Complexity and economic laws

In the 1960s, Hayek argued that: “in the field of complex phenomena, the term” law “, as well as the concepts of cause and effect, are not applicable”. Regarding “The Theory of Complex Phenomena”, Hayek warned that in the case of complex phenomena, the scientist must give priority to the development of theoretical assumptions, instead of privileging empirical tests. The economist perceives the market system as a complex system in which the coordination process of decentralized individual plans takes place.

According to his approach, cognition and evolution are social phenomena intertwined in a historical process. His cognitive theory plays a relevant role in explaining how institutions, traditions and behaviours cannot be inherited, but are learned through education and experience. His interest in the study on the recurrence of behavioural patterns is crucial to understand the conceptualization of a complex system as a coherent structure, where a complex pattern of behaviour has produced the properties that maintain the structure itself.

Hayek also highlighted the erroneous role of statistics in understanding complex economic phenomena. In his view, the applicability of statistics eliminates complexity because it does not require information about how different elements with different attributes are related and ignores the structure in which the different elements are organized. On the other hand, statistical methods treat individual elements as systematically unconnected and disregard the relevance of the relative position of different elements in a structure. This is possible because the main underlying assumption is that information about the numerical frequencies of the different elements of a complex structure is sufficient to explain phenomena. In short, according to the Austrian economist, the applicability of statistics is irrelevant to the solution of complex problems, in which the economist needs to consider the relationships between individual elements with different attributes.

 Hayek bleives that the goal of a theory of social phenomena is to build a theory about complex structures. In this attempt, no amount of statistical information can be used to build this theory, because statistical techniques say nothing about structure. In fact, Hayek pointed out that the emphasis on objective knowledge related to statistics in economic thinking and research has neglected an understanding of the nature od economic systems where complexity, evolution and knowledge are intertwined. His theory of evolution describes only a range of possibilities, that is, this theory does not aim to verify all the facts that will contribute to determine particular outcomes. In short, the way the theory deals with the forces of pattern-building cannot predict which new forms and the particular circumstances that will determine the selection of types that will survive. Therefore, economic theory can describe types of patterns that depend on certain general conditions, but it can rarely derive any prediction from specific phenomena.    

This theoretical and methodological perspective has relevant implication for the analysis of a complex economic structure. By discovering “laws” is a characteristic of theories of simple phenomena, complex phenomena are not associated with a single “law”. Indeed, a “law” would be valid only for a particular and constant set of values of parameters.  However, if the parameter values are continuously variable, an infinite number of particular “laws” can arise.

 In view of this, economists should rethink the relationship between complexity and economic laws in order to rethink ideas and practices regarding the Economics curriculum.

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5 thoughts on “Complexity and economic laws

  1. It’s interesting that many social scientists, including economists fail to recognize complexity and emergence let alone include them in their work as social scientists. Interesting since these processes (yes, processes) are literally the basis of human life and culture. It’s like studying human blood without ever looking at blood or knowing where it can be found.

    1. Hi Ken,

      I agree. An evolutionary theoretical approach to economics should consider the concepts of complexity and emergence. Emergence can affect the evolution of laws, that is why emegence adds complexity to the economics systems. Hayek was aware of this in the understading of his spontaneuos order of the market. He also realized the role of institutions and culture in shaping the market!
      I am developing some ideias on the semiotics of markets( Not a semantic one but a Peircean one). I find this is deeply linked to complexity in Economics

      All the best

      Maria

  2. Is it worth paying attention to the statements of a person who considers the economy difficult? If he considered the economy not understood or not fully understood, then it would be possible to find out why not understood? This would be the rationality of reasoning. But on the whole, I agree with the conclusion that the economy is subject to the laws of simple phenomena. Economics is simple but not understood.

    1. Thanks for your comments. This blog tries to develop some ideas on why Economics is not understood. For us this is related to the current economics curriculum. Indeed, there are many dimensions to be considered, but the role of empiricism and Logical positivism in Economics is at the center of the dissociation between Economics as a science and the real world.

      Maria

  3. To my regret, I have almost no misunderstanding of economics. But I understand it completely differently from orthodox economists. The thing is, I treat economics as a science of profit and not otherwise. I would be glad to state my point of view on the laws of economics, which, by the way, do not depend on conditions. You can send me your questions to avrilakskyherbert@gmail.com

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