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History of Political Economy Lunch SeminarCenter for the History of Political Economy, Duke UniversityDecember 4, 2009Warning: this is not a paper but a note. It is based on my two months’ stay with the Chopegroup working at the Perkins library and archive. As a work in progress, it is supposed tobe improved or completely changed during the following months of my stay. More than anote, it is a written talk on what I have in mind to write, according to the “policy” of ourlunch seminars. At the present time its main aim is to receive suggestions and criticismsfrom an outstanding audience like the members of this group. Hence, this version is onlyfor internal discussion by the Chope group. Any kind of reference or quotation is notallowed.Giandomenica Becchio (University of Torino)Carl Menger and ComplexityThis paper is a part of an Italian national research project on complexity theory in the history ofeconomics.1 One of the reasons for the conduct of this kind of inquiry is that for some years therehas been growing interest in the possible connections between complexity theory and economics(Rosser 2009, Colander 2009). My focus is mainly on the philosophical context in whichpossible links can be identified between complexity theory and the Austrian school.Before continuing, some essential points must be established: first, very briefly, I shall seek toclarify what is meant by „complexity theory‟; then I shall focus on connections betweencomplexity theory and the Austrian school in a general perspective; finally I shall suggest somepossible further lines of inquiry that include: Carl Menger and complexity theory (also in honorof the title of this talk), mainly based on his second edition of the Principles and on my work inthe Duke‟s archive; and Hayek and complexity theory (where I shall seek to show the continuitybetween the Sensory Order (Hayek 1952) and subsequent writings on complex systems (Hayek1967, which includes Hayek 1955; 1962; 1964; 1964a; 1978) and a couple of unpublished worksconserved in the Duke archive.2PageItalian departments of economics involved in this project are those of the universities of Torino, Firenze, Milano,Novara.2I am indebted to Bruce Caldwell for telling me about the presence of an unpublished typescript “Within system andabout system” and its connection with my present research.11

1.The complexity of complexity theoryComplexity theory is simply a mess. There are plenty of publications on it and it has gained aplace in whatever discipline that comes to mind: philosophy, sociology, computational science,neurobiology, aesthetics, anthropology and, of course, economics. Because complexity theory isso complex, it is easy to find skeptics on the one hand or almost fanatical supporters on the other.The first step in taking complexity theory seriously should be to give it an exact definition.Unfortunately, a clear definition of complexity theory does not exist: according to the physicianSeth Miller there are 45 definitions of complexity (Horgan, 1997; Rosser 2009), but there aremany characteristics which are recognized and accepted by scholars involved in this field ofresearch.Generally speaking, we can understand complexity theory as a (new?) theory of knowledge. In abroader sense it can be regarded as a new scientific paradigm that makes it possible to bridge thegap between the natural and social sciences; in a narrower sense, it can be regarded as amethodological tool that allows study of specific disciplines or aspects of a discipline. As regardseconomics, complexity theory can be used as a new paradigm within which to describe thedynamics of individuals and social groups while trying to find a new (?) and heterodox scientificapproach (Colander 20003; Keen 2001); or it can be used as a sophisticated tool with which toexplain classical arguments in a new way, without any argumentation against the mainstreampoint of view (Arthur, Durlauf, Lane 1997)4; or it can be regarded as something midway betweenthese two extremes, which are now becoming obsolete (Colander, Holt, Rosser, 2004).Let us take a step backward in order to consider the roots of complexity theory in a more generalframework, focusing our attention on its philosophical meaning during its early stages. One ofthe first authors to have explicitly spoken about complexity theory, some years before thefoundation of the Santa Fe Institute (1984), was the French philosopher Edgar Morin (Morin1973; 1977; 2008). He presented complexity theory as a transdisciplinary developing a form ofknowledge based on a new “meta-paradigmatic” dimension applicable to the social sciences.This meant that knowledge of social dynamics can be organized and understood becausesocieties are sets of institutions, and institutions are expressions of individual knowledge.Because there is an isomorphism between the cognitive and institutional levels, it may bepossible to acknowledge and explain how the knower constructs knowledge using an antireductionist approach.5 Morin stressed the need to overcome the dichotomies, such as holism3Colander talked more precisely about the incompatibility between neoclassical economics and complexity theory(Colander 2000. p.136).5Reductionism means that a whole object is reduced to its minimum parts in order to classify and know it.PageThe issue of the use of complexity theory in mainstream economics is controversial. As Kreps said, at the end ofthe last century, economics was broadening its interests, and new links with other disciplines in an interdisciplinaryperspective were quite acceptable (Kreps 1997).24

