Keynes , Hayek , and the Roots of Complexity Theory in Economics
solution to the problem of information asymmetry . Keynes believed the solution required deliberate engineering , Hayek that it was a naturally emerging property of free social intercourse . Subsequent economists thought that such a state was an equilibrium condition toward which economies naturally trended . But neither socialist nor capitalist economies , according to Joseph Stiglitz in Whither Socialism ? ( Stiglitz , 1994 ), will ever solve that problem .
From the perspective of recent findings about social organization influenced by complexity theory , there is inconsistency in the thinking of both Keynes and Hayek . For Keynes , human behavior is not mechanistic , and because of human irrationality the economy operates in a probabilistic manner ; yet he defines the role and influence of economic policy on human beings in mechanistic terms .
Where Hayek ’ s thinking diverges most from current findings in complexity theory is the presumption that social movements start at the top and then spread downward from the heights via the efforts a small group of influential players . Keynes also held the belief that change begins at the top due to the influence of rare , highly connected people with the capacity to spread their memes throughout society . Belief that a small minority of opinion leaders has an undue influence on everyone else has been conventional wisdom in many fields . Yet research on social networks by Duncan Watts and others reveal that information travels through more dispersed and less easily programmed channels ( Watts & Dodds , 2007 ). Ideas will propagate in society because of the way the networks in which they travel are constructed . This perspective has given rise to research that focuses less on who people influence or on the independent behavior of the influential few , and more on networks and the self-organizing processes to which networks are prone .
Economist Alan Kirman concludes that “ Hayek did no better than those he opposed in explaining precisely how the system self-organizes into a satisfactorily coordinated state . So , curiously , Hayek ’ s premonitory vision of a complex system ran into exactly the same problem as that which blocked the progress of general equilibrium — the lack of any mechanism that would bring it into ( in his case ) a coordinated state and , in the case of general equilibrium theory , an equilibrium state ” ( Kirman , 2016 , p . 556 ).
General equilibrium theory became the lens through which economists since the 1970s have assessed the change processes in an economy . In the mainstream models , uncertainty is exogenous and change is additive . An unwarranted assumption persists : that unfettered agents can achieve adjustments that will restore the economy to an equilibrium state . Thus the Bretton Woods institutions advocate structural adjustments and stabilization policies to bring actual economies around the world closer to an idealized , efficient state . But this leaves the coordination problem still fundamentally unsolved . Economists still struggle to find the
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