Journal on Policy & Complex Systems Volume 4, Number 1, Spring 2018 | Page 171

Journal on Policy and Complex Systems

mechanism that enables individuals in an economy to self-organize into a state that solves their coordination problems .

Global Political Economy in a Complexity Frame

The Keynes – Hayek debate for a

their differing responses to the problem of the business cycle and GDP . Keynes thought we could manage our way out of it by stimulating demand , until the level of investment would be sufficient to surmount the “ economic problem ” itself and provide permanent abundance . His conception of the economy was fundamentally derived from mechanical notions of order . This is captured in his famous remark , that the job of the economist of the future will be no different from that of a dentist .

Pessimism was Hayek ’ s compass . He believed that when relative prices changed because of the “ natural ” forces of technology , tastes , time preference , etc ., the ensuing adjustments would enable a coordinated plan . But monetary stimulus distorts the signals or relative prices needed to formulate a coordination plan by distorting the rates of return on certain types of economic activity ; and those abnormal rates of return can only be sustained as long as additional monetary stimulus continues . This is not a stable equilibrium , so eventually every boom will be followed by a bust .

Conclusion : Is the Road to the Future Mechanistic or Organic ?

In the thinking of both Keynes and

Hayek the economy operates in a probabilistic manner . Keynes wrote about animal spirits , herd instincts , and the irrational compulsion toward hoarding through which he thought an economy could take on a life of its own and thus show organic life . However , his optimism stemmed from confidence that an economy , like a mechanism , could be “ controlled ,” that its parts could be engineered for maximum efficiency , and that constant economic growth could be similarly engineered with the appropriate sets of policies . He did not believe in wholesale social engineering , but in piecemeal , gradual reform and feared that social engineering could also be used for evil .

Hayek likewise believed that an economy is organic , but an “ organism ” that could never be controlled with tools based on rational mechanics ( for no matter how sophisticated the tools , they could eventually be exploited ) and whose every cycle of renewal will be followed by a bust . ¹¹ Hayek ’ s pessimism came from his doubts that humankind

would ever possess the mechanisms or knowledge to control the self-organizing cycles of economic growth and decline . He had a sense of what scientists

11 For example , Hayek believed that monetary expansion during downturns artificially raises the rates of return on certain types of economic activity , and that return rates can only be sustained as long as additional monetary stimulus is forthcoming .

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