and division of knowledge, and the role of learning and communication in the context of money prices, can be captured within a logical construction that assumes 'information' as a 'given' within a logic, or as a property of the world.
Hayek's explanatory strategy has a causal and a structure aspect.
Causal/contingent aspect.
Hayek identifies an empirical problem in our experience, and then identifies a contingent cause with other potential rivals as the most plausible explanation for this problem raising empirical pattern. Hayek's contingent cause -- learning in the context of changing relative money prices and stable negative rules of just conduct -- cannot be captured within the `givens' of any logical construction.
Patterned/structural aspect.
We are able to structurally characterize the abstract pattern of a dissipative chaotic system geometrically although any of the particular states of the system are not themselves predictable. We are unable, that is, to predict any particular unknown state of a dissipative chaotic system by a calculation from some prior state of the system because any error of measurement will be magnified in our prediction of any future state. We are able, however, to account for the general pattern of the system based on the geometric structure of the mathematical construction. As Mark Stone explains, ".. these paths [modeled by a non-linear equation] will converge to a recognizable geometric form, and for a given type of chaotic system the attractor will always be the same .. once a scientist has discovered the attractor of a chaotic system, then he has a model of the sytem, and that model will serve as an explanation." This tracks Hayek's account of how structures of generic form often provide, " .. the explanation not of the individual events but merely of the appearance of certain patterns or orders." Hayek himself uses Darwin's theory of natural section as an example. In Hayek's words, Darwinian natural section, " .. can explain and predict only kinds of phenomena, defined by very general characteristics: the occurrence, not at a narrowly defined time and place but within a wide range, or changes of certain type; or rather the absense of other types of changes in the structure of the succeeding organisms." In this manner, a theory of this kind indicates only the general characteristics of events or a range of phenomena to be expected, rather than a singular event to be expected at a particular place and time, as is assumed in the accounts of explanation provided by most logical empiricists.
"The best illustration [of a generic or structural `explanation of the principle'] in the field of the social sciences is probably the general theory of prices as represented, e.g., by the Walrasian or Paretian system of equations. These systems show merely the principle of coherence between the prices of the various types of commodities of which the system is composed .. [that is] a set of equations which shows merely the form of a system of relationships ..".
"In so far as we analyze individual thought in the social science the purpose is not to explain that thought but merely to distinguish the possible types of elements with which we shall have to reckon in the construction of different patters of social relationships."
Misconception: The misconception is that Hayek provides only a structural or `explanation of the principle' explanation, and Hayek's identification of the principle importance of empirical problems in our experience, and his contingent rival underlying causal explanation for this empirical pattern, is not recognized.
2. The empirical problem and explanatory strategy of economics.
In Friedrich Hayek's famous 1937 paper "Economics and Knowledge", again in the first two chapters of his classic The Pure Theory of Capital, and throughout the rest of his career Hayek identified the valuation constructions of marginalist economics -- including the intertemporal construction that he had introduced to economics in 1928 -- as pure and tautological logic, incapable of providing causal explanations of resource use coordination and industrial fluctuations in an extended society. Yet Hayek never doubted the importance of the intertemporal valuation construction for economics, or its role in fulfilling the explanatory promise of the discipline. How are we to understand Hayek's position on these matters -- just what use did Hayek find for the intertemporal valuation construction, and what role does this play in his solution to the problem of the logical character and explanatory strategy of economics?
