Consider what it would mean for human evolution to tend toward a final state. No biologist would ever say that we need to have a concept of a “fully evolved” human to understand the process of evolution. It would also seem questionable to attempt to explain evolution as a process “tending toward” such a being. That would necessitate both constructing the being and explaining the process. Similarly, the evolutionary process in economics does not refer to an end-state, but instead explains how creativity leads to complexity, while retaining a sufficient degree of coordination to make the complexity beneficial.#
The equilibrium benchmark can only be justified if we take “equilibrium” to mean market clearing, rather than general equilibrium. Certainly market clearing is essential for a theory of market order. In any given market there is a tendency for supply to meet demand, but this is quite different from the mechanical metaphor of equilibration. While equilibrium implies market clearing, market clearing does not imply equilibrium, with all of its questionable assumptions. #
Market clearing arises when quantity supplied equals quantity demanded. Market equilibrium is achieved when the above holds, as well as an equality of marginal rates of substitution across all goods and factors, thus allowing price to equal marginal cost.#
Since the scientific goal in interpretative sociology (i.e., praxeology) is Verstehen, not prediction and falsifiability, broadening of the concept of rationality to near tautological status does not present the problem it would in alternative concepts of science. #
Economic calculation provides economic actors with vital knowledge which enables the social system of production to separate endeavors which are economically feasible from those which are technologically feasible.#
We did not design rules through our reason, but rather we developed reason because we followed rules. This is not conservatism, because no social rule is exempt from our critical scrutiny, but it is a position which insists that the critique must of necessity always privilege some rule context while holding others up for examination – it is impossible to step outside of all context and employ reason. The critical rationalist, as opposed to the rational constructivist, realizes that social experimentation takes place against a backdrop of the customary beliefs and traditions of society. Experimentation cannot be of the root and branch sort, but instead is limited to bold acts on the margin which, if successful, often loop back and mutate previously held beliefs, thus leading to social change.#
Despite the formal similarity of the choice problem across time and place, the fact remains that the institutional context of choice changes the margins on which economic decisions are based.#
Markets do not need a de jure sanction to exist, but, for market activity to serve as the basis of general economic prosperity in a given society, they must exist within a body of law. Political institutions and the structure of law provide the framework for economic behavior.#
Where Hayek differs from the extreme public choice interpretation of the incentives within politics is how ideas (by changing the social infrastructure) can change the incentives that officials face in policy decisions. In this regard, Hayek blends ideas and interests together in a more subtle manner than is available in the textbook treatments of public choice theory, and he does so in a manner akin to Buchanan’s important distinction between pre- and post-constitutional levels of analysis.#
The argument that cuts against the case for conceiving of the economic problem that society confronts as one in principle capable of solution through centralized planning is strikingly similar to the one that cuts against conceiving the mind as a hierarchical system under the command of a single unifying will.#
General equilibrium theory was able to capture in abstract form the interconnectedness of all markets in an economic system, but it did so at the cost of assuming away the processes through which the division of knowledge in society is coordinated so that the interconnectedness can be realized. . . . Similarly, work in hard AI is able to replicate the mind as a ‘thinking machine’ and the interconnectedness of different parts of the brain, but at the cost of losing the human attributes of meaning and intentionality.#
Problems of computational complexity can be solved through advancements in computing technology; problems of the contextual nature of decision-making cannot be addressed outside an examination of the institutions within which those decisions are being made.#
Humans are able to zero in on relevant features of their environment and ignore the irrelevant features precisely because they experience the objects of the world as already interrelated and full of meaning.#
Schooling is not the answer any more than technology transfer unless members of the indigenous population are secure in their knowledge that if they place a bet on an economic idea, they will be able to reap the rewards should that bet pay off.#
The visible manifestation of underdevelopment is poverty and its immediate cause is lack of saved capital. The underlying cause, however, is the lack of credible institutions in the realms of politics, law, economics, finance, and society. This lack of credible institutions manifests itself in the inability to ward off predation by either private or public actors. Perhaps one of the most important empirical lessons we have learned from the transition from socialism and the problem of development assistance more generally is that efforts to supply the saved capital in terms of loans are counter productive except in areas where credible institutions which constrain predation are already in place.#
Technological change [is] actually accorded too much attention in the economic theory of development. Technology does not work itself but must always work through an investment of capital.#
Society functions best when the need for the policeman is the least.#
Privatization without price liberalization, or price liberalization without tight monetary policy, or deregulation without fiscal restraint, would all result in outcomes even less desirable than the current system.#
Since money is the link for almost all transactions in a modern economy, monetary distortions affect those transactions. The goal of monetary policy, therefore, should be to minimize these monetary distortions, precisely because money is nonneutral.#