In spite of the important discoveries made by Adam Smith and later by the economists of the Austrian School, Friedrich Hayek remained intellectually challenged by the miracle of the price mechanism. As it turned out there was still some pioneering to do in describing the price mechanism. This became clear when Hayek identified the dispersal of information relevant to exchange transactions as the central issue of economic study. In the context of his distinction between competition as a state of things (...) and as a process the price mechanism manifests itself as a powerful integrator of information which is at first sight hopelessly dispersed in modern society. In 1945 he pointed out another intellectual challenge which the miracle of the price mechanism poses: How could such a marvelous functionality come into existence? “I am convinced that if it [the price mechanism] were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind”. It is precisely because the free determination of prices is obviously not an invention, and because actors on the market in general do not realize that their decisions are at once also signals for the information-processing system that the market is, that in general this market order is not highly estimated. The market order is nevertheless the best illustration of the dual principle that the most beautiful forms of complex functionality are not deliberately created and are not deliberately maintained. (shrink)

This paper examines two paths by which F. A. Hayek’s work has influenced the cognitive theory of institutions: cognition and cultural evolution. It argues that there is a relationship between the sensory order and the social order. The explanation of social order begins with the human mind. This is illustrated with ideas relating to understanding culture from a cognitive viewpoint. Human cognition makes cultural evolution an endogenous process. The paper draws on ideas of co-evolution of individuals’ mental models and their (...) actions. Mental models can be modified by feedback from altered perceived reality as a consequence of peoples’ altered actions. A key to understanding cultural evolution is an understanding of how individuals modify their mental models. (shrink)

The economists of the Austrian School count among the most consistent supporters of methodological individualism, but they were for the most part strongly opposed to clearly anti-holist trends such as constructivism, reductionism, and positivism. This article discusses why the sort of methodological individualism defended by the Austrians could not, for interconnected reasons, be rendered compatible with any one of these philosophical trends. The manner in which the Austrians managed to reconcile their analysis of economic mechanisms with a strictly subjectivist approach (...) is especially considered. The discussion also underscores some ambiguous dimensions of the debate between holism and individualism. (shrink)

If harm is restricted to mean perceptible damage suffered by an agent against his wishes, so that his mere dislike with no evidence of injury is excluded, then Mill's liberty principle arguably is ‘one very simple principle’ as he claims. But even so, what of John Gray's charge that the liberty principle relies on a ‘radically defective’ notion of individuality or autonomy that is incompatible with every civil society's cultural and moral traditions? If he is correct about this, then Mill's (...) principle lacks appeal even if it can be stated in a definite and coherent manner. (shrink)

The application of evolutionary ideas to socioeconomic systems has been an increasingly prominent theme in the work of Friedrich Hayek, and the motif has become dominant in his recent book. In an earlier issue of this journal, Viktor Vanberg raises two substantive criticisms of Friedrich Hayek' theory of cultural evolution that invoke some important questions concerning use of the evolutionary analogy in social science.

Hayek's social theory presupposes that rules are unintended consequences of individual actions. This essay explicates one kind of Hayekian explanation of that claim. After noting the kinds of rules that Hayek believes are subject to such a theory, the essay distinguishes three functional explanations advocated by Hayek. He combines one of these functional explanations with an invisible hand explanation. A schema suitable for constructing invisible hand-functional evolutionary theories is employed to outline this combination.

F.A. Hayek’s theory of cultural evolution has often been regarded as incompatible with his earlier works. Since it lacks an elaborated theory of individual learning, we try to back his arguments by starting with his thoughts on individual perception described in his Theory of Mind. With a focus on the current discussion concerning biological and cultural selection theories, we argue his Theory of Mind leads to two different stages of societal evolution with well-defined learning processes, respectively. The first learning process (...) describes his Morality of Small Groups, in which Hayek’s thoughts coincide with learning theories that do not allow for the perception of behavior from outside the group. His second stage of cultural evolution, the Open Society, involves a different kind of learning behavior. We connect this notion with a model of local interaction in which the cultural learning aspect is addressed by a distinction between interaction and learning neighborhoods. This results in a situation in which individuals change their strategy and —depending on the radius of interaction and learning neighborhood—eventually may adopt new strategies that lead to higher payoffs. (shrink)

This article discusses the challenges raised by the inclusion of evolutionary elements in the theories of Carl Menger, Joseph Schumpeter, and Friedrich Hayek. Each adopted an idiosyncratic position in terms of method of inquiry, focus, and general message. The breadth of the topics and phenomena they cover testifies to the great variety of interpretations and potential uses of evolutionary concepts in economics. Menger, who made no reference to Darwin’s theory, advanced an “organic” view of the emergence of social institutions. Schumpeter (...) elaborated an original theory of industrial development based on the recurrent emergence and dissemination of innovations. Hayek adopted the biological notion of group selection and made it the central element in his theory of cultural evolution and the rise of the free market. The chapter concludes with a preliminary evaluation of the possible role that evolutionary theorizing might play in the future development of Austrian economics. (shrink)

This paper traces the historical origins of Friedrich A. Hayek's theory of cultural evolution, and argues that Hayek's evolutionary thought was significantly inspired by Alexander M. Carr-Saunders and Oxford zoology. While traditional Hayek scholarship emphasizes the influence of Carl Menger and the British eighteenth-century moral philosophers, I claim that these sources underdetermine what was most characteristic of Hayek's theory, viz. the idea that cultural evolution is a matter of group selection, and the idea that natural selection operates on acquired as (...) well as on inherited properties. (shrink)

ABSTRACT: The economists of the Austrian School count among the most consistent supporters of methodological individualism, but they were for the most part strongly opposed to clearly anti-holist trends such as constructivism, reductionism, and positivism. This article discusses why the sort of methodological individualism defended by the Austrians could not, for interconnected reasons, be rendered compatible with any one of these philosophical trends. The manner in which the Austrians managed to reconcile their analysis of economic mechanisms with a strictly subjectivist (...) approach is especially considered. The discussion also underscores some ambiguous dimensions of the debate between holism and individualism. (shrink)