I want to use this question as a fulcrum around which to report on my current research into the economics of Friedrich Hayek. I also want to use it as an anchor around which to address important questions about the function of narrative as both a necessary tool and as a sometimes unsuspected barrier to the advance of our understanding in both science and intellectual history
The choice of Hayek and his problem is an apt one, for Hayek is a recurring figure in the various narrative accounts that contemporary economists have offered to communicate the character and significance of their own efforts. For example, economists from Robert Lucas, Joseph Stiglitz, and James Buchanan to John Roemer, Israel Kirzner, and Sanford Grossman, have found it useful to articulate their own research agendas in relationship to Hayek's classic castings of the question of the relation of (1) valuational constructions and (2) the fact of our dispersed and imperfect knowledge to the core problems of resource use coordination and industrial fluctuations in extended societies. Economists, philosophers, historians, and social theorists who have characterized their own conception of political economy in relation to Hayek's reads like a who's who (if I've somehow forgotten to include your own name on this list, please correct my error and include it here). I might mention, beyond those already named, Kenneth Arrow, P. S. Atiyah, Abram Bergson, Marina Bianchi, Mark Blaug, Peter Berger, Alan Brinkley, E. J. Dionne, Ronald Dworkin, John Eatwell, John Elster, John Galbraith, Pierangelo Garegnani, John Gray, Gottfried Haberler, Frank Hahn, Alvin Hansen, Garrett Hardin, Russell Hardin, Daniel Hausman, R. G. Hawtrey, Robert Heilbroner, John Hicks, Albert Hirschman, Jack Hirshleifer, Geoffrey Hodgson, Kenneth Hoover, Leonid Hurwicz, Terrence Hutchison, Nicholas Kaldor, John Keynes, Israel Kirzner, Arjo Klamer, Tjalling Koopmans, Irving Kristol, Frank Knight, Ludwig Lachmann, Oscar Lange, Charles Larmore, Alex Leijonhufvud, Maurice Mandelbaum, Murray Milgate, Philip Mirowski, Ernest Nagel, Richard Nelson, Otto Neurath, Robert Nozick, Mancur Olson, Michael Polanyi, Karl Popper, Paul Samuelson, Joseph Schumpeter, G. S. L. Shackle, Herbert Simon, Peiro Sraffa, Robert Sugden, Robert Townsend, Edna Ullmann-Margalit, John Watkins, E. Roy Weintraub, Larry White, Oliver Williamson, and Sidney Winter. This list, of course, does not pretend to be complete.
This is a widely varied list of individuals. Although each of the people listed here has his or her own reasons for using Hayek's work in political economy as a point of reference, it is easy to understand why especially economists will continue to do so. In recent years three fundamental research agenda items pressed by Hayek have come to the forefront of important discussions among economists.
(1) In the 1930's and the 1940's Friedrich Hayek identified deep problems with traditional conceptions of the explanatory relevance of the intertemporal relational valuation construction he had introduced into economics in 1928 for the real world of resource use coordination and industrial fluctuations in an extended economy. Since 1960's and increasingly so in every decade since, Hayek's perception of problematic explanatory relevance of the intertemporal equilibrium construction for the problems of resource use coordination and industrial fluctuations has come to be shared by an ever widening circle of economists and philosophers. {It seems appropriate to recognize the important work of our conference keynote speaker Axel Leijonhufvud in this regard, who has never made a secreteof the role Hayek's work played in the evolution of his own thinking on these problems.}
(2) Hayek's "Economics and Knowledge" paper, his Pure Theory, as well as his famous essay "The Use of Knowledge in Society", identified the unavoidably imperfect and dispersed character of our knowledge of alternative production possibilities as at the center of the problems of resource use coordination and industrial fluctuations in an extended society. In recent decades economists has sought to incorporate these facts within the body of economic explanation.
(3) In his "Economics and Knowledge" paper and in later work Hayek identified learning in the social context of changing relative prices and shared rules of just conduct as the core explanatory element and contingent cause in economics. Over the last ten years or so economists have increasingly come to identify learning in a social context as a key agenda item for the explanatory project of economics.
Before I say more about Hayek and his place in contemporary political economy narrative, I should say something about narrative within intellectual inquiry, especially in those realms which supply us with special understanding of things beyond our everyday understanding, such as in geometry, cosmology, chemistry, biology, and economics. The following remarks reflect a least in part what I have learned from Thomas Kuhn, Joseph Rouse, and most especially Larry Wright.
The intelligibility and significance of a scientific practice comes in part for the narrative understanding in which it is situated. In order to understand the increase in knowledge we have attained we need some way to recall our prior lack of understanding, as well as some of the conceivable alternative accounts of the world we need to picture what various deficiencies in our knowledge might look like. One of the difficulties of this aspect of the process in which our understanding advances is that the conceptual picture provided by the articulated narrative history of a discipline is invariably incomplete, misleading, and in some ways a distortion of past efforts and current alternatives. The effects of this can be seen in the heated arguments between paleontologists and population geneticists. Modern Darwinian biology is understood today within a narrative of the controversies between 'group selectionists' and 'gene selectionists', or between 'Ultra-Darwinist' population geneticists and the 'anti-Ultra-Darwinist' paleontologists. The narrative that radical gene selectionists provide of these controversies differs, sometimes significantly, from that provided by the "anti-Ultra-Darwinist" paleontologists, and neither account can be considered representative of the narrative understanding being provided by most of those within either the population geneticist or paleontologist communities. Incomplete, misleading, and distorted narratives abound, yet in providing these narratives, gene selectionists and the 'anti-Ultra-Darwinian' paleontologists are participating in the development of their science, contributing to the richness of its intelligibility and significance. In the process we get a more developed view of the rival alternatives, a richer insight into the range of current agreement, and a deeper sense of the potential for underlying conceptual unification. Historians of theoretical physics in the 19th century document the functioning of a like process in the development of the physical sciences.
