Thursday, October 14, 2010

Boettke on complexity and order in economics

Peter Boettke always has an intriguing way of looking at economics. Here he presents a 2x2 matrix to classify economic perspectives:

"The rows reflect the problem situation we are find ourselves in (simple or complex), the columns reflect the outcome of our interactions (order or disorder). Neoclassical economics is found in the simple/order cell; Keynesian and market failure theory is found in the complex/disorder cell; Marxism and critics of economics are found in the simple/disorder cell. What does that leave? The complex/order cell and that is the intellectual home of the Classical economists such as Smith-Say, the Austrian school from Menger to Mises to Kirzner, and the New Institutional school of Alchian, Buchanan, Coase, Demsetz, North, Olson, Ostrom, Smith, Tullock and Williamson, etc."

To him I'm sure this makes a lot of sense, but it sounded a little odd to me. It seems to me that the only thing putting Keynesian and market failure theorists into the complex/disorder cell is the fact that they don't have a "best of all possible worlds" view of the economy. But is the economy an ordered array of human action for them? Absolutely it is! I wrote in the comment section that where I could see Austrians and Keynesians in different cells is if the matrix was a simplicity/optimality matrix. But in a simplicity/order matrix it seems like Austrians and Keynesians should both be in the complex/order cell.

I would have thought the Nobel prize would have sealed this point. What is search and matching theory if not a market process theory?

I have more thoughts in the comment section of Boettke's post.


  1. The terms order/disorder are a little vague to me so I'm not sure how to evaluate Boettke's position, or yours. Does this mean something like deterministic vs. non-deterministic?

  2. It means:
    free market = paradise or animal spirits.

  3. "What is search and matching theory if not a market process theory?"

    Good point. I'm only familiar with search theory through its application to monetary economics (Kiyotaki and Wright). But sometimes I'm astonished how close search theorists get to a Mengerian/Austrian view of money.


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