versus atomism, which marked Western thought during the last century and which produced ahyper-specialized knowledge that increased impermeable borders among sectors and subsectors,above all within departments at universities. The purpose of this hyper-specialization was toreduce uncertainty in any specifically scientific field, because uncertainty was considered to be asource of anxiety. Complexity theory, by contrast, considers uncertainty as an opportunity forcreativity and for the development of new perspectives to be studied in any discipline.Morin explained that there had been three levels of inquiry in the history of scientificrevolutions. The first was the Newtonian mechanics based on necessity: science consisted ofuniversal laws able to form general theories in order to make exact predictions to be proven byexperiments: matter and energy existed in an absolute space and time, and they were ruled by thedeterminism of the law of cause and effect. Knowledge was objective in a twofold sense: it wasknowledge of objects, because their characteristics can be quantified and measured; and it wasuniversally objective knowledge, because the “knowing” subject was not in question, given thatmind is universally structured. The second paradigm was the equilibrium in thermodynamicsbased on chance and the irreversibility of entropy. The third paradigm started with the Darwinianrevolution in which organizations were presented as complex interactions between order anddisorder. Subsequent developments of this approach led to the definition of open systems as selforganizations where collective behaviors spontaneously emerge.6One of the main differences between complexity theory and the other theories of knowledge isthat in its endeavor to reorganize the concept of science, it goes beyond the division betweensubject and object, given that these are parts of the same open system. The much abused conceptof „a whole not reducible to the sum of its parts‟ is the basis of the notion of an open system,which was originally a thermodynamic one. But complexity theory seeks to bridge the gapbetween thermodynamics and biology or “life sciences”: it wants to define the laws oforganization of open systems, not in terms of equilibrium, but in terms of dynamics betweenindividuals and the environment.7 In 1945, Schrodinger showed that living organizations do notobey the second thermodynamic principle, and von Neumann thereafter pointed out thedifferences between living machines (self-organized systems) and artificial ones (simplyorganized systems) (von Neumann 1966). Morin described complexity theory as a step forwardfrom cybernetics: cybernetics recognized the importance of the interaction among a large number6Modern biology has passed from the romantic concept of organicism to the modern concept of organizationalism:if organism and organizations are considered complementary and isomorphic, their functions can be described as awhole in terms of the theory of self-organizations.Page73If we apply this threefold distinction to economic theory, we can consider the classical school and the marginalismof the founders as embedded in the first paradigm (the Newtonian one); the subsequent development of marginalisttheory, i.e. mathematical economics and econometrics, based on the formalization of economic issues as patternedon physics (Mirowski 1989); and contemporary research on complexity in economics as founded on neuroscienceand biology. But any partition is quite tranchant and there are numerous overlaps among periods in the history of adiscipline, as well as in the thought of any single scientist.

of units and the role of uncertainty caused by limited knowledge, as well as the mixture of orderand disorder within a system; but it put all these phenomena into a black box. Complexity theorydelves into that black box. How is it possible to get inside the black box? For example by findinganother way to conceive and interpret the dynamics of interactions between individuals andgroups. An example of this new way of thinking is fuzzy logic, which can be regarded as inquirywithin that black box, because standard logic is not sufficient to explain open systems. In acertain sense, Godel‟s undecidability theorem (which he restricted to mathematical logic) isapplicable a fortiori to all theoretical systems.But what is the object of complexity theory? Generally speaking, it is the relation betweensubject and object in the following terms: if a subject is situated in its natural eco-system, then itis possible to examine the biological traits of knowledge because cerebral forms of learning arein that environment. This approach leads to a sort of new unity of science: every science iscomposed of the interaction between the knower and the known as dynamic parts of the samewhole in which actions, interactions and feedback are considered in terms of logical patterns(standard logic is no longer sufficient) and empirical consequences (the well-known butterflyeffect).This unity of science is very different from the paradigm proposed by the logical positivismlaunched by the Vienna Circle, which “played the role of an epistemological policemanforbidding us to look precisely where we must look today, toward the uncertain, the ambiguous,the contradictory” (Morin 2008, 31). Moreover, logical positivism was based on physicalism (thebelief that all science ultimately reduces to the laws of physics) (Neurath 1931), which was a sortof reductionism to which complexity theory is strongly averse. In opposition to reductionism,complexity theory uses so-called emergentism,8 which was developed in order to counter thedualism between monism and dualism, or between objectivism and subjectivism. It was based onthe following assumptions: the category of emergence is able to explain any kind of reality and itcan be applied to living beings as well as to social phenomena; the rejection of ontologicaldualism and reductionism and the idea that beyond the whole and its parts there is somethingmore (a quid that emerges); the acceptance of evolutionary theory as regards biology. Theconcept of emergentism or emergence is older than that of complexity. John Stuart Mill was thefirst philosopher to used the term in order to explain some properties of dynamic realities(physical and social) (Mill 1843): the more modern concept of emergentism derives from thegeneral system theory developed by Ludwig von Bertanlaffy (Bertanlaffy 1950). From ahistorical point of view, the forerunners of complex system theory were nineteenth-centuryDarwinian organicists like Schäffle and Spencer. In 1938, Ablowitz defined “emergence” as anon-additive, non-predictable or deducible, hierarchical element: “the essential newness of thePageSome examples of emergences are the following: the V–shaped formation of birds when they fly together: this isnot planned or centrally determined but arises from each bird‟s behavior based on its position with respect to nearbybirds; communication among the members of a jazz band; some linguistic shifts in particular contexts like socialnetworks.48

theory itself lies in its emphasis on unpredictability, for in no previous philosophy has thisconcept been so central: it is thus a kind of philosophical analogue to the Heisenberg principle ofuncertainty in the behavior of electrons” (Ablowitz 1938 p.12), and, being aware of the possible“mystical” development of the application of emergence, he added: “however, like alcohol, it isstimulant only in proper doses: many who have used it have gotten drunk in the attempt to applyit to everything” (p.16).After World War II, cybernetics developed models of computational and communicationtechnologies. More recently, during the last two decades, more advanced developments incomputer technology have led to simulations of mathematically modeled social dynamics inwhich there are distinct computational agents for every individual (so-called multi-agentssystems) i.e. n agents in communication form an artificial society in which the global behavior ofa system “emerges” from the actions and interactions of agents. The main problem withemergentism is the proper definition of its ontological status, because its anti-reductionism mayimply dangerous forms of vitalism or idealism: some philosophers, Sawyer for example, solvethis problem by considering emergentism as a form

History of Political Economy Lunch Seminar Center for the History of Political Economy, Duke University December 4, 2009 Warning: this is not a paper but a note. It is based on my two months’ stay with the Chope group working at the Perkins library and archive. As a work in progress, it is supposed to be improved or completely changed during the following months of my stay. More than a note ...

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