Darwinian biology is enriched today by the competing narrative histories that help to flesh out differences between competing explanatory conceptions. Yet narrative accounts of the history and contemporary character of a discipline are not always advantageous contributors to the development of our understanding of things. The narrative of a scientific practice which provides some part of its significance and intelligibility can do more than simply distort conceptual space, it can also block access to potentially more fruitful avenues of understanding, very often even those which have already been explored to some success by others. Narrative accounts of the problem of species in the biological literature since the time of Plato and up to the work of the biologist Michael Ghiselin and the philosopher David Hull almost invariably identified the species concept as a class category, rather than a shifting historical individual or population. (Roots of the Ghiselin-Hull development can be found in the work of Darwin and Ernst Mayr). Ernst Mayr nicely shows in his grand treatise The Growth of Biological Thought how this essentialistic picture of the notion of particular species as universal types with features logically given irrespective of time or place served to shackle conceptual space, making it almost impossible for naturalists and logicians to perceive incipient non-essentialistic views of the species concept, and falsely imply that other alternatives were not available, thus blocking access to nascent evolutionary and selectionist explanations of environmentally apt morphologies and the origin of species, both old and new. To put it in a phrase, when not simply excluded from creative thought by blinding fetters on the imagination, auspicious endeavors to advance our understanding in biology were invariably killed while still in the crib by Plato and the logician's picture of the character of knowledge and thought. The ancient log-jam was finally broken by Charles Darwin's profound recasting of the problems of biology and the character of its explanations in his Origin of Species, but not without a number of missteps along the way in the process of his "one long argument", and not without the need even today to continue sorting out a nest of puzzles, even despite the profound explanatory success of the Darwinian program. All of this, of course, is part of an ongoing process taking place at the "High Table" among paleontologists, philosophers, population geneticists, and micro-biologists.
Part of what makes the rival narrative accounts supplied by paleontologists, micro-biologists, philosophers, and population geneticists so interesting and fruitful is that within these narratives various biologists provide rival accounts of the character and significance of Darwin's classic casting of the content and tasks of evolutionary and functional biology. This gives biologists and philosophers a well-worked out reference point to advance a shared understanding of what biology is all about or what it might be all about. (Niles Eldredge, David Hull, and Ernst Mayr, among others, make it clear that the work of philosophers has been integral to this process and continues to be so.)
My own work in this field serves as a useful introduction to some of the most basic research results I have obtained in my investigations of Hayek's work and its place in the development of contemporary narratives in political economy. In biology the environmentally apt functional features, divisions of labor, and teleological doings of organisms such as we observe in the pumping of the heart, the coordinated operation of the digestive system, and the fleeing of rabbits raises the central explanatory problem for any evolutionary account of the origin of species. As Darwin puts it, ".. such a conclusion [the origin of species by descent], even if well founded, would be unsatisfactory, until it could be shown how the innumerable species inhabiting this world would have been modified, so as to acquire that perfection of structure and coadaptation which most justly excites our admiration." The hypothesis of the origin of species by descent is an alternative to the hypothesis that species are a product of acts of Providential Creation. If the conjecture of the origin of species by descent is accepted as a fact, then within this alternative observational frame of reference the manifest functional features and teleological doings of organisms suddenly become an explanatory problem. The features and activities of organisms present us with patterns and results which look as if they were created or generated by the design and intent of a hand from above operated by the creative intelligence of a super-mind something like our own. But if the populations which exhibit observably apt characteristics are mutable products of history linked together somewhere in the past, and not the product of singular acts of Providential Creation, then the functional and teleological features of the organisms in these populations can no longer themselves be accounted for by this now abandoned process of Providential Creation.
