Complex Adaptive Systems Beyond Markets

Gus diZerega writes: “as a complex adaptive system, the market strengthens certain values independently from the intentions of individuals acting within them” (2014: 26). Individuals always choose in some context and frequently choose as part of a group (such as a family, group of friends, or business). Individuals choose as a member of a community, which affects their identity. Individuals often act together not individually, and they rarely act with pure rationality. Although Kirzner uses the term “spontaneous,” Lachmann frequently focuses on uncertainty and unknowability, terms which cannot be denied when discussing future events and actions and choices by humans.

T.J. Cartwright (1991), in “Planning and Chaos Theory,” describes the chaos in chaos theory as “order without predictability,” which describes quite well how Lachmann portrays the market and social orders. Chaos theory and its newer cousin, complex adaptive systems theory, address some of the issues at the apex of where equilibrium Austrians like Kirzner and radical subjectivists like Lachmann disagree, and might resolve in a way that avoids Kirzner’s need for an equilibrating entrepreneur and humanity with a rational and self-interested nature, and also avoid the Austrian focus on market behavior only. A post-Austrian theory with CAS insights can model a social system that includes spontaneous orders of tradition and culture, public conversation and even a public sector spontaneous order, if the conditions are conducive. While Austrians in Kirzner’s tradition stress “economic laws” based on assumptions of rational individual action to improve one’s situation (removal of felt uneasiness), one can also look to complex adaptive systems theory or evolutionary chaos theory, to bridge the idea of spontaneous order with other factors, such as randomness, luck, and time: for example, recently scientists grew bacteria into superbacteria on a large plate and proved that the fittest strain does not automatically win but must be in the right place at the right time.

The decision-making of the entrepreneur is an equally important concern, and of course the individual in society is neither worker not entrepreneur by birth or for life (at least when not in a caste or feudal society), but is an individual—free to choose and to change occupation or profession at any time and as many times as they so choose. The assumption of rationality is slowly being dropped from models and economics has been returning to its earlier view of humans as more well-rounded. Sarasvathy and Berglund (2010) write:

Most theories used in entrepreneurship research consist as variations of classical models examining economic rationality. In recent times, the trend has been to look at research from cognitive psychology, with a particular emphasis on deviations from classical rationality—such as heuristics and biases.

As Sarasvathy and Berglund (2010) point out, “The history and theory of rationality, however, has a lot more to offer than classical economic rationality and its deviations,” a wholly different perspective on human consciousness, one that accounts for and gives weight to emotion, may be required. This is not to deny the importance of rationality and of rational calculation both of personal finance—keeping within a private budget and making the best use of it to provide for necessities and fulfill on the preferences of oneself and one’s loved ones—business profit and avoidance of loss, and other interactions, and of course of action and reaction within the public arena and public sector. However, we also must recognize the limitations of rationality and the narrow perspective which provides an erroneous view of humanity and of society. One could even see the focus on rationality as a scholarship created by a patriarchal culture and a market-centric simplification.

As Gerald Gaus (2006) explains in the Cambridge Companion to Hayek, Hayek argues that the mind emerges from the complex system of neurons, and their vast numbers and types of interactions based on symbolic interpretations of experiences. Hayek did not believe that introspection was enough to know the mind, he did not believe the mind could be fully known (see also Feser 2006: 293, 298), instead, Hayek argues that because the rules governing thought cannot be known we must “just act” on whatever rules happen to govern our thought (Feser 2006: 304-305); but we do not “just act” on rules, we shape these rules, we act together, we create culture and culture creates us. We are social creatures and we are part of many spontaneous orders.

Actions are made for reasons, and other people’s actions—which together constitute the social order, or culture—critically affect our decisions. A culture of self-interest may be essential to development of a society with significant rent-seeking. Such a society may also be encouraged by the collection of individuals into groups, as interest groups will have more power to obtain rents than individuals acting alone. These combined forces—self-interest and collective action in interest groups— together may propel a society along a rent-seeking path, which may then build its own momentum (Nell, 2011). This is not the only path, however.

The driving force of the collective, when functioning efficiently, is social-interest, not self-interest; and the democratic market process is not based on competition for votes. It need not even involve voting or any other aspect of today’s “democracy” and it has little (if anything) to do with competition. It has more to do with “deliberative democracy” as well as trial and error—with flexibility, transparency, respect and consideration, a long-term and broad outlook, patience, etc.

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