To account for this directly observed teleological phenomena, which now raises a pressing question in the new context of the conjecture of modification by descent, Darwin provides a new bottom-up causal process as a rival to the top-down Providential Creation explanation. This bottom-up process shows how the manifestly observable apt structure and behavior of biological features could be generated to look as if they where invented or constructed by the design of a 'blind goods-maker' or the intent of an 'invisible hand'. Significantly, the bottom-up explanatory elements provided in Darwin's bottom-up causal account are open-ended in the sense that they involve an open-ended disjunction of causes, the physical constitution of which is undisclosable in advance of the unique unfolding of evolutionary history. The reward of reproductive opportunity can be given not only to structurally identical biological expressions, but also to very nearly similar structural constitutions. Ultimately the only common property which a structure must have to be identified as belonging to a functional or teleological category is the shared effect these structures have in producing the replication and persistence of entities sharing the same historical origins and which constitute parts of an evolving historical species, without it ever being possible to make any principled distinction between chance event and selective event in any particular instance. What we have at bottom in this situation is the primacy of our direct perception of the teleological characters of organisms. The physical constitution of particular exemplifications of the adaptive functional features and teleological doings Darwinian theory is designed to explain cannot be provided in advance of the historical unfolding of an historically unique population, which is to say that our direct teleological and functional observation of the features requiring explanation in evolutionary biology cannot be given a replacement in the time and place independent categories of physics and chemistry.
There are four things to note here.
(1) The contingent character of Darwinian explanation is assured by the existence of rival causal explanations.
(2) Darwinian explanation begins with a problem raising pattern in our experience, a problem which arises when we try to make sense of design-resembling phenomena without any top-down ordering hand or intelligence.
(3) The empirical character of Darwinian biology is founded in the first instance upon our direct observation of aptly corresponding features, such as functional appropriateness, division of labor, and teleological direction.
(4) In Darwinian biology the phenomena that fall within what we recognize as a question raising pattern to be explained are open-ended and irreducible to the categories of things whose characteristics would count as theoretical kinds in the physical sciences outside of the contingent unfolding of the unique course of history. That is, the directly observed functional features and teleological doings that ask to be explained in Darwinian biology are categorically autonomous of the kinds that provide explanations in physics. Conversely, the class of explanatory causal elements responsible for the products of evolution is itself open-ended and cannot be physically characterized according to the theoretical kinds physics and chemistry in advance of the unfolding of evolutionary history.
Many attempts before and after Darwin have made to fit the problems of the functional aptness of organisms to their environment and the origin of species within the ancient tradition which demands that our knowledge fit a particular conception of how logic and language gets their significance. The hope of grammarians and other students of language in the 13th century was to develop a linguistics as an `Aristotelian science', a domain of secure knowledge providing us with a body of essences and necessities. This picture of `science' has continued to influence the perception of those investigating the explanation of the functional aptness of organisms and the orgin of species. Individuals under the sway of this ancient picture look for the necessary laws, essential kinds, and cognitive certifiers or confirming crucial tests in adaptive and evolutionary biology. Not finding these, they declare Darwinina biology `not a science', but a `metaphysical research program'. Karl Popper, for example, has interpreted species as having fixed properties, with some necessary direction of development. And finding no such universal necessities, and no crusial tests, Popper at one time concluded that Darwinian biology cannot be a contingent empirical science. After Hayek, Michael Ruse, and others pointed out the false conceptions presupposed by Popper in his account, Popper later changes his judgment about the scientific status of Darwinian biology, but still without managing to fit it very coherently within Popper's wider picture of knowledge, science, language, and explanation.
Let me now give you the picture of economics that I have extracted from Hayek's work on the problems of the logical status and explanatory strategy of economics, placed in the frame of what I have learned from Larry Wright and others. The picture looks something like this.
The repeated pattern in which prices approach costs of production and the intricately coupled network of aptly divided labor and knowledge within an extended society raises a question about the phenomena of the market similar to Charles Darwin's problem of order without design. The problem is raised, as it is in Darwin, when we locate an order in observed events displaying systematic characteristics we identify with intentional design or deliberate production, yet lacking any top-down ordering hand behind that systematicity.
One of the roles of the economist's equilibrium construction, in which costs and prices or values are made to exactly equal each other, is to help us to observe the design-like order in the economy, by pointing to the deep order within change within the extended domain of resource use coordination implied by the repeated pattern in which prices approach costs of production. The observation of a systematic design-like order within the larger extended economy becomes problematic when we realize that the individual understandings which go into this wider social coordination are limited, imperfect, and divided, making our cognitive relation to this order very different from our relation to the posited facts which go into a resource using intentional plan given to the understanding of a single mind. Within the logic of an unflawed resource using plan worked out by a single intelligence, the elements which go into the plan are part of a single understanding, given as a commensurable totality within the scope of the plan. As parts of a well-considered logic, they are perfect and unlimited `given's within the domain of the plan, without room for the sort of incommensurable differences in thought which distinguish different minds, or the open-ended changes in our knowledge which takes place when we begin to see the world in a new way. If the individual understandings that go into making the social order of resource use coordination are necessarily limited, imperfect, divided, and always changing in an open-ended fashion in the way that individual human understandings are limited, divided, imperfect and always changing, then the pattern observed in the market cannot be the product of a (single) human mind and producer. A problem then arises: if we observe a plan-like systematicity in the extended social order of resource use coordination which no individual planner and producer could create, then how does this extended systematic social order arise? And if this systematic order in the social coordination of resource uses shares only some but not all of the logical characteristics of a plan given to the understanding of a single individual, then which of these does it share, and what are its structural features? And if the social order of resource use coordination is not the result of the coherent deliberative plan of a single human being, then what is the cause and underlying process behind this order?
The equilibrium construction, in its dated-goods-through-time relational valuation form, functions to expose the elements which allow us to answer these questions. In the first instance by shear exclusion the intertemporal equilibrium (IE) construction exposes the most plausible causal element which might explain the observed pattern of plan-like order in the extended economy of coordinated resource uses. It does so isolating the universally recognized causes of changes in human understanding that necessarily stands outside the `givens' of any logical construction. In this capacity the IE construction serves as a kind of isolating foil or background exposing template, allowing us to see the world of causes -- changes in understanding -- outside the perfect logic of a resource using plan.
The following are examples of this point in Hayek:
"In distilling from our reasoning about the facts of economic life those parts which are truly a priori, we not only isolate one element of our reasoning as a sort of Pure Logic of Choice, but we also isolate, and emphasize the importance of, another element which has been too much neglected."
".. [economics must] complete the isolation of this branch of logic and restore to its rightful place the investigation of causal processes . . ".
" .. it is these apparently subsidiary hypotheses or assumptions that people do learn from experience, and about how they acquire knowledge, which constitute the empirical content of our propositions about what happens in the real world."
"This kind of causal explanation of the process in time is of course the ultimate goal of all economic analysis, and equilibrium analysis is significant only is so far as it is preparatory to this main task."
"I am far from denying that in our system of equilibrium analysis has a useful function to perform. But when it comes to the point where it misleads some of our leading thinkers into believing that the situation which it describes has direct relevance to the solution of practical problems, it is time that we remember that it does not deal with the social process at all and that it is no more than a useful preliminary to the study of the main problem [the problem of local knowledge and its coordination]." (1945, p. 530)
" . . though the discussion of moral and social problems based on the assumption of perfect knowledge may occasionally be useful as a preliminary exercise in logic, they are of little use in an attempt to explain the real world."
"A 'logic of choice' can say something only about the consequences to be drawn from a set of statements known to some one mind, and in this sense it can account for the behavior of one individual. But . . the step from the logic of choice to an empirical science which tells us anything about what can happen in the real world requires additional knowledge abut the process by which information is transmitted or communicated."
By isolating learning or changes in understanding as a causal element outside of the givens of a logical plan, the IE construction isolates a contingent cause with other possible rivals. The order in the market might be explained by these possible alternative rivals:
The order in the market might be explained by several alternative rivals:
1. Postulate a top-down omnipotent super-mind production master in the image of the individual human planner.
2. Conjecture that learning or changes in understanding in the context of changing relative money prices and stable negative rules of just conduct (such as honesty and property rights) is responsible for the undesigned order of resource use coordination in an extended society, suggested by the repeated pattern in which prices approach costs of production and the extended division of labor.
3. Postulate that we are ant-like creatures or crude robot-like machines who produce a plan-like social order as the result of simple and physically predictable regularities in our behavior.
4. Take for granted unimaginable luck in the completely random `casino' economy (Keynes), or postulate unimaginable luck in the relational valuation structure through time of production (Kaldor).
A second function of the intertemporal equilibrium construction is to identify elements contained in any display of the pattern of resource use coordination over time. One example of this would be the relational contextual dependence between time preference, length to maturity, and output in the valuational relationships between goods in any paper of resource use coordination displaying some degree of concatenation between production and consumption plans. In plainer language, it shows that any social order displaying economic coordination will have within it the systematic relationships between plans, goods, and production processes that economists (in one use of this rather ambiguous word) have labeled `interest'.
Hayek expresses this function of the IE construction when he remarks, "In so far as we analyze individual thought in the social sciences the purpose is not to explain that thought but merely to distinguish the possible types of elements with which we shall have to reckon in the construction of different patterns of social relationships."
Neither of these two elements isolated by the intertemporal equilibrium construction can be reduced to the categories of physics, nor to physical prediction, nor physical symmetries, nor physical conservation principles, nor any of the mathematical functions of physics. The causal element of learning or changes in understanding cannot be reduced to physical predictions or categories, nor can it be reduced to a logic or formal construction. Conversely, unlike the time-invariant significance of the functions, symmetries, conservation principles, and categories of the physical sciences, the valuational relations within a coordination through time of resource uses are only of relational significance within a time and place marked historical unfolding. Furthermore, the conceptual categories and logical relations which characterize the structure of a coordination of resource uses through time cannot be reduced to physical categories, or functions, or causal explanations. As in the domain of geometry, the time-invariant structures of thought in which we all conceive things and relate one thing to another are in a domain distinct from the non-formal world in which we provide contingent causal explanations within contending theoretical frameworks.
An understanding of the open-endedness of learning or changes in understanding, and the predictive and conceptual autonomy of learning and changes in understanding from the explanations and predictions of physics given in contemporary physical categories and structural laws is one of the achievements of twentieth century students of brain, science, and knowledge. As Hayek long ago pointed out, physical science cannot predict or give laws specifying its own advance. The advance of science is conceptually open-ended, and a many-many problem exists blocking any sort of one-to-one reduction of the everyday shared distinctions we depend upon in our observations of environmental conditions to the risky conjectured explanatory categories used in the physical sciences.
The significance of this many-many problem for the theory of knowledge and mind was first worked out by Hayek in his important The Sensory Order, but the importance of this problem is perhaps most economically expressed in Thomas Kuhn, ".. people do not see stimuli; our knowledge of them is highly theoretical and abstract .. much neural processing takes place between the receipt of a stimulus and the awareness of a sensation. Among the few things that we know about it with assurance are: that very different stimuli can produce the same sensations; that the same sensation is in part conditioned by education. Individuals raised in different societies behave on some occasions as though they saw different things. If we were not tempted to identify stimuli one-to-one with sensations, we might recognize that they actually do so." "None of this would be worth saying if Descartes had been right in positing a one-to-one correspondence between stimuli and sensations. But we know that nothing of the sort exists. The perception of a given color can be evoked by an infinite number of differently combined wavelengths. Conversely, a given stimulus can evoke a variety of sensations, the image of a duck in one recipient, the image of a rabbit in another. Nor are responses like these entirely innate. One can learn to discriminate colors or patterns which were indistinguishable prior to training."
There are four things to note here:
(1) The contingent character of the explanatory strategy Hayek provides for economics is assured by the existence of rival causal explanations.
(2) Hayek's explanatory strategy in economics begins with a problem raising pattern observed in our experience, a problem which arises when we try to make sense of design-resembling phenomena without any top-down ordering hand or intelligence.
(3) The empirical character of Hayek's explanatory strategy is founded in the first instance upon our direct observation of aptly corresponding features, such as functional appropriateness, division of labor, and teleological direction.
(4) In Hayek's explanatory picture the phenomena which fall within what we recognize as a question raising pattern to be explained are open-ended and irreducible to the categories of things whose characteristics would count as theoretical kinds in the physical sciences outside of the contingent unfolding of the unique course of history. That is, the directly observed patterned resource using coordinations that ask to be explained in Hayek's explanatory picture are categorically autonomous of the kinds that provide explanations in physics. Conversely, the class of explanatory causal elements responsible for the production of resource use coordination in an extended society is itself open-ended and cannot be physically characterized according to the theoretical kinds physics and chemistry in advance of the unfolding of human history.
(counter installed June 6, 1998)